Jefferies: Railroad re-regulation would hurt Michigan

Ian Jefferies

The freight rail industry is a huge economic enabler in many regions of the U.S., but especially in Michigan, as railroads move about three-quarters of all automobiles sold in the U.S. every year.

“Railroads strengthen America’s economic competitiveness by connecting regional railways with our larger, cross-continental networks,” said Sen. Gary Peters, D-Bloomfield Township, in regard to the state’s network of smaller operators. “These vital links connect more than just track — they connect diverse businesses and unique products to consumers across the country.

But if a federal agency known as the Surface Transportation Board (STB) effectively re-regulates the sector — ignoring drastic changes in the freight market and its Congressional charter — the industry’s ability to modernize and improve a mode critical to the state’s key industries will be upended.

At issue are proposals before the STB, an independent agency with broad powers over rail rates and mergers, which collectively disregard the capital intensive nature a freight rail sector that has poured more than $600 billion in private funds since partial deregulation in 1980. Because the impact of a single regulation cannot be isolated – each one is part of a much larger set of rules – the measures advocated by regulators would cumulatively lessen revenues ripe for reinvestment. Alarmingly, they pile on unneeded uncertainty as railroads grapple with the stark demise of coal, a commodity railroads invested in heavily to serve and moved in mass for the betterment of Americans everywhere.

One proposed measure would re-regulate certain commodities like iron and steel, while the other would cap rates of return that railroads earn based on overall level of revenue. The latter is nothing less than a government mandated cost control.

Even more, the STB is proposing a rule that would require railroads to open up their lines to competitors, forcing carriers to turn over their privately owned tracks to other railroads without showing competitive abuse. Under this framework, Railroad One gets access to Railroad Two’s infrastructure and customers because the government forces Railroad Two to do so – not because it is the best route or in the best interest of a customer. The measure is patently anti-business and would only cause market disruptions for the majority of customers.

“It would vastly complicate rail operations, labor agreements, and, perhaps, compromise safety while reducing money needed to expand capacity,” says transportation expert Robert Gallamore.

The power of partially deregulating railroads and reducing government meddling in pricing and routing cannot be overstated.

“With [deregulation], many regulatory restraints on the railroad industry were removed, providing the industry increased flexibility to adjust their rates and tailor services to meet shipper needs and their own revenue requirements,” the Federal Railroad Administration wrote in a 2011 report. “As a result, the railroad industry’s financial health has improved significantly, service to rail customers has improved while overall rates have decreased, and rail safety, regardless of the measure, has improved.”

Harkening back to days of old is misguided and only threatens the viability of an industry that in 2014 alone supported 1.5 million jobs across the country well beyond the rail sector itself and generated $33 billion in local, state and federal taxes.

Michigan’s auto and manufacturing sectors stand in the crosshairs. Freight rail’s scale of operations provides one of the most cost-effective ways to transport vehicles built in Michigan. In fact, a single train can transport 750 cars, and in 2015, railroads transported more than 17 million autos. Should regulators favor other commodities like chemicals, auto dealers and the like could see rail service suffer.

Congress has always maintained a key role in overseeing railroads. Sen. Peters, who sits on the Senate Commerce Committee, has helped guide sensible railroad policies since taking office. Sen. Peters and many of his colleagues have recognized that healthy and financially viable freight railroads are a prerequisite for success across industries in Michigan and elsewhere. In fact, just last year the Committee led a reauthorization of the STB that kept the successful economic framework in place.

That type of leadership is sorely needed today.

Freight railroads today stare down an accumulation of factors. For an increasingly out of touch federal government to re-regulate the industry is a wrong-headed approach. Rest assured, the rail industry will adeptly navigate these economic uncertainties, but the government should serve as an effective partner in this time, not a roadblock.

Ian Jefferies is senior vice president of government affairs at the Association of American Railroads.