Logistics legislation: Senate Committee endorses railroad antitrust legislation
Opinions of industry stakeholders vary on long-term impact of removing antitrust exemptions for railroad industry.
By Jeff Berman, Group News Editor -- Logistics Management, 4/1/2009
Washington — The Senate Judiciary Committee voted by a 14-0 margin last month to pass legislation that would remove antitrust exemptions currently granted to the railroad industry.
The legislation, called The Railroad Antitrust Enforcement Act of 2009 (S. 146), was introduced by Senator Herb Kohl (D-Wisc.) and has been put in front of the House and Senate in various forms in recent years.
Its main objective is to bring the freight rail system under the nation's anti-trust laws and provide needed protection for various rail customers who have suffered from increased rates and decreased quality of service, according to an April 2008 letter by seven U.S. senators to Senate Majority Leader Harry Reid. Under the current limited antitrust exemption, shippers cannot sue railroads over rates and must appeal rate cases to the Surface Transportation Board (STB), noted a research brief from Stifel Nicolaus.
Along with removing antitrust exemptions for the railroad industry, the legislation will also:
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revise provisions prohibiting anticompetitive transactions except for those approved by specified federal agencies acting under certain statutes to eliminate the exemption for certain STB approved transactions;
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empower the Federal Trade Commission (FTC) to regulate and engage in antitrust enforcement regarding collective rate agreements and certain transactions, including railroad mergers and acquisitions;
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revise STB authority to provide that a rail carrier, corporation, or a person participating in an approved transaction is not exempt from specified antitrust laws; and
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permits treble damages against railroad common carriers in antitrust suits to parties injured by antitrust violations without regard to whether such railroads have filed rates or whether a complaint challenging rates has been filed, among others.
As to be expected, there are varying views on the potential impact of this legislation.
On one side are shipper groups, most notably Consumers United for Rail Equity (CURE) that cited in a statement in March that the four largest Class I railroads—Union Pacific, CSX, BNSF, and Norfolk Southern—reported a combined $358 million year-over-year increase in 2008 fourth quarter revenue at a time when the railroads reported lower volumes. CURE contends that this highlights the ability of the railroads "to extract greater profits per shipment through their monopoly pricing power."
CURE Executive Counsel Bob Szabo told LM that the two main problems with the current lack of antitrust enforcement are paper barriers—or contractual obligations incurred when short lines acquire lines from the larger, connecting carriers—and other bottlenecks that he said gives railroads an unfair and anticompetitive advantage over shippers on rates. If antitrust laws currently applied to railroads and the STB did not allow it to occur, he said these would be viewed as illegal transactions.
Even if antitrust exemptions for the railroad industry are removed, there are some that say that doing so would not necessarily make things better for shippers due to myriad factors.
According to William J. Rennicke, director of Oliver Wyman, a Boston-based management consultancy, one factor is that U.S. railroad freight rates are among the lowest in the world. Coupled with that, said Rennicke, is that the regulatory risk this measure may bring would drive private investors away from the railroad industry.
"The Department of Transportation is predicting an 88 percent increase in railroad freight tonnage by 2035," said Rennicke. "So, if you are going to have private capital come into an industry, investors want to invest in something where they are not going to be blindsided by changes in regulatory structure."
The Association of American Railroads (AAR) also opposed this legislation, stating that it has the potential to create an unprecedented and confusing regulatory scheme that could alter economic oversight of the railroads.
AAR President and CEO Edward R. Hamberger said that other U.S. industries—besides the railroads—operate with limited antitrust exemptions. He added that Congress has specified how to deal with the potential conflict between anti-trust law and economic regulation by an independent federal agency, except in the case of the railroad legislation being considered by the Judiciary Committee.
A Logistics Management survey of roughly 70 rail shippers found that 63 percent—or nearly 50 shippers—support the antitrust legislation, and some were succinct in describing how the industry is functioning without antitrust regulation.
"Under the present system, there is no competition by the railroads," one rail shipper told LM. "That leads to complacency, which contributes to the poor overall service provided by the railroads. There is little interest to invest in infrastructure and capital goods by the railroad."
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