Deregulation Enables Rail Industry to Thrive
The Center Square
October 14, 2020, marks the 40th anniversary of the enactment of the Staggers Rail Act signed by former President Jimmy Carter. The bipartisan legislation primarily deregulated the freight rail sector, which was on the brink of collapse in the 1970s.
The rail industry’s success after 40 years of rail deregulation provides “an important case study on matters related to competition, markets, rate regulation and capitalism writ large,” the Association of American Railroads argues.
The Staggers Rail Act eliminated many of the regulations still in place since 1887, when Congress passed the Interstate Commerce Act. The act established the Interstate Commerce Commission (ICC) to regulate monopolies controlling the railroads.
By the 1970s, the regulations had not changed. Combined with competition from other transportation sectors, major railroads were facing bankruptcy, the industry was facing ruin and rail infrastructure was so deficient that cars were falling off the tracks.
Deregulation enabled the rail industry to take a customer-focused and market-based approach. Since then, freight railroads have invested more than $710 billion of their own dollars back into the national rail network.
Since 1980, rail traffic has doubled but, because of deregulation, rail rates are down by more than 40 percent when adjusted for inflation. Customers can ship double the amount of goods for roughly the same price they could 40 years ago. And because of technological advancement, increased volume of heavy freight has been carried on rail lines instead of on congested or failing public roads making transportation safer.
Research from Towson University’s Regional Economic Studies Institute found that in 2017, Class I railroads’ operations and capital investment supported over 1.1 million jobs, $219.5 billion in economic output, and $71.3 billion in wages, while also creating nearly $26 billion in total tax revenue.
In a typical week, railroads deliver roughly 60,000 carloads of food and agricultural products. A single rail car moves enough wheat for 258,000 loaves of bread, enough corn for 480,000 bags of Fritos, or enough barley for 94,000 gallons of beer, AAR states.
Throughout the economic downturn due to statewide coronavirus shutdowns, the rail industry did not seek federal bailout money and continued to provide services. This has been possible because the U.S. Surface Transportation Board has avoided utility-style rate or earnings regulation in the sector.
Before the coronavirus shutdown, the agency was considering capping how much railroad companies could earn in a year, including imposing an across-the-board utility-style rate regulation.
“For railroads, the impact of imposing these regulations would have a devastating effect on liquidity,” Steve Pociask at RealClear Policy argues.
If rate caps were imposed, “it stands to reason that investment in the rail network would fall, and quite likely so would its dependability and efficiency – just as companies that ship over rail will need those qualities during the hard slog back to economic recovery,” he adds.
Compared to the heavily regulated transportation airline and mass transit industries that were reporting losses before the coronavirus ever hit, federal bailouts for the airlines, airports and mass transit totaled nearly $90 billion.