BY CLIFFORD F. LYNCH
fastlane
1870 redux?
MARK TWAIN’S LOVE AFFAIR WITH THE
Mississippi River notwithstanding, for most
American transportation buffs, nothing comes close
to the romance of the rails. Almost since the first mile
of track was laid, the railroads have been immortalized in music and literature—not to mention toys.
What young boy hasn’t fantasized about holding the
throttle of a powerful locomotive laboring up the
eastern slope of the Rockies or speeding past the
prairies of Kansas or the buffalo herds of Wyoming?
“When I hear the iron horse make the hills echo
with a snort like thunder,” wrote Henry David
Thoreau, “it seems as if the earth has got a race now
worthy to inhabit it.”
But it seems that not everyone is enamored with the
railroads these days. We’ve been hearing a chorus of
complaints from shippers and organizations that
believe the rails are abusing their market power and
overcharging customers—particularly those with
limited or no service alternatives.
Congress has responded to their concerns. On
March 5, the Senate Judiciary Committee approved
the Railroad Antitrust Enforcement Act of 2009, a bill
that would rewrite the rules of the game. Among
other provisions, it would eliminate antitrust law
exemptions for railroads and change the way the
industry is regulated. Right now, the Surface
Transportation Board has sole oversight over the railroads’ rate activities. The new bill, which many industry watchers expect will ultimately pass, would extend
jurisdiction over rate cases to the Department of
Justice in addition to the STB.
Proponents of the bill argue that sweeping changes
are needed because rail carriers are exercising monopolistic power over captive shippers—those that are served
by just one railroad. They also charge that the current
system has failed to safeguard shippers’ interests. Bob
Szabo, executive director of the lobbying group
Consumers United for Rail Equity (CURE), was quoted
in a Reuters news story as saying, “The railroads have
unrestrained monopoly pricing power and the STB
protects the rails’ interests instead of their customers.”
The rail carriers deny that they are trying to take
advantage of anyone. They insist that they’re simply
trying to make a fair return and pay for capital expenditures made necessary by increased demand and
deteriorating infrastructure.
Ironically, many of these same arguments were
raised during a similar dispute back in the 1870s,
when a small number of railroads controlled the
movement of freight. That fight, which was sparked
by shippers who accused the “robber baron” rail owners of exploitation, ultimately led to the Act to
Regulate Commerce of 1887.
The difference is that then, those charges were true;
today, they’re not. Furthermore, we now have 100
years of proof that rail regulation doesn’t work. Since
1980, when many of the regulatory restrictions were
lifted from the railroads,
rates have declined significantly, productivity has
tripled, and much-needed
infrastructure improvements have been made.
While the current Senate
bill does not advocate total
re-regulation, it is considered by many, including me,
to be a dangerous first step.
Do captive shippers deserve consideration? Yes,
indeed. No system should give a carrier total control
over its customers’ destiny. Nor should an agency be
allowed to promote inequities.
But that doesn’t appear to be the case here. In fact,
the STB recently ruled against a railroad in a price dispute, finding that the BNSF Railway had charged
unlawfully high rates to move coal from the Powder
River Basin. The agency awarded the shippers in the
case $345 million in rate cuts and reparations.
The decision is under appeal, and ultimately, the
courts will decide the final outcome. But as it now
stands, it could hardly be described as a decision that
gives preferential treatment to carriers or as an
endorsement of monopolistic powers.
Clifford F. Lynch is executive vice president of CTSI, a supply chain solutions firm, and author
of Logistics Outsourcing – A Management Guide. He can be reached at cliffl@ctsi-global.com.
