Expert opinion on re-regulation needed

I would like for someone who really understands the situation to tell us how close we may or may not be to re-regulation? There has been a lot of chatter back and forth in the railroad media about it. Are we close to this or is it just sabre rattling by Obestar and his cohorts? This has come up before but has gone back to sleep up til now. I am not an expert at all, I just read the magazines and the internet. I have no first hand knowledge. I hope there is someone out there that does know what’s going on to tell us if we should worry or not.

Thanks in advance,

George

Don’t worry. Be happy! Seriously unless you own a railroad or stock what could you possibly have to worry about? If it does become more regulated or less regulated how will it possibly affect us railfans?

That’s a good point. The railroads financial health would not really impact me personally. That begs the question, "Why worry about something you can’t control?"I guess I am pulling for the railroad industry the way other people do about their favorite football team. I want the industry to do well or at least be basically healthy. It enhances my enjoyment of train watching, model railroading and other train related activities to know that industry will continue on into the foreseeable future if not into infinity. I lived through the Penn Central seventies when there was doubt as to whether the industry would be around by 2000. The Staggers act essentially saved railroading in North America. The railroad companies doing well gave us train lovers something to cheer about as well as more trains to watch. I, for one, felt vindicated that the industry that I loved so much proved that it could exist in the “real world” of free enterprise. It proved that railroads were NOT “out dated” or “obsolete” after all. Re-regulation would take that away, I think.

George

As long as you don’t use electricity, don’t plan to buy consumer goods, don’t plan to buy a new car, don’t plan to use anything made of plastic, don’t plan buy a new car or drive on an interstate highway (or pay the taxes to support the highways), the railroads’ financial health won’t bother you a bit.

Dave H.

That’s a good point Dave. I do have more reasons to be concerned about the railroads financial health than the fact that I’m a railfan. So, back to the original question, does anyone know if the railroads are likely to be re-regulated? I wish a trained political observer would wiegh in on this.

Thanks,

George

Although I don’t claim to be an expert but someone who has been around for a number of years I find that every time the Democrats get control of the house or the Senate the subject of re-regulating the Railroads appears.

The railroad’s have done a fine job since deregulation, one only has to look at the almost constant flow of trains on Cajon Pass to see it and the railroad’s have a far better system now than before deregulation.Remember their was very little welded rail and concrete ties were unheard of at the time of deregulation.

The railroads are doing just fine without government regulation, but the democrats are always looking for controls on everything and that has been a major problem for years.

Good luck with that. I’d love to help, but my crystal ball is a bit cloudy just now…

LC

One concern that certain shippers have expessed deals with the issue of “cross subsidy.”

For example look at the chemical plants located along the Gulf Coasts of Texas and Louisiana. Much of their high tariff shipments (“high” because the railroad has expensive hazardous material liability should anything go wrong) are also highly profitable to the railroads when everything goes right. A lot of those shipments go off line from the BNSF and UP at points such as New Orleans, Memphis, Saint Louis, and Chicago. The issue these shippers have is this: are they paying unreasonably high freight rates to these two originating carriers in order to pay for the construction of additional Powder River Basin capacity, the double tracking of the Santa Fe Chicago-Los Angeles mainline, and/or the Sunset Route expansion - routes that see less profitable traffic and also routes they seldom use?

From what I’ve read, this issue of possible cross subsidy could invite some form of limited re-regulation.

I think this issue will be decided by the upcoming election, and right now we are way too far away to be able to see definitvely which way it will go. If we go D, expect the regulation talk to become a whole lot more than idle chatter. If we go R, it may not go away, but there may be a whole lot more resistance to it.

In either case, based on past history, a heavily regulated rail industry (by heavy I mean that market pricing is out the window) is an unhealthy industry. If the industry is unhealthy, look for more abandoned lines and less investment in infrastructure. Look for rusted out AC4400’s and slow orders. Look for more trucks on the freeway system, higher taxees to pay for wear and tear to the freeway system, and people clamoring that even ‘more’ regulation is the solution to the problems regulation created.

Heck - at that point maybe Amtrak could get into the freight business.

I would ask these shippers just what is an ‘unreasonable rate’? Are they paying more to ship by rail than it would cost to ship by truck? Not likely. So then, do they “feel” the RR rates are too high? Then let them negotiate, but they need to keep in mind the risks involved hauling their cargo. That naturally carries a premium, and heck yeah they should pay for it

The term ‘cross subsidy’ is thrown around merely as a way to demonize profit-making. It is ridiculous that any shipper should expect to pay only the pure cost of transportation

I have product lines that lose money, and as a result I have to charge a premium on

“Cross-subsidy” is generally considered to be a Trojan Horse. Its been an excuse for government to interfere for years.

Keep in mind that the chief legislator pushing this is from a state with a political history of dislike of all railroads going back to the days of the robber barons.

One thing for you all to ponder: In the academic world that I worked in most of my life, its becoming even more fashionable for the non-business/engineering faculty (in other words, liberal arts, social sciences, education, health-related, etc.) to emphasize that the Fed Government should be playing a far more active role in running just about everything, including all transportation. More specifically, I know from conversations I’ve had that many of these “soft-science” faculty haven’t a clue about what is happening with today’s American railroads. Many of them assume the freight railroads are in the same financial shape as Amtrak. And its safe to say that many of them would prefer to have the Feds own all railroads so we can have European high-speed passenger rail throughout the county–quite a few have told me exactly that. The idea of rail freight doesn’t even enter into their thoughts. You can say “so what” but remember they are the ones educating both your children and their teachers.

By who?

I started thinking about the captive shipper/receiver issue and the auto industry. A number of new auto plants have been built in recent years, mostly in the southern states. Are these plants located so that access by more than one railroad is possible, either through physical connection or track rights? Alternately, does the manufacturer reach some kind of a long term understanding with a single railroad before finalizing a location?

When I started thinking about this I was thinking about the auto industry, but the same questions would apply to any industry that is capable of generating a large number of freight movements.

According to the “Thomas” website (this is a site devoted to tracking activities in Congress) nothing much has really happened on this. HR 2125 has been referred to the Subcommittee on Railroads, Pipelines, and Hazardous Materials. This happened on May 4th of this year. S 953 is in the Committee on Commerce, Science, and Transportation Senate Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security. Hearings held. This happened on October 23rd of this year. Maybe it will just die in committee.

George

Toyota, for instance, makes it an absolute requirement that if it builds a plant, there will be access by two rail companies. Then they put the requirement on local government to do it or lose it. Local and state governments then step up to the plate, just like trained ponies, and build new rail lines to meet Toyota’s requirements so that it will build the plant.

In this fashion, Toyota avoids the captive shipper problem suffered by legacy plants owned by GM, Ford and Chrysler. At the same time, government assistance is used directly to compete with old-line American industries. The fact is that railroad pricing policy is directly responsible for this state of affairs. The policy creates rustbelts all by itself, and creates a vacuum for government funding which gets filled by whoever has the wherewithal and inclination to build a rail line for a new plant. On the other hand, some lucky railroad gets a new line built at government expense, so that it can compete for traffic with some other rail line, keeping rates competitive for Toyota, while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals.

This is the natural result of unregulated captive pricing, it is cross-subsidization at its worst, it has implications throughout the economy, and it results in a distortion of a rational investment decision-making process.

Ultimately, does it help the railroads? Not one bit. The Ford plant closes down and the railroad loses the business, ultimately, to competitive locations. In return for the quick return from a captive shipper, the railroad exposes itself to the ultimate result that industries

Which GM and Ford plants had their rates raised?

I think I understand and believe that analysis. However, that leads one to think that railroad regulation, as was first attempted around the turn of the 20th century, was a good thing.

Perhaps we really are saying that, and it is only governmental imcompetence and “regulatory capture” previously discussed by you that leads to Staggers type deregulation. Somehow, my libertarian side is not willing to accept that conclusion.

Maybe I should go back and read Frank Norris one more time? I’m not real comfortable when the real world confronts my bias.

So I guess when you go to the store to buy frozen peas you expect that the profits from the sale of frozen peas will ONLY be used to repair, maintain and upkeep the freezer chests? You wouldn’t want to cross subsidize the toilet paper section.

If you buy a new F150 pickup that Ford will use the profits from the sale of the truck to maintain and service the F150 line? You wouldn’t want to cross subsidize the Taurus assembly plant.

On the other hand, maybe since your boss pays you to come to work he should require you to spend your paycheck entirely on buying work clothes and transportation to and from work, he wouldn’t want to cross subsidize your trips to the movies.

Dave H.

“Cross subsidies” are not an issue when there is true competition for the product/service that the customer is buying - which is most likely the case for the groceries or F-150. If the grocer or Ford tried to raise prices too much, you and most other customers would take their business elsewhere - because you had that option.

The difference is that many shippers do not have a choice when it comes to shipping by rail, and they don’t have the alternative of going elsewhere when the railroad charges all the traffic can bear and uses the profits to provide service at a loss in cases where there is competition.

Congress has failed to do much of anything this year. I understand that 9 of 10 budget bills are incomplete so far. I think that there is a power fight by the Democrats to wrest total control of Congress and the Executive long before the upcoming elections.

I dont think that the status of regulation is going to slow the railroads or improve them. I read today that CSX had yet another derailment in Baltimore. All the regulation in the world is useless if you aint got good track to run the choo choo on.