Big and Small: There Is a Lot at Stake for Everyone When It Comes to Repairing Our Nation’s Freight Rail Policies

When the railroads claim that exercising their monopoly-like power only impacts a “narrow” group of big businesses, don’t believe it. Some of the hardest hit rail customers are small and medium sized businesses, including America’s farmers who are heavily reliant on freight rail.

Competitive switching, which simply allows a shipper to choose its service provider in limited circumstances, is already permitted under statute. However, the STB regulations put in place following the passage of the 1980 Staggers Rail Act made it virtually impossible for a shipper to access any railroad other than the one that directly serves their facility. The bureaucratic red tape invented by regulators has prevented any rail shipper from ever being approved for competitive switching.

As Bob Stallman, President of the American Farm Bureau Federation, explains, “All forms of transportation play a critical role in moving agricultural products, but farmers and ranchers can be especially dependent on freight rail.”

So it should come as no surprise that the agricultural sector is one of the biggest supporters of freight rail reform and a strong backer of competitive switching reforms. After the STB released a Notice of Proposed Rulemaking designed to reform their regulations around competitive switching Roger Johnson, President of the National Farmers Union, underscored the significance of the STB’s action to farmers, “Transportation of goods to market in a cost-effective manner is critical to our nation’s family farmers and ranchers. The Surface Transportation Board’s recently proposed rule on competitive switching is an important step in fostering fair and competitive shipping costs for the agricultural sector. NFU appreciates this action and looks forward to continued engagement with STB for the benefit of our nation’s producers.”

Richard Gupton from the Agricultural Retailers Association offered more support on behalf of the agriculture sector, “We appreciate the STB’s efforts to try to foster competition in the freight railroad industry. ARA believes this is a step in the right direction that will hopefully lead to more efficient and dependable rail service. Access to rail transportation through cost-effective switching between carriers is of critical importance to the agricultural industry, which is a seasonal business with retail- distribution facilities located in more rural areas.”

The U.S. Department of Agriculture has also recorded it support saying, “Competitive switching offers a market- based solution to balance the needs of the railroads and shippers and is in keeping with the goals of the Staggers Act.”

That is why the competitive switching proposals to open access to additional freight rail options have the strong support from a broad array of U.S. enterprises that depend on competitive and reliable rail service. In fact, more than 48 trade associations representing a broad range of manufacturing, agricultural and energy industries sent a letter to Congressional leaders urging them to support competitive switching reforms. As the letter explains, competitive switching works and it can work well for everybody, including the railroads:

“Competitive switching has been available for decades in Canada, and it works well. As stated by the Canadian Pacific Railroad, railroads that operate under Canada’s competitive switching system are “the two most efficient carriers in the industry today, demonstrating that a low-cost, service-focused carrier can increase revenues, operate efficiently, and reinvest in infrastructure in a competitive environment.” The notion that an improved competitive environment will damage the fundamental economics of the U.S. freight rail system is simply unfounded and runs counter to basic free market principles.”

So, don’t let the railroads sidetrack you. Freight rail reform is important to a great number of rail customers – both big and small.

STB Moves on Closing Loopholes for Railroads

The Surface Transportation Board (STB) recently concluded what rail shippers have known for the last 15 years: few commodities are spared from the railroads’ increased market power. Specifically, the STB recently proposed restoring access to the Board’s rate review challenge process for rail customers that have been left out in the cold because of arcane exemptions that the railroads currently enjoy for certain commodities.

In its announcement, the Board couldn’t have been clearer when it stated, “A number of factors suggest the transportation markets for these commodities have changed significantly since the exemptions were adopted, in ways that point toward an increased likelihood of railroad market power.”

The Board’s proposal comes more than five years after it received public comments and held a public hearing on the issue. The Rail Customer Coalition welcomes this change since it would close an important rate review loophole that has allowed railroads to take advantage of their customers without any access to recourse.

The foundation for the Board’s decision was its use of waybill data to show that certain commodity groups “may be subject to increased market power from the railroads.” The STB’s analysis shows that the share of potentially captive traffic and the average RVC ratios have increased for these commodity groups. This echoes the findings of our coalition’s economic research, which determined that freight rail rates are skyrocketing for many farmers, manufacturers, and energy producers that depend on the railroads. The question is no longer if the railroads abuse their market power but how much longer will it take the STB to fix this problem.

We are encouraged that the STB is taking this long overdue step, and we hope that this is an indication that the Board will adopt a series of reforms that have been under its consideration for years, including competitive switching and providing a workable rate review process.