Modernizing Freight Rail Regulation (2015) / Chapter Skim
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SUMMARY
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Implementation of the act's reforms was quickly followed by the restructuring and revitalization of the freight railroads, which shed large amounts of excess, uneconomic capacity; substantially increased their productivity; and introduced innovations that conferred large benefits on shippers in the form of improved service offerings and lower rates. By the late 1990s, the Staggers Rail Act had succeeded in spurring the development of a modern and more efficient railroad industry that was better able to compete with trucks, maintain and expand capacity, and respond flexibly to shippers' needs with less regulatory oversight and control.
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From page 2... ...
e Staggers Rail Act prompted the modernization of the freight railroads to the benefit of shippers generally, but questions have been raised about the continued applicability of some of its provisions to the financially stronger railroad industry that has emerged. When the act was passed, there was much uncertainty about how successful the reforms would be in rescuing a distressed industry that had been receiving growing government subsidies but whose services remained critical to many shippers.
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ese protections allow shippers to dispute a common carrier rate if it exceeds a statutory threshold of 180 percent of the shipment's "variable cost," as determined by STB through assignment of portions of a railroad's total expenses to individual shipments. Shippers that meet the threshold must then prove the railroad lacks effective competition and that revenues earned from the disputed rate are unreasonable because they exceed the amount required by the railroad to keep providing the service.
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MAXIMUM RATE PROTECTIONS e committee finds that more appropriate, reliable, and usable procedures for resolving rate disputes are needed to fulfill the regulatory interest in protecting shippers in markets that lack effective competition from unreasonably high rates. e methods used by STB to assign variable costs to shipments by allocating portions of a railroad's total expenses are economically invalid and produce unreliable results because most railroad costs are shared by traffic and cannot be unambiguously divided and allocated to individual units of traffic.
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e demonstration of a benchmarking methodology in this report suggests that screening rates for relief eligibility on the basis of rates paid for comparable shipments in effectively competitive markets holds sufficient promise to warrant a concerted effort to develop, test, and refine candidate methodologies for implementation. Successful development of a competitive rate benchmarking methodology would end the need to screen rates for relief eligibility by using a formula that applies an arbitrary 180 percent standard to an arbitrary and unreliable cost allocation, and accordingly the committee offers the following advice to Congress: Recommendation: Prepare to repeal the 180 percent revenue-tovariable-cost formula by directing USDOT to develop, test, and refine competitive rate benchmarking methods that can replace URCS in screening rates for eligibility to be challenged.
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With the ability to exercise more direct control over the rate screening process, regulators could discard the burdensome and inappropriate rate reasonableness standards that are in use today, and Congress could more confidently take the following action: Recommendation: Replace STB rate reasonableness hearings with arbitration procedures that compel faster resolutions of disputes involving rates deemed eligible for challenge because they substantially exceed their competitive rate benchmarks. e standards and procedures used by ICC and STB for ruling on the reasonableness of challenged rates have proved to be slow, costly, and
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From page 7... ...
Finally, the allowable remedies in arbitration offers should not be limited to alternative rates. The Staggers Rail Act gives regulators authority to order reciprocal switching when "necessary to provide competitive rail service." Reciprocal switching has never been prescribed by STB when a rate is found to be unreasonable, partly out of concern that such an intervention would cause rates to fall below the statutory 180 percent revenue-to-variable-cost threshold.
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e decades-old requirement, adopted when railroads were failing and the subject of government rescue efforts, suggests a long-term interest in regulating the profitability of individual railroads, which appears neither practical nor consistent with the deregulatory thrust of the Staggers Rail Act reforms. By sponsoring periodic assessments of economic and competitive conditions in the industry as a whole that used more varied data and analytic techniques, Congress and STB would obtain a richer set of information to support regulatory decisions and policies.
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Accordingly, the committee recommends that Congress take the following step: Recommendation: Transfer merger review authority to the antitrust agencies and apply customary antitrust principles rather than a public interest standard. STRATEGIC REVIEW OF STB DATA PROGRAMS Recommendation: Congress should give STB the direction and resources to undertake a strategic review of all of its data programs to simplify or discontinue the reporting of little-used data as a general matter and to support the recommended changes in its regulatory practices and approaches.
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CONCLUDING COMMENTS ere are opportunities for STB to take early steps to advance the recommendations of this report, such as by supporting USDOT in exploring competitive rate benchmarking methods and by commencing the planning of a modernized data program. Such efforts could help inform the legislative actions that are likely to be required to further the recommendations -- actions that the committee believes are overdue.
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From page 11... ...
The modernization proposed in this report would reduce the anachronistic regulatory burdens railroads still bear while giving more shippers real protection against unreasonable rates. It would thus continue the process begun by the Staggers Rail Act -- a process that is aimed at producing a modern, efficient, and competitive railroad industry able to attract capital, maintain and expand its capacity, and serve its customers with the minimum necessary regulatory oversight.
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