Heralding a new competitive era for the nation's railroads, the Interstate Commerce Commission announced a major change yesterday in its age-old merger policy that will permit newly merged railroad systems to offer lower prices and better service than their competitors.
In a unanimous decision that could radically affect the way freight is shipped across the country, the commission ruled that all merged railroad systems--even those approved by the ICC since the 1920s--no longer should be barred from lowering their rates or offering faster trains. These requirements had been imposed on most merged railroads over the past 60 years to guarantee that the mergers did not adversely affect the financial health of the lines not involved in the consolidations.
But reflecting the changes in its regulatory philosophy, the ICC now has concluded that these protective requirements "are anticompetitive and contrary to the public interest."
What's more, the commission said, the requirements "tend to keep rates artificially high" and "often eliminate price competition entirely by preventing carriers from reducing rates on more efficient routes."
Noting that the commission's role no longer is to protect each and every railroad but rather to foster competition, the ICC said it won't impose such protective requirements in the future.
Additionally, it said on July 1 it will cancel all the conditions imposed in earlier mergers--unless a railroad can prove that the protection is needed to assure essential service and such protection will not impair the operations of the merged railroad.
This decision "means that consolidating railroads for the first time will be in a position to pass along to their customers more of the benefits made possible by mergers," commented ICC Chairman Reese H. Taylor Jr. Although the commission does not know how much money will be saved by this ruling, Taylor predicted that the benefits will be "substantial."
The decision was immediately hailed by some of the large railroads that now will have a great deal more flexibility in their operations.
"We view this as a procompetitive development," said a spokesman for Burlington Northern Inc., the product of several mergers.
However, this new policy could pose problems for smaller railroads, which have depended on this and other conditions to remain viable in the face of increased competition from much larger rail systems.
The new policy was not surprising to many railroad experts because it made official the course the commission has started to put into place over the past two years in a series of rail-merger decisions.