The National Transportation Industrial League (NITL) just concluded its conference in Dallas to discuss U.S. transportation policies. Among the group’s highest priorities will be their efforts to “reform” economic regulation for our nation’s privately-owned freight railroads. Supporters of the organization and the Washington regulators they petition, however, should remember what has happened in the past and consider the future of onerous regulations, an impetuous one that could increase costs for consumers at the checkout counter.
The Interstate Commerce Commission (ICC) came to existence in 1887 as a means of preventing rail companies from setting abusive rates. But as regulations increased overtime and as interindustry competition with trucking and air transportation grew, that regulatory body became completely out of touch with the modern rail industry. By the 1970s, the railroad’s return on investment averaged far below the fair rate-of-return than other regulated sectors at a whopping 2.5%.
The railroad industry teetered on bankruptcy.
The ICC had big regulations: What could be shipped? Where could it be shipped? At what price? Trains were forced to travel by out-of-date, inefficient and unprofitable routes due to the laws that prohibited track abandonment. As the rail industry continued to deteriorate, transportation costs were spiking, increasing the prices of everyday products nationwide — all during a decade that produced the highest increase in consumer prices on record.
After considering the options of a federal bailout or nationalizing the industry, Congress opted in 1980 to end the pressing railroad regulations. What followed were unparalleled improvements in the industry that provided for robust service and financial standing.
Rail costs fell by half — and productivity tripled. Transportation costs decreased by 4 percent in the first two years: 20 percent in five years, and 44 percent in 10 years after deregulation. But most importantly, these reduced transportation costs led to lower-priced goods that resulted in billions of annual economic benefits for consumers. Instead of government intervention, railroads and shippers were able to conduct business through private contractual agreements, including a system to allow shippers to dispute rates.
Overall, rail cost reductions yielded 65 percent lower prices for shippers and, ultimately, consumers. In short, ending ICC’s onerous regulations led to more investment, lower shipper costs and lower consumer prices.
The ICC has been abolished now for over 20 years.
Now fast forward to 2015, when Congress reauthorized the U.S. Surface Transportation Board (STB), an independent agency tasked with regulating railroad rate and service disputes, as well as merger reviews. The STB proposed new regulations that would allow competitors to use another railroad’s assets and facilities — even at below market prices. These regulations would invite price regulation, cause shipping delays, raise rail costs, reduce productivity, and ultimately push more freight onto the interstate highways.
With the rail sector carrying 40 percent of intercity freight and touching virtually every segment of U.S. commerce, imposing such price and sharing regulations on the railroad industry would unquestionably lead to decreased rail investment and jobs. Moreover, higher industry costs would ultimately flow through to consumers in the form of higher prices.
As my colleague at the American Consumer Institute Alan Daley writes, “There are no excess profits, no lack of competition, no failing safety record, and no harm to consumers that justifies the STB’s current rush to socialize each railroad’s use of other railroads’ assets.”
Forty years of history tell us that the current regulatory process is working well. Policymakers and regulations should reject these needless and onerous regulations that would result in higher railroad costs, reduced investment, and higher consumer prices.
Steve Pociask is president of the American Consumer Institute, a nonprofit educational and research organization. For more information, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.
