Partial deregulation continues to transform freight rail
Q&A with Robert Gallamore

Bob_Gallamore_HeadshotThe freight rail industry was partially deregulated in 1980. To say that it was a catalyst that transformed the industry is an understatement, says Robert Gallamore, a nationally recognized expert on railroad and intermodal economics, technology and safety.

Early in his career, Gallamore was directly involved in proposals to deregulate and restructure railroads as part of an effort to breathe life into the then-ailing industry. As a Carter administration appointee, he led the development of recommendations for railroad regulatory reform, which resulted in the Staggers Rail Act of 1980 that partially deregulated the railroad industry.

We sat down recently with Gallamore to discuss the far-reaching impact of freight rail deregulation.

Q: How did partial deregulation of the freight rail industry come about?

A: By the time Congress passed the Staggers Rail Act of 1980, about a dozen of the nation’s railroads had passed through bankruptcy or government-sponsored reorganization in the 1970s. The condition of the rail infrastructure was so bad – and the financial predicament of the rail companies so poor – that it was difficult to keep freight and passenger trains moving effectively on much of the industry’s worn out track. Congress and the Carter administration believed that market forces could correct this untenable predicament. They believed that it would be difficult to reinvigorate the slumping U.S. economy when so fundamental an industry — and such a large employer — was in deep distress.

Q: How would you rate the success of partial deregulation of freight rail?

A: Thirty-five years after the Staggers Act, the transformational power of rail deregulation continues to shape and reward our economy. It not only saved U.S. freight railroads from further bankruptcies and liquidation, it became, almost miraculously, the catalyst that transformed them into what they are today, the envy of the world’s transportation systems. The fundamental achievement of partial deregulation was that it brought market-based principles to an industry forced into severe inefficiencies by a century of man-made regulations.

It removed the government from exercising functions and making decisions for which it was not needed — and which had distorted normal private sector business efficiencies for over a century. Partial deregulation enabled productivity to surge, and its yield of lower rates attracted large volumes of additional traffic. The new locomotives, rails, freight cars and signaling systems railroads purchased with the increased cash flows that followed deregulation brought with them new technologies that were stronger, safer, more energy efficient, and employee friendly.

Q: You mentioned productivity improvements. Explain how that rippled across the U.S. economy to other sectors.

A: It is no mere coincidence that nation’s longest economic expansion began after partial deregulation of the industry worked its magic. Revitalized railroads provided the foundation for rapid growth in intermodal containerized trains, which annually takes millions of trucks off the highways, saves shippers and consumers billions of dollars, and has facilitated remarkable growth in U.S. trade across multiple industries.

Rejuvenated railroads invested in new capacity to handle surging growth in western low-sulfur coal urged by the Clean Air Act and its amendments. They provided the network and resources that have enabled a renaissance in U.S. energy development — by moving large volumes of fracking sand to new petroleum and natural gas production fields, and carrying their crude oil to existing underutilized refineries — thus displacing foreign oil and helping lower world oil prices.

Q: On the table right now are proposals that would effectively reregulate the rail industry. What would their impact be if enacted?

A: One proposal involves the arcane calculation of a railroad’s “cost of capital.” A shipper-sponsored proposal would require annual railroad cost of capital calculations to be based explicitly on historic, depreciated investment costs, rather than looking at what it would cost industry firms to replace assets over a full economic cycle. This proposal would be devastating to railroad efforts to renew and expand capacity needed to support America’s future economy. Another giant regulatory mine field is a proposal that would require railroads to provide switching services for their competitors at regulated, below-market rates. This would vastly complicate rail operations, labor agreements, and, perhaps, compromise safety while reducing the money needed to expand capacity.

These types of proposals underscore and remind lawmakers and the administration not to forget the lessons of the last 35 years. Freight rail’s remarkable record is attributable less to government “fixing a problem,” than simply standing aside and letting markets do what they do incomparably well.

See how railroads are able to invest today thanks to deregulation.

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