In a significant decision designed to enhance competition in the railroad industry, the Interstate Commerce Commission yesterday stripped the railroads of the antitrust immunity that allowed them to sit down together and set rates.
In ending approval of the collective ratemaking agrements, the ICC action is certain to alter significantly the way railroads set rates for carrying freight. No longer free to rely on agreed-to general, uniform rate increases for increased revenues, the railroads will be forced to focus their attention on setting differing rates depending on their individual circumstances and cost structures.
Presumably, as do other businesses, the railroads will take into consideration the competition and set their rates low enough to attract customers and high enough to make money.
The ICC decision, culminating proceedings that began almost four years ago, is based on its interpretation of the Railroad Revitalization and Regulatory Reform Act (the 4-R Act) of 1979. The commission said it was required to make sure not only that a railroad rate bureau agreement will somehow further the national transportation policy but also that the benefits of the agreement outweighed its anticompetitive effects.
Yesterday the commission said it couldn't make that finding. It specifically rejected the railroads' contention that the setting and maintenance of uniform freight rates helped achieve such goals as the promotion of economical and efficient transportation and the encouragement of reasonable rates.
"We believe that these goals are more effectively promoted by innovative ratemaking, price and service competition, and independent action by individual carriers," the ICC said.
"Collective ratemaking tends to inflate rate levels through setting of uniform rates acceptable to a majority of carriers, including the less efficient," the commission said. "It creates an atmosphere of consensus which discourages the establishment of innovative price and service options by individual carriers."
With increased competition, the railroads will have an incentive to price their services in closer alignment with the actual costs of providing those services, the ICC said, benefiting shippers, the rails and the public.
What yesterday's decision means is that railroads will be prohibited from collectively discussing in rate bureaus any proposals for genral increases for "single-line" rates, rates for freight that is moved between two points by a single railroad without connecting with another.
The railroads will retain the ability to discuss for the time being "joint rates," the rates set for freight that must be moved by two or more railroads.
But that authority will be sharply circumscribed. Negotiations on joint rates will have to be limited to the carriers that can "practicably participate" in moving the freight on a specific routing between two points, an ICC spokesman explained. Now, all railroads moving goods between two points on various alternate routings can all get together and set the rates.
Under the commission's decision, approval of all existing collective agreements will be ended in 60 days, or earlier if the railroads file appropriately amended agreements which conform to the ICC views, such as in the case of the joint rates.
The vote in yesterday's deicision was 5 to 2, with Robert Gresham dissenting in part and George Stafford dissenting totally. Even though the decision was made under provisions of the four-year-old 4-R Act, Stafford said the commission should have waited until Congress concluded its consideration of the pending rail deregulation measure.