Transportation issues can be a little tough to understand and at times, a bit arcane. That’s why ACC just released this new video to help illustrate how the lack of freight rail competition and outdated policies are negatively impacting the chemical industry, which employs nearly 800,000 Americans and is on track to invest more than $100 billion in the U.S.
Since the last major railroad reform legislation passed by Congress, the Staggers Rail Act of 1980, a series of mergers has reduced the number of Class I railroads from 26 to just seven as of 2001. With drastically reduced competition, railroad rates have surged 76 percent over the last decade—nearly three times the rate of inflation.
The lack of freight rail competition came under even greater scrutiny this year after new data revealed that, in addition to surging rates, freight rail premiums have skyrocketed as well—soaring 90 percent between 2005 and 2011, while the number of carloads shipped by rail dropped slightly. This data was compiled by a broad array of industry groups representing agricultural, manufacturing, and energy businesses, whose shipments account for more than two-thirds of all products shipped by rail. Each depends on affordable and reliable freight rail service to help remain competitive, boost exports, and create jobs.
The chemical industry specifically knows this all too well. In a recent survey, more than a quarter of U.S. chemical manufacturers reported that the lack of rail competition, escalating rates, and service problems have hindered their company from making domestic investments. One producer noted that, due to the high cost of freight rail in the U.S., his business routinely sources materials from Canada despite having a facility closer in the Southeast U.S.
This is not how free markets are supposed to work. If demand isn’t driving higher rates, what is?
Federal rail policies haven’t kept pace with these dramatic changes in the rail sector and have failed to fulfill the goals that Congress set forth under the Stagers Rail Act. Railroads have benefited from outdated federal policies that allow them to raise prices irrespective of demand or competition—rules that apply to railroads only and no other American industry.
The Surface Transportation Board, which governs rail rate disputes, hasn’t been reauthorized in 20 years. It’s time for a new system that relies on free-market forces—not government regulators or lawmakers—to dictate freight rail rates.
Increasing competition among railroads would help ensure that commodities, including grain, coal, fertilizer, steel, and manufactured goods, can be shipped efficiently to both domestic and international markets. We, along with a large group of shippers, support the adoption of policies to promote greater competition between railroads and to improve the efficiency and effectiveness of the Surface Transportation Board.
No one believes that we should return to the days of overly burdensome rate regulation. To properly tackle this challenge, we need to employ solutions that unlock more rail-to-rail competition.
Common sense solutions such as competitive switching, which has already proven to be beneficial to both the railroads and shippers in Canada, along with other practical reforms can help encourage greater market-based pricing, promote more reliable service, and reduce the need for government involvement.
Learn more about ACC’s rail transportation policy.