Multiple efforts to remake the transportation sector and turn private freight railroads into a public utility via regulation will likely lead to higher consumer prices for goods shipped, encourage bad faith lobbing by powerful shippers, and reinstate onerous rules that were removed some forty years ago.
The idea is rooted in the idea that our nation’s railroads are monopolies that do not compete and thus need the government to supplant market decisions. The problem, however, is such a view of a market that continues to quickly evolve, particularly in the face of automation, is grossly outdated. A recent study shows freight shipping is significantly more competitive today than when heavy-handed regulations were imposed more than 100 years ago.
At issue is the industry’s common carrier obligation, a broad requirement that disallows railroads from refusing service requests. The standard is purposefully broad, recognizing that railroads aren’t monopolies nor are they electric utilities just spitting electrons from one end to another. Instead, they are managing a complicated network more like a broadband service provider than a water company.
Yet regulators and lawmakers alike are favoring approaches pursuing stricter control over what services rail freight providers must offer, the prices for those services and how freight rail equipment is deployed to serve their contracts. Legislation under consideration in Congress would expand the Surface Transportation Board’s (STB) authority to direct freight rail employment and equipment. Government would micromanage private enterprise to a scary level, including how many customer services representatives are needed for a given customer. All of this adds to costs and ultimately consumer prices.
While many have heard about the ambitions of the current Federal Trade Commission (FTC) to remake the economy, the less prominent STB favors the same central-planning mentality seen in the legislation and is currently weighing a case that would have much the same effect as the legislation without going through any of the proper channels of regulation. The supposedly independent agency seems particularly intent to use the case to pursue Biden’s broader “competition” agenda rooted in a general “big is bad” progressive mindset.
The case in question deals with the STB is ordering BNSF Railway to meet all demands of coal shipper Navajo Transitional Energy Company (NTEC) without any stipulations. They are being forced to grant capacity to NTEC with no regard for other major industries who need the same, limited capacity, even as some of these shipper speak out about the problems with such an approach.
Indeed, railroad companies do not have unlimited resources. When negotiated in the unrestrained market the needs of the customer, the rail operator, and other potential clients are all considered. The railroad companies, and not the STB, are better situated to judge their own capacity, capabilities, and needs of other their customers seeking service. Determining who a railroad company will serve and how it will do so by bureaucratic fiat removes the expertise of the railroad in its own business.
It is also vastly different than what Congress has long favored, which is that two parties settle these matters through private contract negotiations. “In addition to these legal issues, the Surface Transportation Board’s decision lacks a grounding in the economics that led Congress, courts, and this STB majority’s predecessors to develop the legal framework within which the agency is supposed to operate,” says expert Marc Scribner of the Reason Foundation.
Take a step back and the case is a good example of government gone wrong. Regulations that target only one mode of transport will only serve to make that mode less competitive compared to alternative transportation choices. This only further distorts the allocation of resources invested between modalities away from regulated modalities to those that are less regulated. That distortion will have negative consequences for industries, taxpayers, and the environment, as more trucks are needed to replace rail transportation. In other words, average Americans should care just as much as other coal shippers or farmers speaking out against the government’s costly actions.
With the growth of competition in the freight shipping industry, the justification for public utility-style regulations on rail shipping have long disappeared. Instead of treating modern freight rail as a monopoly, the STB and Congress should look for ways to streamline regulations, encourage investments and improve safety. This would ensure that rail freight options are competitively priced.
Removing the last vestiges of the monopoly regulations that freight rail once faced would benefit America’s supply chain, increase investment and intermodal competition, and ultimately lower consumer prices, as well as create a stronger freight transport system for the 21st century.
