Ralroads 231 Railroad Reregulation? Freight railroads were first economically re
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Ralroads 231 Railroad Reregulation? Freight railroads were first economically regulated in the United States with the passage of the Act to Regulate Commerce of 1887. This legislation was in response to desires by several states to prevent the railroads from employing monopolistic practices. Railroads are considered natural monopolies because of their large fixed costs and natural barriers prices and poor service to captive shippers. The 1887 Act was designed to prevent these practices and created the Interstate Commerce Commission to monitor railroad pricing and service activities In 1980, the Staggers Act was passed in an attempt to give more pricing freedorm and market exit/entry freedom to the railroads. Part of the rationale of this Act was to allow railroads to operate in a more market-oriented environment and to take advantage of value-of-service pricing to increase industry profitability. In 1995, the ICC Termina tion Act was passed to provide even more freedom in pricing, exit/entry, and service to railroads. This Act also abolished the ICC and created the Surface Transportation Board (STB) to monitor railroad competitive practices. Between 1996 and 2014, the railroads have enjoyed a resurgence in profitability Their abality to freely price and to be exempt from antitrust laws allowed railroads to manage capacity more efficiently and expand their markets and products. During this time, railroads dramatically increased their volumes of TOFC and COFC business, However, there had been a push by Congress and a group known as Consumers United for Rail Equity (CURE) to pass legislation to once again economically reregulate the railroad industry and reduce the powers of the STB over rail competitive practices The major argument for this legislation is that the railroads are once again employing monopolistic practices for shippers of bulk commodities such as grain, coal, and chemi cals. The assertion is that railroads are charging excessively high prices to shippers of commodities of low value, thus making these commodities less price-competitive in the market. This is coupled with the assertion that many of these bulk shippers are "captive and don't have access to multiple railroads to ship their products. This initiative has sub- sided over the last several years since Congress is h tion again. However, the federal government has stepped up its regulation of railroad safety as a result of the rapid growth of rail movements of Bakken crude oil across the United States and several derailments of trains carrying Bakken crude. The Rail Safety Improvement Act of 2008 required all railroads in the United States to have Positive Train Control (PTC) installed in all of their locomotives by the end of 2015. Only the BNSF will meet this deadline with the other Class I railroads stating their implementation won't be com- plete until the end of 2017. The Association of American Railroads estimates that this implementation will cost the rail industry $8 billion. In May of 2014, the Department of Transportation issued an emergency order requiring that railroads notify State Emergency Response Commissions of any train car- rying 1 million gallons or more (approximately 35 tank cars or more) through their states. Along with this, the Federal Railroad Commission and the Pipeline andExplanation / Answer
1. In the reading we can see that since the late 1800’s of the railroad there has been the movement from the government to regulate the rail industry in order to protect shippers from its natural monopolistic design. The rail industry ships large bulk items to many parts of the country that if road transportation was used the cost and damage to infrastructure would be extremely large for both the consumer as well as the government. During the mid 90’s to more recent years the railroad has been able to stand outside of most antitrust laws because of the natural monopoly that they hold. It is because of this that the railroad is able to charge shippers almost anything they want. The increase in shipping of bulk oil and derailments has led the government to step in again and work to reregulate the industry as a whole. The role of the DOT is to regulate the transportation industries safety requirements. Although it is important for the government to review cost and it is not their main objective in their role. It is the role of the industry to implement positive safety processes to reduce risk prior to the government intervening. So there is no midpoint between safety regulations and the costs to the railroads and to the shippers.
No, the railroad industry should not have the cost of safety regulation imposed on them. Due to the increased cost to the industry an alternative implementation process would have been to place the requirement on the shipper and not the railroad. If you place the requirement of making shippers use companies like BNSF who have already implemented the PTC process into their engrains you would encourage other companies to invest heavily into safety systems based on maintaining a competitive market.
2. Yes, the probable price increases on the movement of crude oil are justified on the economical reregulation of the rail industry. A quick Google search results in the argument of both the potential profit from the increase in oil drilling and refining as well as the risks associated with it. The Keystone pipeline is all over the news these days, and part of it is because of the risk that pipelines have had to damages and spillage, but increase in rail use also means an increase in derailment risk. The DOT’s obligation to the public is to protect the consumer as well as the natural inhabitance. The industry is being required to meet the government’s bottom line on safety; that investment is being required to be implemented in the timeline that they see fit, this causes strain on profits and expansion. As I stated in the first question, if implementation would have placed the burden on the shipper it would have been an industry wide movement to create safety measured that met the government’s guidelines and reduced the cost to the consumer in the long run.
Reference:
Coyle, J. J., Novack, R. A., Gibson, B., & Bardi, E. J. (2011). Transportation: A Global Supply Chain Perspective. (pp. 57). Boston, MA. Cengage Learning. EBook.
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