Legislation to re-regulate railroads introduced to the Senate
Sen. Conrad Burns introduced legislation Wednesday to help ease Montana's plight as a "captive shipper" state and reduce higher-than-average freight rates charged to Montana farmers and industry.

Known as the Railroad Competition Act of 2005, the bill is similar to legislation Burns sponsored in 2003, which failed to reach the Senate floor.

This is the "captive shippers" argument, which seems to exclude the possibility of shipping by truck...

BNSF hauls more than 90 percent of the state's wheat to markets in the Northwest. The company charges Montana farmers higher rates than those in states with more rail competition. The discrepancy costs Montana farmers about $60 million a year.
States with more rail competition have more rail traffic, which would mean that the fixed cost of the railroad are distributed over more ton-miles, meaning lower rates...

Anyhow, that's the "pro" RCA position.

Here's the "anti" RCA position:

Be Careful What You Wish For...
If you wanted to lower electric energy prices in the US, what would you do? If you answered, "Cripple the domestic railroad industry," you'd be in surprisingly good company.

That's precisely what, according to the Wall Street Journal, major electric utilities like American Electric Power want to do in their maneuverings to re-impose severe regulation on the railroads. Senator Jay Rockefeller (D.-W.Va.) has agreed to help them by cosponsoring the Railroad Competition Act to roll back most of the reforms since the Staggers Act of 1980 that have gotten America's railroad back on its feet. This would be an extraordinarily retrograde step, the legislative version of cutting off one's nose to spite one's face.

Jeesh, drag Rockefeller into it, he's always red meat for the TCS crowd. No mention of the other sponsors...

After reading both articles, the question for debate is:

1) Do you support this legislation, and if so, why or why not?

2) What other sectors of the economy are ripe for re-regulation?

This may not be the sexiest political issue out there, but it serves as a good example of why we often want to throw up our hands and walk away from the political process. Here we have a law which is being described in exactly opposite ways by the two sides involved. Burns says that the law is not intended to bring back regulation; Murray says it is. Murray says that the law will reduce competition; Burns says that it will increase it. Who should we believe?

For this reason, I cannot say whether I support this particular law until I know a lot more about it. However, I can say that my general economic philosophy is pretty middle-of-the-road. The free market is a good thing, but there has to be some government regulation to prevent unfair competition. It's a tricky thing to balance.

I'm not sure if the railroad industry, or any other industry, is "ripe for re-regulation." Rather, I would suggest that it might be a reasonable goal to try to find some way to reverse the Wal-Martization of the American economy without restricting free trade. Maybe this is impossible, but having super-gigantic behemoths totally dominate certain industries can't be a good thing.

The words "government" and "drive prices down" should never be used in the same sentence unless they are connected by the word "cannot". Toss in the word "fairness" and this is a horrible idea.

The regulations in place before the Staggers Rail Act of 1980 was enacted nearly bankrupted the rail industry. The Penn Central, Erie Lackawanna, the Lehigh Valley, the Reading, and Central of New Jersey railroads all went bankrupt in the 1970s.

The Staggers Rail Act did the following: (Source: Cato Institute)


The ideas being brought up now (that rail has a monopoly in several markets) were addressed during the debate of the Staggers Act.



Granted, this was 1984, less than four years after the law passed. However, I find it hard to swallow that people think the government can somehow encourage competition by capping prices. If anything, that will eliminate any incentive for the rail carriers to even be in those states at all.

Shippers have challenged rates in court and have been denied because the courts have found that the rail shippers are following the law: PPL MONTANA, LLC vs. STB

All these Congressmen can hope to achieve is driving railroads out of their states. I'm sure they don't want that.

1) Do you support this legislation, and if so, why or why not?

Having worked in middle and upper level management positions with a Class 1 U.S. railroad, I can assure you that the concept of re-regulating the railroad industry has disaster written all over it. The only thing the government has screwed up as much, if not more, is Amtrak. But that is another argument for another time; back to re-regulation.

The late-1960s and the 1970s saw the bankruptcy of the following railroads: Central Railroad of New Jersey (1967), Boston & Maine Corp. (1970), Lehigh Valley Railroad (1970), Penn Central Transportation (1970), Reading Company (1971), Erie Lackawanna Railway (1972), Lehigh & Hudson River Railway (1972), and the Ann Arbor Railroad (1973). In a related move, Conrail (Consolidated Rail Corp.) was created by the government in 1976 from lines formerly operated by now bankrupt railroads, including: Ann Arbor Railroad, Central Railroad of New Jersey, Erie Lackawanna Railway, Lehigh & Hudson River Railway, Lehigh Valley Railroad, Penn Central Transportation, and Reading Company.

Before deregulation was enacted under the Staggers Act of 1980, value-of-service pricing drove a large percentage of railroads' high-value traffic to private and for-hire trucking companies. As a result, the railroad industry was left with traffic that became increasingly dominated by low-value freight, which resulted in lower revenues that were insufficient to cover expenses. Meanwhile, rail rates were subject to a rate-of-return constraint that was far below market rates-of-return, thereby preventing the industry from gaining sufficient capital to maintain its infrastructure. The results of deferred maintenance could be seen everywhere, from an ever increasing number of derailments attributed to the Engineering Department (which is responsible for the maintenance & repairs of the tracks), to near constant locomotive failures due to a lack of preventative maintenance, to the accumulation of heavy bad-ordered (HBO) rolling stock, which sometimes occupied four or five (or more) tracks at large terminals with capacity to store cars (for example, on the ICG, which was severely hurt financially by both the IC & GM&O merger in 1972 and by regulation, well over a hundred HBOs were shoved down the abandoned Clarksdale District just south of Memphis, TN; and Centralia, IL had plenty too).

Under regulation, there was no progress [in the rail industry] as far as instituting work rules that would increase productivity and on setting wages that would reflect productivity. Consequently, the industry became laden with excess labor that was paid higher wages than it would in a competitive market, all of which negatively impacted operating expenses.

Financial difficulties, which were a product of limited capital and reduced revenues, provided no real opportunities for the exploration of new technology. Regulatory constraints and the lack of economic incentives deterred the industry from improving operations and offering new services to shippers. This lack of technological advances and new innovations was the primary explanation for the low total productivity in the rail industry.

After the Staggers Act was passed, the number of Class 1 railroads declined as carriers consolidated through mergers, which benefited both railroads and shippers. At the same time, the number of regional and short-line railroads increased substantially; most of these railroads have been formed from trackage spun-off by Class 1 carriers.

Following deregulation, railroads significantly reduced operating costs in order to improve financial performance in several ways. First, deregulation gave railroads the freedom to negotiate contract rates, which covers more than half of all rail traffic today. Second, network efficiency was increased by abandoning thousands of miles of unprofitable, low-density lines and eliminating duplicate trackage through parallel mergers. Third, railroads replaced cabooses with EOTs (End-of-Train Telemetry Device, and reduced the size of train crews. Fourth, railroads made operational and technological improvements that reduced costs and increased service quality. Some of the more notable changes included: the increased use of intermodal operations, the introduction of unit trains for coal and grain, the development of double-stack cars, and the further application of computer systems. As cash flow improved, railroads were able to upgrade their technology and replace its depleted infrastructure. New, stronger, and better-maintained track yielded fewer service disruptions (derailments), while newer and more powerful locomotives were acquired to handle traffic growth.

At the same time, the rail industry has seen increased traffic volume since reaching its lowest point in the mid-1980s, at which time the railroads' were just beginning to benefit from deregulation. Carloads originated have increased from 19.5 million in 1985 to 34.4 million in 2004*. Return on equity has climbed from an average of less than 3 percent in the 1970s to an average of 10.7 percent during the 1990s*. At the same time, real rail rates have plunged by 65 percent since deregulation, while shipper's have seen rates decline by more than 20 percent (coal shippers have seen the largest decline in rates). Obviously, large rail shippers in high-density markets have been able to negotiate lower rates than small rail shippers in low-density markets.

* = Data courtesy of the AAR

As far as Senator Burns' comments about BNSF Railway hauling more than 90 percent of Montana's wheat markets, I suggest he re-check his grounds for making this complaint. BNSF Railway was formed in 1996 from the merger of the Burlington Northern (BN) and Atchison, Topeka & Santa Fe (AT&SF). Prior to spinning off a couple thousand miles of its trackage to new regional carrier Montana Rail Link (MRL) in 1987 (several hundred more miles followed later on), BN would have hauled virtually all of the state's wheat. Under regulation, Montana's wheat markets may have seen lower freight rates, however, there is a high degree of probability that said rates represented a financial loss for the railroad. This "Re-Regulation" seeks to artificially lower rates for some shippers. Ironically, many of the shippers who would benefit from such an act are larger than any individual railroad. The fact that this legislative proposal is named "Railroad Competition Act" itself is a joke. I guess Mr. Burns would not be interested in the fact that consumers have seen an annual savings of $10 billion on goods shipped by rail since deregulation.

Were such legislation passed, you would be well on the way to bankrupting the rail industry, once again. Continuing along that road, let us examine a development in the rail industry, which came about half a decade after the Staggers Act was passed in 1980: the Powder River Basin (PRB). Covering a large part of western Wyoming and smaller parts of Montana, Colorado, and Utah, the Powder River Basin's low-sulphur coal deposits contain an estimated 800 billion tons of coal. While coal began flowing from the PRB in the 1970s, and the C&NW gained access in 1984, coal loadings in the PRB exploded in the 1980s. What began as single mainline territory with relatively frequent sidings, today the "Orin Line" is four mainline territory and sees well over 100 trains per day. From the PRB, coal is transported to power plants across the country, many of which require interchange with another railroad — usually either CSXT or NS for trains destined for eastern points, CN for trains headed to points in Illinois, Michigan, and Mississippi, and a handful of regionals.

Virtually all of these trains operate with Distributed Power (DP), which allows for the locomotives to be placed in multiple locations on the train but controlled from the lead locomotive through computers and GPS. The "normal" DP configuration has either one or two locomotives on the head-end and one on the rear-end. The application of DP technology has allowed for increased tonnage on the trains (more cars) by significantly reducing in-train forces. It has also virtually eliminated break-in-twos. Getting back to the main point now, the net result of DP technology, amongst other things, is that coal trains loaded in the Powder River Basin operate in sets of 125 to 150 cars and when loaded, tip the scales between 17,000 and 21,000 tons.

Apparently if Senator Burns had his way, these trains would not operate because the railroad would actually lose money by operating them. However, there might be a small problem in moving this tonnage from the PRB to the respective power plants. Even if there was a means to move this coal via the highways, which there isn't due to the few trucks that could even haul coal, weight limitations on trucks, and the cost of such long distance moves, there is a massive shortfall in capacity on the roads to handle several million more trucks per day.

Maybe Senator Burns has a private fleet of a couple of thousand C-5 Galaxy transport aircraft that he had modified to haul coal and feature four turbofan jet engines that run on water instead of jet fuel. Or perhaps he knows something we don't, because the last time I checked, barge service from the Powder River Basin in western Wyoming to power plants across the country is not too good.

It certainly is great to have special interest groups fighting for such noble causes...

1) Do you support this legislation, and if so, why or why not?

BNSF hauls more than 90 percent of the state's wheat to markets in the Northwest.

Basically what we have here is a monopoly. I say price fixing would be good, because this company is leeching off the consumer due to a lack of competition. Monopolys are completely uncapitalistic in any modern sense, as they destroy the market system of supply and demand.

2) What other sectors of the economy are ripe for re-regulation?

We'll I think credit cards are almost evil in how they operate. They basically profit off of ruining peoples lives, with their insane and purposefully variable interest rates. I once knew a guy who had areally good credit card, with very low interest rates. He decided to use it for business, and BANG. Interest rates went through the roof for no given reason, and he had to file bankrupcy and loose half his possesions.

Really that bankrupcy bill congress pass seemed more like corruption to me, then anything Delay or Abramoff have done.

I don't get why we even need middle men between us and our banks anyways. We should have bank cards, not credit cards. Credit Cards just leech without serving any real purpose.

BNSF does not have a monopoly, they are simply cheaper than any of the alternatives, namely trucks. One reason they are cheaper than trucks is because the quantity of trucks that would be necessary to haul the grain is substantial, and almost all of those trucks would be deadheading into Montana come harvest. One train of 111 grain hoppers (sighted on 4/27 between Ft. Worth and Wichita Falls, TX) requires only 2 crew, and 3 locomotives. The same hauling capacity would require 333 tractor/trailers, along with 333 drivers. Hmmm, cost savings?

The farmers have other choices, they just don't like them.

Yes, as a model railroader, I would like to see a much more varied railroading environment, but I also realize why its not going to happen soon.

When I said they had a monopoly, I was refering to the fact that they had a monopoly on Montana rail service.