No need to fix a freight rail system that is thriving
By Anthony B. Hatch

Tony_Hatch_photo_150x150Today, America’s freight rail system is the envy of the world. Thirty-five years ago, it was in shambles, and many of the nation’s railroads were near bankruptcy. In one telling measure of the industry’s condition — and a metaphor for freight rail at the time — stationary freight cars routinely fell off the rails because of rotting crossties.

Then Congress passed the Staggers Rail Act of 1980, a defining law that allowed for partial deregulation of an industry skewed by a century of regulations that had created severe inefficiencies. This legislation breathed life into a dying patient.

With that second life, railroads are thriving today, and operations are safe, efficient and robust. Deregulation enabled productivity to surge, and the resulting lower rates and vastly improved service attracted large volumes of new traffic. Railroads, and their customers, benefited greatly. An industry long given up for dead took 19th-century technology and updated it to become a 21st-century global leader. The freight rail industry has never been healthier, and 2014 was the safest year on record.

So one might wonder whether those pushing a new tide of regulation have forgotten how far we’ve come. The rail renaissance of the last few decades should serve as their sobering reminder that rail is working.

The industry is under threat from U.S. regulators weighing a proposal that would smother freight rail growth and have a cascading impact on freight rail’s ability to deliver goods and products. This nimble and market-responsive industry would be stopped in its tracks.

At issue is a proposal from a small group of rail customers seeking to lower the price they pay for freight rail service under the guise of competition. The proposal would require that at least two Class I railroads be available to compete for freight carloads, even if the tracks of only one railroad serve a shipper’s facility.

Simply put, forced access is a bad idea.

First, there’s the economic cost. Forced access would slow rail shipments across the network, injecting increased complexities and inefficiencies into the network. This change would impact businesses coast to coast and beyond in the global economy. Then, there’s the huge costs that would be required to maintain and operate a rail network that provides “competitive switching” service for all customers.

Such regulatory tinkering and forced faux competition would usher in an era of financial uncertainty. At the most basic level, the rail network would require more resources to move the same amount of freight in a time of very tight capacity, swiftly returning the industry to the dark days of gross inefficiencies.

Rail industry leaders say that forced competition could mean an annual revenue loss of $7.9 billion. Rail companies would have less money to maintain and expand the nation’s 140,000-mile rail network. This year alone, America’s freight railroads intend to spend $29 billion of their own funds to grow and maintain the network. That type of investment would wither, and rotting crossties would surely follow.

The Economist has noted that the American freight rail system is “one of the unsung transport successes of the past 30 years” and is “universally recognized in the industry as the best in the world.” The industry’s track record earned this praise.

Now, the patient who was once on life support is healthy, strong and growing every year. Let’s hope that regulators considering a different path forward instead apply this age-old maxim: “First, do no harm.”

Anthony Hatch has over two decades of experience as an analyst and financial consultant for the transportation industry, including freight rail.

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