Based on the following article, it appears the politicians are aiming to re-regulate the rail industry. The Staggers Act of 1980 had a profound impact on the rail industry. Now, evidently, the politicians think it is time to undo some of the changes.
http://online.wsj.com/article/SB126107934848995909.html?ru=MKTW&mod=MKTW
A fair reading would suggest that some in Congress (eg., Sen. Kohl) are wanting to eliminate the anti-trust exemption the railroads enjoy in order to bring about more competition…
What I find laughable in this attempt at re-regulation is that the business concerns that are generating the push for the re-regulation are business that are economically larger and more monopolistic than the post Staggers railroads have ever attempted to be.
Seems pretty weird. What was the rationale for exempting the rails from antitrust (like MLBl, the NFL, etc.)? I wonder what the effect would be if that ended?
Railways are under a different regulatory authority (the STB) than other businesses (which are under DOJ). The rationale of Congress when it wrote the ICC Termination Act was that railways needed a regulatory authority (the STB) that was responsible with ensuring the fairness of service and pricing (like DOJ) and also ensuring the industry retained economic health (not like DOJ) because railways could not be allowed to fail because so much of the nation’s economic health depends upon railways, and railways unlike almost every other business in the U.S. are fixed onto the geography, not interchangeable. For example, if the grocery store in your town fails, another can readily take its place. If the railway serving your factory fails, it’s unlikely any other can take its place.
What Sen. Kohl’s bill proposes to do is strip out the economic health responsibility of the U.S. government.
Large shippers like this idea. Small ones do not.
The effect of the bill will be to increase a reduction in rates for large shippers, an increase in the rates of small shippers, a reduction of branch line and secondary line mileage, a greater concentration of traffic onto main lines, and, eventually, Conrail 2.0. and another taxpayer funded bailout of the rail industry, and we can start the cycle all over again.
RWM
I am sorry, RWM, you have confused me. Didn’t the railroads that made up Conrail go bankrupt because the government wouldn’t allow those things? Maybe I am having a “brain fizzle.” If so, I apologize.
No, you’re right. I just left out detail.
Here’s the stages:
Railroads initiate service
Some shippers want a better deal than they’re getting.
Some shippers lobby Congress for regulation
Congress writes regulation
Regulation results in economic collapse of the railroad industry
Congress has to write a big check to undo the damage, and also undoes the regulation that caused the problem
Railroads re-initiate service
Repeat Stage 2
Etc.
As of today we are in Stage 3, second cycle.
RWM
RWM, which bill were you refering to in this paragraph:
Sen. Kohl’s antitrust bill or the Senate bill giving the STB more power?
Also, are you suggesting that this:
would be the cause to move to Step 4, Second Cycle?
Thank you for your patience.
No problem, that’s what I’m here for.
Both bills would have the effect of making rich shippers richer, but Sen. Kohl’s bill moreso.
Both bills move us into Stage 5.
Some people in Congress sometimes have trouble getting through their heads that railroads are not an “end-user” or a “supplier of goods” but an intermediary between shippers and consumers. Most of the time when a shipper approaches a legislator and wants them to do something about restricting the pricing freedom or service terms and conditions offered by railroads, that’s a shipper looking to get richer at the expense of either consumers or other shippers, or both.
RWM
It’s good to see all the comments. My thoughts are consistant with RWM’s. Re-regulation would bring back inefficiencies that made railroad companies bankrupt. Also, it will bring back big bureaucracies to the federal government which is now spending $1.80 for each $1.00 of revenue. It will bring back railroad equipment shortages. It would bring back deferred track mantenance. It would be a very bad deal for America.
If politicians think there is no competion, ask them about those large trucks on the highways and the barges in the rivers.
What exactly does anti-trust exemption for the railroads mean?
I thought Obestar said he could not get that passed? Did I just imagine that?
George
Years ago, in another career, I worked in the LTL trucking industry. The industry enjoyed anti trust immunity at the time (perhaps they still do, dont know for sure).
That anti trust immunity allowed us to collectively sit in a smoke filled room (literally) and establish rate structures (called class rates). This structure specified a “book” of rates for nearly all possible commodities shipped between any possible points in the United States. The anti trust immunity was needed, some said, because of the complexity of the LTL industry.
No carrier serviced all points in the United States. Therefore, rates could be established between carrier which interlined the freight. The anti trust immunity allowed two carriers, with overlapping service authority, to provide “joint rates”. One carrier might pickup the freight and provide a certain amount of transportation and then hand the freight off to another carrier who made final delivery.
This anti trust immunity allowed carriers to enter into such agreements, even tho they were competitors in certain markets. It did not allow carriers to sit down and carve out market share (you take shipper xyz and we will take abc).
I cannot state whether this is the reasoning behind the anti trust immunity for railroads or not. I am not that knowledgeable about their interchange and thru rates. I have looked at today’s tariffs, but dont have inside knowledge of how marketing actually works.
There has to be a structure to move freight from say Houston, Tx to Lansing, Mi. Today a carrier such as UP will interchange that to CN for final delivery. Is that movement on a thru rate from Houston to Lansing? or is it a combination of rates such as Houston to Kinmundy, Il and Kinmundy to Lansing? That I dont know. My guess is that it is a thru rate which the reve
It means, exactly, the railroads are not under the jurisdiction of the Department of Justice for mergers, acquisitions, abandonments, rate reasonableness, joint marketing, etc. It means they are under the jurisdiction of the STB.
Lots of people are intentionally misrepresenting the “anti-trust exemption” to claim that railroads are getting away with something. They are not. The spirit and essence of anti-trust is being enforced on railroads, but it is being enforced by the STB and not the DOJ.
RWM
I don’t know where I read it, but they were right. We have younger congress members who don’t remember what all happened in the 50’s-70’s. They are not that well educated on the subject. It seems very few congress members want to even learn how the industry works and what types of legislation would be suitable for them to provide cheap service. RR rates are fare enough; shipping coal is still cheaper than it was before 1980.
Before Staggers Act of 1980, railroads employed large staffs in their pricing departments to handle the rates for moving frieght as well as the divisions to allocate the rates among each railroad in each interline route. Freight moved under rates published in tarriffs, and railroads were common carriers for the most part. Railroads belonged to rate associations with other railroads to negotiate rates, publish tarriffs, make filings to the ICC, and so on.
Now, it is much simpler and most freight is moved with contracts with shippers.
The ICC also had large numbers of employees to handle all of the regulations. It was not an efficient way to conduct business to say the least. It would be common for one carrier in a route of a movement of freight to make a healthy profit while the connecting carrier lost money on the same movement of freight.
The system was broken. The Staggers Act fixed most of that.
Actually, the “antitrust exemptions” the railroads have are pretty limited. The way some of the rereg people are presenting it, railroads supposedly have the ability to collude with each opther with impunity on their pricing and marketing. That is a gross misrepresentation. Railroads (as well as trucking companies) used to have the ability to do this (through rate associations or “rate bureaus” as they were called), but that ended by the mid 1980’s, as a result of Staggers Act reforms. The only significant antitrust “exemption” that affects rail-shipper dealings is the antitrust exemption for STB approved mergers. But the STB’s primary criteria for approving or disapproving mergers is competitive effects, so the STB is, essentially, enforcing antitrust standards. The remaining antitrurst “exemptions” deal with intra-railroad matters which don’t directly effect shippers (for example, the TTX pooling agreement).
One thing a lot of people don’t realize is that the antitrust laws are not an alternate regulatory system. For example, the antitrust laws don’t regulate price levels, as such. It’s an antitrust violation for competing companies to “collude” on their pricing, but it doesn’t matter whether the resulting
Short answer:
(1) Railroads once had antitrust immunity to collectively make rates through “rate bureaus”, just like motor carriers (the law that allowed motor carriers to do it - the 1948 Reed-Bulwinkle Act - also applied to railroads).
(2) Railroads haven’t been allowed to do this since 1984. That’s the year the Staggers Act reforms on rail rate bureaus took full effect. The result was the railtoads ceased using rate bureaus to make rates, and the rate agreements permitting these activilties were cancelled. What has been forgotten with the passage of 30 years is that there was a fundamental compromise underlying the Staggers Act. The railroads obtained more ratemaking freedom in return for severe limitations on rate bureau collective ratemaking. Those rate bureau limitations proved so severe that these organizations completely got out of the rate fixing business and confined their activites to tariff publication, and were eventually disbanded,
(3) Antitrust immunity is not needed for a railroad to make a joint-through rate with a connecting railroad. In your example of a Houston TX- Lansing MI move, the rate could be structured in several ways. Most likely, it would be a single factor joint rate, in which both UP and CN agree on the rate level and the divisions. The difference between this arrangement and the rate bureaus of yore is that, today, only UP and CN would be involved in this agreement. In rate bureau days, all of the competing carriers in the affected territories would vote on the rates. It could also be rated as a form of combination rate, where the customer pays UP and CN their separately establishined rates for their respective portions of the move. These are often referred to in the rail industry as “Rule 11” rates.