President Biden’s executive order aimed at injecting more competition into freight railroads and ocean shipping could have a major positive impact on rail customers – assuming that everything proceeds according to plan.
The July 9 order is a wide-ranging document containing 72 separate orders regarding different industries, seeking to establish regulations and policies to strengthen the hands of federal regulators.
Titled “Promoting Competition in the American Economy,” its directives touch on everything from limiting airline baggage and cancellation fees to eliminating non-compete agreements employers impose on their employees, something already done in several states. Industries affected range from agriculture to pharmaceuticals and various companies the healthcare industry.
It also takes a clear shot across the bow of the increasingly unpopular tech industry giants.
Biden states in the order that it is “the policy of my Administration to enforce the antitrust laws to meet the challenges posed by new industries and technologies, including the rise of the dominant Internet platforms, especially as they stem from serial mergers, the acquisition of nascent competitors, the aggregation of data, unfair competition in attention markets, the surveillance of users, and the presence of network effects.”
The presidential command is frequently granular in its approach. For example, it directs the Department of Transportation “to consider issuing clear rules requiring the refund of fees when baggage is delayed or when service isn’t actually provided – like when the plane’s WiFi or in-flight entertainment system is broken.”
The order can be just that detailed, but it also can be sweeping in its scope. When it comes to freight rail competition, the President makes it clear he finds it lacking these days.
“In 1980, there were 33 Class I freight railroads, compared to just seven today, and four major rail companies now dominate their respective geographic regions,” the executive order’s accompanying fact sheet stated.
“The President encourages the Surface Transportation Board to require railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly.” This refers to Amtrak, which raised concerns about trackage rights if the proposed Canadian National-Kansas City Southern merger is ultimately approved by the STB.
The order itself explicitly encourages the chair of the STB and other board member to issue an order allowing reciprocal switching – a practice requiring that one railroad grant access to its tracks for equipment from another railroad. Rail shippers have sought this change for many years, and the STB opened a proceeding to consider it in 2016 – but nothing else has happened for five years.
The railroads strenuously oppose reciprocal switching, claiming that it would do serious economic damage to them and reduce operational efficiency. However, the practice has been common in Canada for many years without creating any of the problems American railroads claim will arise if the practice is imposed in the U.S.
Rates and Charges Included
The STB also is directed to consider rulemakings pertaining to “any other relevant matter of competitive access, including bottleneck rates, interchange commitments or other matters.”
STB Chairman Martin J. Oberman (D) was present for Biden’s signing of the order and released a statement showing he is a willing ally. Although the five-member board currently has Republican majority, that is expected to change at the end of this year.
“During my time on the board, I have been continually concerned with the significant consolidation in the rail industry that happened as a result of a series of mergers decades ago, which dramatically reduced the number of Class I carriers,” Oberman observed.
The productivity gains they achieved have not been passed on to customers, he said. “I have previously stated my concerns with the sufficiency of competition in the rail industry and my interest in exploring ways the board can improve the rail industry’s competitive landscape in order to ensure fairer pricing.”
He added, “In my opinion, competition in the freight marketplace is paramount. In the absence of a truly competitive marketplace, the board can and should focus on using its competition-related authorities where feasible and reforming its competition policies where necessary.”
He said the board currently or in the future will consider reforming its competitive access policies; enhancing shipper visibility into first mile/last mile service; and stated the board takes seriously the administration’s emphasis on ensuring that passenger rail is not subject to unwarranted delays and interruptions in service by freight rail lines.
Oberman noted having formed an internal working group to advise about resources needed to fulfill the STB’s responsibilities to investigate compliance with the new on-time performance standards and, starting next year, to ensure that those standards are enforced. He also said the board will address practical accessibility of rate relief measures to shippers in market dominant situations.
However, with the exception of promising that the board will ensure freight railroads’ obligations to facilitate timely passenger rail service, he made no mention of the STB’s policy on rail mergers, including the CN-KCS proposal currently before it.
Speaking four days after the order was released, Oberman told a meeting of the Midwest Association of Rail Shippers that he is concerned about service failures and accessorial and demurrage fee abuse that has followed several major railroads adoption of the Precision Scheduled Railroad (PSR) operations model, driven by shareholder pressure led by Wall Street hedge fund managers.
“I have wondered whether the combination of the reductions in workforce, the interruptions in service, the demarketing all implicate the common carrier obligation that railroads have and have had really since the beginning of the railroad industry, and it’s something that I continue to focus my attention on,” he told the shippers.
He did address the CN-KCS merger proposal and indicated that its approval by the board will not be quick and easy. The fact that the board has not applied rail merger rules adopted in 2001 before and the new stress on competition voiced by President Biden will make sure it won’t be quick and easy.
The railroads were quick to voice their unhappiness with the prospect of reciprocal switching, “Any STB action mandating forced switching would put railroads at a severe disadvantage to freight transportation providers that depend upon tax-payer funded infrastructure,” said Association of American Railroads President Ian Jefferies.
The rail reform proposals drew vocal support from the Freight Rail Customer Alliance, National Industrial Transportation League and American Chemistry Council, all of which represent the public policy interests of rail shippers.