Freight rail: An American free-market success

The U.S. freight rail industry is among the most successful comeback stories in American history.

By providing safe, reliable and cost-effective transportation for goods and services, U.S. freight rail is the envy of the world. And through its massive investment in rail infrastructure, it is considered a model for how private companies can provide sweeping public benefits. Yet some in the federal government and private sector are looking to derail that significant progress.

Freight rail’s remarkable record is all the more striking given the depths from which it rose. Indeed, one of the nation’s great economic success stories is the rebirth and subsequent flourishing of private U.S. freight rail companies, many of which had hovered near bankruptcy.

Freight rail’s ascent was not solely a function of business acumen. It was made possible by the foresight of thoughtful government leaders who stood aside and unleashed the transformational power of the marketplace through partial deregulation.

Clearly, partial de-regulation laid the foundation for the industry’s success. Subsequent federal involvement in rail economics honored the belief that a developed nation’s economic growth requires a top-notch freight rail system – one that is best provided by private companies in control of their resources, rather than by government.

Partial deregulation, made possible by the Staggers Act of 1980, enabled rail productivity to surge. This lead to lower rates that allowed freight rail to compete head on against other modes of transportation and attract large volumes of new traffic. The resurgent railroads catalyzed rapid growth in intermodal containerized trains, which facilitated a remarkable leap in U.S. trade across multiple industries.

The combination of ample cash flows and efficiencies created a transportation powerhouse that propelled other U.S. industries and overall GDP to new heights. The global superiority of U.S. freight railroads emerged from a balanced system of regulation that relies on market-based competition, with a regulatory safety net available to rail customers who need it.

But now the U.S. freight rail system faces perhaps its greatest threat in a generation. The federal Surface Transportation Board is considering proposals that would effectively reregulate U.S. freight railroads.

A handful of large companies is lobbying for the changes, which are nothing short of a cynical backdoor effort to lower transportation costs for themselves at the expense of a healthy freight rail industry that serves a broad spectrum of other customers.

These companies are seeking to use the levers of government to re-impose price controls. This is the equivalent of putting economic handcuffs on railroads, restraining their ability to generate revenue needed to expand capacity and modernize a system essential to thousands of companies across the U.S. economy.

The proposals would create an uneven playing field by undermining the industry’s ability to compete – by forcing railroads to open up their private property to competitors, or by setting artificially low rates for politically connected shippers.

Why should ordinary Americans be concerned?

Not allowing the market to set prices would mean a return to the 1970s, when rail was on the ropes and rail infrastructure was a dilapidated mess, and freight rail service for American companies was inconsistent at best and far from cost-effective.

For America to remain a global economic leader, rail should continue to compete in the marketplace. This way, we can ensure energy independence through rail transport of crude oil, allow U.S. companies to ship products to new markets and create jobs.

To learn more, visit www.aar.org