The freight rail industry is bucking a Biden administration proposal that would force it to share cargo with competitors in an effort to make shipping more cost-efficient.
President Joe Biden last July asked the chair of the independent Surface Transportation Board to consider the rule in order to allow shippers to seek competitive bids for moving freight. On Monday, the STB finalized the comment period and has scheduled a public hearing on the proposal for March 15.
The Biden administration, along with groups that ship commodities such as the American Chemistry Council, the National Grain and Feed Association and the National Industrial Transportation League, argues that the rule will lower the cost of shipping and, ideally, prices paid for by consumers during an era when supply chain logjams and inflation are top-of-mind.
But the rail industry, as well as some lawmakers on both sides of the aisle, argues that such a move would spur railroads to reduce their capital investments.
They say that if anything, cargo sharing would make shipping less efficient as railroads try to accommodate shippers who don’t typically use their infrastructure. And they say it would actually provide an advantage to truck freight, rail’s largest competitor.
The rule, said Ian Jefferies, president of the Association of American Railroads, is “completely wrongheaded.”
“Why on earth would another federal agency knowingly gum up rail operations?” he asked. “Why would you do anything that would be antithetical to maximizing goods’ movement?”
Jefferies said the current system is “not perfect,” but 80 percent of rail traffic has been deemed competitive. For the remaining 20 percent, he said, the board would be better served by addressing problems on a “case-by-case basis.”
In testimony to the STB, his association called the potential rule “misguided” and “unlawful.”
“The Board’s charge from Congress is not moving money from one industry’s pocketbook to another’s,” it said. “Why should the Board even want to boost the profitability of, say, chemical and industrial shippers at the expense of railroads?”
In calling for the rule, Biden is resuscitating one first requested in 2016 but abandoned during the Trump administration. That rule came after a 2011 request by the National Industrial Transportation League, which argued that certain shippers with access to only one freight railroad should be granted access to a competing railroad, which would carry their cargo for transfer to a preferred carrier if an interchange is within 30 miles.
The proposal came with guardrails specifying that the STB could reject switching agreements deemed unsafe or impossible, and that the STB would have to agree that the arrangement would create competition and be in the public interest.
While railroads can voluntarily agree to such switching practices, sometimes because of legacy agreements between shippers and railroads, and sometimes as a result of concessions created out of railroad mergers, the proposal would allow the federal government to force the issue.
Canadian experience
Scott Jensen, director of issue communications for the American Chemistry Council, which backs the change, said the fact that railroads already engage in the practice means the switch would not be nearly as daunting as they make it sound. Canada, he said, has a similar arrangement in place, and “that network certainly has not crashed or gotten overly congested. In fact, it’s actually functioned quite well.”
Such an arrangement “does offer some competitive pressure, and it seems to work,” he said.
He and Jeff Sloan, senior director of regulatory and technical affairs at the council, say having the flexibility to switch lines would make a huge difference for shippers facing limited options.
“Shippers want their movement to be as efficient as possible,” said Sloan. “So it’s unlikely they’re going to request it if it’s going to lead to complications or delays.”
Max Fisher, chief economist for the National Grain and Feed Association, said increased competition would be “huge” to his association’s members, which often rely on long-haul shipping to get their product to the point of sale. Many of the association’s members live in rural areas and are captive to one shipper.
“In a highly consolidated and largely captive industry, this may be the best opportunity to create some semblance of effective rail-to-rail competition,” the grain association wrote in support of the rule.
Still a group of 91 Republicans in a letter to the Surface Transportation Board in July raised concerns that the rule would roil a highly competitive marketplace.
“Railroads operate in a highly competitive environment and are not guaranteed a slice of the freight transportation pie,” wrote the Republicans, led by Reps. Sam Graves of Missouri, the ranking member on the House Transportation and Infrastructure Committee; and Rick Crawford of Arkansas, ranking member on that panel’s Subcommittee on Railroads, Pipelines and Hazardous Materials. “Now is not the time to inject complexity, inefficiency and uncertainty into the marketplace with new regulation.”
That letter was followed in August by one from 39 Democrats who, while not citing the rule specifically, raised the issue of reduced capital investments.
“It is essential that the Surface Transportation Board (STB) not take any action that would undermine the ability of railroads to make these investments now and into the future,” the Democrats wrote.
Marc Scribner, a senior transportation policy analyst at the libertarian Reason Foundation, said the board is looking at data through 2010 in order to make its decision and said the board should at least consider updating its research before it makes a decision.
“They appear to be trying to move forward without having the facts they need in order to make an informed decision,” he said.
He argues that if the rule moves forward, it would give a competitive advantage to truck freight, which is likely to be increasingly automated.
“The trucking industry is very much looking to automate,” Scribner said. “And my worry is if [freight rail] is not able to earn adequate return on investments … [freight rail] is not going to make the investments to remain competitive in the long run.”
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