Powerful New Independent Report to Congress Calls for Freight Rail Reform

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A compelling new expert report by the National Research Council (NRC) calls for fundamental reforms to modernize the nation’s freight rail policies. The report, requested by Congress and published by the NRC’s Transportation Research Board (TRB), adds to a growing body of evidence that new approaches are needed to better serve both railroads and rail customers. The TRB’s findings echo concerns expressed by a wide range of manufacturers, farmers, and energy producers and bolster many of the policy proposals advanced by the Rail Customer Coalition.

The report documents the dramatic changes in the U.S. rail industry over the last 35 years following the passage of the Staggers Rail Act of 1980, which eliminated many burdensome regulations and helped foster a far healthier railroad industry.  These reforms benefited not only railroads themselves, but also shippers, consumers, and the entire economy as productivity gains led to lower rates. However, the TRB report shows that the trend of falling rates seen following the Staggers Rail Act has reversed dramatically. In fact, real rail rates adjusted for inflation rose more than 25 percent from 2002 to 2013, and these increases “far exceeded growth in input costs.” Rates increased for all major commodities, with some products seeing hikes of 50 percent. This data bolsters the contention that railroad customers are no longer enjoying the benefits of market-driven rates and service as consolidation has stripped away competition in the railroad industry.

Furthermore, rail policies have not kept pace with these changes. In particular, the TRB report highlights major problems with the Surface Transportation Board’s (STB) ability to fulfill its mandate to maintain reasonable rates for shippers that lack effective competition. The TRB concludes that the STB’s rate review procedures have become so costly and burdensome that they are now “unusable by most shippers.” The system not only lacks a sound economic basis, it “has the effect of safeguarding railroad revenues by making it too costly for most shippers to litigate a case.” The TRB analysis eliminates any remaining argument that the status quo is working.

The report provides a set recommendations for establishing rail policies “suited to the financially sound railroad industry of today, not the foundering one that required rescue 35 years ago.” Specifically, the TRB calls for policy makers to—

  • Adopt more appropriate and reliable rate relief procedures
  • Replace current STB rate reviews with arbitration hearings to provide faster, more economical resolutions of rate cases
  • Stop issuing annual reports on the “revenue adequacy” of individual railroads and replace them with more useful studies of economic and competitive conditions in the railroad industry
  • Ensure that railroad mergers are subject to the same antitrust principles and procedures that apply to other industries
  • Provide regularly collected, usable data on railroad service quality

The TRB did not limit itself to small incremental proposals. Instead, its report addresses the big picture issues by suggesting several fundamental reforms that go beyond anything currently under consideration by Congress or the STB. For example the TRB calls for eliminating the STB’s role in rate reviews altogether and relying instead on an arbitration system. While such changes may not be politically feasible in the near term, the report also points to numerous near-term steps that could dramatically improve the process.

The TRB’s thorough, independent analysis makes a strong case for reform that is hard for anyone to argue against. In the words of the TRB, these proposals “would continue the process begun by the Staggers Rail Act – a process aimed at producing a modern, efficient, and competitive railroad industry able to attract capital, maintain and expand its capacity, and serve its customers with a minimum of regulatory oversight.”