Why a new president and Congress must support smart freight rail policy

Ed Hamberger Bio HeadshotBy Edward R. Hamberger, president and CEO of the Association of American Railroads

No matter how this election turns out, an urgent task facing the new president and Congress will be stabilizing and strengthening an economy that is simultaneously defined by change yet consistently mired in lackluster economic growth.

Perhaps nowhere is that contradiction more clear than when it comes to freight rail. An industry that was reborn in the 1980s through regulatory reform and the empowerment of private enterprise, U.S. freight rail has seen historic growth in recent decades and yet faces an uncertain future today. To compound the problem, proposed government regulations are threatening to limit the industry’s ability to innovate and adapt.

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Freight rail faces new challenges
U.S. freight rail currently faces two formidable challenges. One of those is simply the result of shifting patterns in the economy that have brought massive change to the transport sector. Some of the once-profitable industries that railroads have traditionally served—particularly coal—are in decline. These shifts in the underlying structure of the economy have changed the character of the rail industry as well as the needs that the rail network will be asked to meet in the years to come.

Managing day-to-day rail operations when the whole industry is in transition is hard enough, but the task is being made even more difficult because of ill-conceived government policies that could undermine the railroads’ ability to provide the level of efficient service needed for a healthy economy.

Specifically, the Surface Transportation Board (STB) has proposed rules that would radically change the competitive environment by forcing carriers to turn their traffic over to competitor railroads. The STB proposed to take this action against railroads with no showing of competitive abuse and without any consideration of how such a ruling would impact the changing railroad industry.

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The STB also is proposing to reregulate the transportation of certain commodities, overturning an earlier decision that the commodities are subject to pervasive competition. It recommended this major reversal with no substantive proof of adverse changes in market conditions and even though none of the commodity groups had petitioned for reregulation.

Finally, the STB is considering a proposal that would cap railroads’ rates based on their overall level of revenue, a step that would effectively amount to government price control.

The impact of the STB’s changes would be far-reaching and would affect consumers, businesses and passenger rail lines from coast to coast. They would inhibit freight railroads’ ability to invest the funds needed to maintain the nation’s rail networks, expand their capacity, meet the needs of a growing economy and further improve safety. They would also endanger many national policies and goals [priorities of the federal government] that are tied directly to the efficiency and health of our nationwide freight rail system, including:

  • Improving the capacity, efficiency and productivity of freight railroads overall to aid a growing economy.
  • Increasing U.S. exports—and their shipment by rail as the most efficient transport means—and supporting jobs tied to exports.
  • Achieving U.S. energy independence through the rail transportation of domestic energy products.
  • Increasing freight railroad’s share of freight traffic to reduce congestion on our nation’s highways and lower CO2 emissions.
  • Ensuring reliable service for Amtrak passengers and commuters, because many passenger trains run on freight rail infrastructure.

A key task for the new president and Congress must be to put the brakes on a federal agency whose regulatory actions are needlessly placing one of the nation’s core industries at risk. Federal policy should ensure a smarter, pro-growth regulatory framework to boost an economy that sorely needs it.

What’s at stake
America’s freight rail system is an essential network that facilitates activity in literally all the nation’s business sectors, from energy, agriculture and consumer goods to forest products, chemicals and automobiles.

Our freight railroads help American industries succeed by assuring them an efficient and affordable means of moving their products to domestic and global markets they otherwise might not be able to reach. So this means a vast number of jobs quite literally ride on the freight rails.

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In fact, the major U.S. railroads in 2014 supported approximately 1.5 million jobs and helped facilitate $274 billion in annual economic activity. They also paid nearly $90 billion in wages and $33 billion in tax revenues, according to Towson University’s Regional Economic Studies Institute.

America’s freight rail system, in contrast to those of most other countries, receives virtually no taxpayer supported funding. Instead, U.S. railroads have invested more than $600 billion in the rail infrastructure over the past three decades, made possible by the fact that they can earn the revenues needed for continued investment. This has been in sharp contrast to the deteriorating condition of most publicly funded U.S. transportation networks.

In January, the new administration and Congress will be asked to ensure that the freight rail network, which plays an essential role in the nation’s economy, can sustain its efficient and well-managed and maintained transport system even in the face of tremendous change. Millions of jobs – and hundreds of billions of dollars of economic activity – depend on their answer.