News and Views

Multi-Industry Effort Moving Federal Rail Policy Closer to Reform

A Guest Editorial by Terry Whiteside

A century ago, farmers who were frustrated with the way railroads discriminated against agricultural rail shippers formed the Patrons of Husbandry. Popularly known as the Grange, its popularity of message grew so large that even the all-powerful railroad lobby was unable to prevent Congress from creating the Interstate Commerce Commission in 1887.

While not yet achieving the power of the Grange, a new multi-industry effort is underway aimed at reforming the freight rail industry in a way that, to this day, regulators have been either unable or unwilling to achieve. 

The Alliance for Rail Competition (ARC) was formed a little more than three years ago, specifically for the purpose of providing rail customers from all industries a mechanism through which they can impact federal policies on Capitol Hill. 

ARC’s philosophy is founded on the belief that rail customers ought to have the same rights as any other consumer—to choose among providers and levels of service that best meet their needs and budgets.  Such competition produces efficiencies, innovations and investments that are critical to ensuring not only the financial survival of the service provider in question, but the survival of its customers in an increasingly global marketplace.

Yet, the evolution of the rail industry has run counter to this competitive model, favoring instead to maximize its profits by gaining monopoly control over segments of its markets.  And for the railroads’ customers, this has translated into high transportation related costs (which for grain producers, is often reflected in your local market price) and unreliable and deteriorating service.

Through ARC, grain producers from all over the western U.S. have begun to bring their rail-related concerns before Congress, working hand-in-hand with other major industries that share the same concerns and similar views about the need for competition among railroads.  Our collaborative efforts are beginning to have an impact. With eight bills introduced last Congress, a number of hearings held and a growing congressional awareness of the anti-competitiveness within the rail industry, we are poised to achieve real progress this year. But the ultimate success of ARC’s efforts relies on increased involvement and collaborative advocacy efforts of all affected rail customer constituencies.

Why is this effort needed?
With the passage of the Staggers Rail Act in 1980, Congress lifted large parts of economic regulation with an eye towards allowing railroads the ability to more freely compete, and thereby curtail railroad bankruptcies that occurred in the 1970s.  Congress was also mindful, in that act, to direct regulators to protect shippers that did not benefit from market-based competition. In fact, Congress placed as a cornerstone of its national transportation policy “To allow, to the maximum extent possible, competition and the demand for service to establish reasonable rates for transportation by rail.”

But since 1980, we have witnessed dramatic consolidation within the industry.  Where there were once 40 large railroads serving the U.S., today, there are only four (BNSF, UP, CSX and Norfolk Southern).  These four railroads control over 95% of the ton-miles and produce 94% of the industry’s revenue. And rail regulators—first the Interstate Commerce Commission, and now the Surface Transportation Board—have consistently chosen to protect railroads from having to compete against each other.

Merger after merger was approved, with little or no regard to the impact such consolidation was having on competition. As a result of aggressively protecting railroads, virtually all agricultural shippers that cannot access another mode of transportation for either geographic or economic reasons have become captive to a single railroad.  As proximate carriers were swallowed up in mergers, the captivity of the rail customer increased.  

And the urge to consolidate is not yet over. There is concrete evidence that the handful of remaining railroads are lining up to merge into a two-railroad system that would control all North American rail freight movement. Currently, many rail customers already are under the thumb of their rail carrier. But should today’s policies remain intact with yet more consolidation, the situation for rail customers would be ominous.

What can be done? 
The answer lies in Congressional action to reintroduce competition back into the railroad industry. ARC is poised to provide rail customers with the tools necessary to press for such Congressional action.  The significance of the strength that has been developed by ARC and its coalition partners is paramount to agriculture.  For many years agriculture has fought its rail battles alone, as have the companies in the coal, chemicals, and plastics industries.  For the first time in the history of the U.S., all of the major rail customers have come together, put aside their individual differences and joined the battle under a single alliance.

Today, ARC membership is representative of coal-fired electric utilities, chemical and petrochemical manufacturers, grain groups, forest and paper manufacturers, steel and other rail-reliant industries.  In addition, ARC has been attentive to generating increasing involvement by working closely with organizations such as the American Chemistry Council, American Farm Bureau Federation, the National Farmers Union, the National Association of Wheat Growers, and the National Barley Growers Association.  And ARC remains committed to ensuring that the special needs and concerns of each rail-reliant industry are balanced in our advocacy efforts.

During the last Congress, our efforts enabled rail customers to apply enough political pressure to prevent the reauthorization of the STB, and to see the introduction of several pro competitive bills. This year, however, rail customers must rally a larger-scale effort that enjoys the support and participation of a growing number of rail customers from all affected industries—particularly agriculture.

While we continue to work to rally the forces for reform, ARC continues to work diligently with its Congressional supporters to devise a strong, politically viable legislative package.  We hope you will be there to help us generate sufficient political support to pass that legislative package into law.  If you would like more information about the Alliance for Rail Competition, you can check us out on the Internet at www.railcompetition.org, or give our offices a call at 202-216-9270. 

Whiteside, chairman of the Alliance for Rail Competition, is a consultant specializing in transportation issues, based in Billings, MT. He may be reached by email at twhitesd@ wtp.net, or by phone: (406) 245-5132.