The U.S. supply chain continues to face unprecedented challenges with U.S. consumers feeling the brunt of it as products are delayed and associated costs rise. As last year came to a close, prices for consumer goods rose 7% from the previous year — a 40 year high.
The Russian invasion of Ukraine, impacting staples from grain to energy, promises to only make matters worse.
“The fighting has shut down car factories in Germany that rely on made-in-Ukraine components and hit supplies for the steel industry as far as Japan,” reports the Wall Street Journal. “The conflict is also bottling up Ukraine and Russia’s vast commodity exports, sending the price of oil, natural gas, wheat and sunflower oil rocketing.”
Such a moment requires not just leadership but restraint by lawmakers to not impose new costs, including through regulation of those industries connected closely to the supply chain. This includes U.S. freight railroads, which will face the scrutiny of policymakers in hearings in both Congress and the Surface Transportation Board (STB) this month. Specifically, policymakers are considering — and some will advocate for — new market interventions in the rail sector, arguing such regulation is needed to lower costs.
The facts — and history — tell a drastically different story though.
When President Jimmy Carter was in office, he signed a law that largely deregulated freight railroads. Notably, that bill arose from a Democrat-controlled Congress and has been reaffirmed on bipartisan grounds in the years since. Markets work and they work in railroading too. Thanks to these regulatory reforms — which essentially removed the government from routing trains and pricing their services — economists estimate that American consumers enjoy $10 to $20 billion in annual benefits.
Yet, in an executive order signed last year, President Biden urged the STB to “strengthen regulations pertaining to reciprocal switching agreements.” The innocuous and bureaucratic language, if enacted into a regulation, threatens to take us back 40 years to a time when railroads were going bankrupt, productivity was low and consumer prices high.
Under this recent proposal, a railroad with physical access to a specific shipping facility is forced to accept rail traffic to the facility for another railroad that lacks physical access. While that may sound reasonable at first, these regulations could lead to reduced rail traffic for the carrier and increased traffic congestion, much like the inefficiencies already hampering today’s supply chain while adding significant costs to rail operations.
The case for re-regulating freight railroads, however, doesn’t stand up to scrutiny. Freight rail operators face intense intermodal competition from trucks and water transport. As gas prices continue to climb, railroad prices have increased less than trucking. In addition, while trucking is advantaged by publicly financed roads, railroads invest about $19 billion annually to maintain their own infrastructure. Comparing the environmental impact, rail adds significantly less greenhouse gas emissions per shipped ton, compared to their trucking counterparts.
An in-depth independent report commissioned by the very agency now considering new regulation concluded that railroad operators’ earnings “do not appear to be excessive from a financial market perspective” and warned against exactly the type of regulation that the administration is pursuing.
This view was affirmed in analysis from economist Robert Shapiro, a former advisor to President Obama and a prominent ally of the Biden White House. “The proposed regulation would force railroads to engage in switching activities that make no economic sense for them and have no general economic basis, impairing the revenues, investment, and ongoing operations of U.S. railroads,” he wrote.
Government is not here to pick winners and losers or — even worse — transfer resources away from one sector to another. Open access railroading is akin to public utility regulation, and experts agree this is not the right — nor fair — approach for an industry competing with unregulated trucking.
Given the supply chain shortages and mounting inflation dragging down the economy, this proposed regulation could not have come at the worse time. Yet, the STB has yet to provide any quantitative analysis showing that these regulations would benefit consumers.
It is time for the White House and STB to abandon this haphazard proposal.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us @ConsumerPal.