A new report authored by the National Research Council’s Transportation Research Board recommends STB hearings on “unreasonable” rates be replaced by independent arbitration.
Current U.S. freight rail regulations are woefully outdated, according to a new congressionally mandated report from the National Academies.
The report, authored by the National Research Council’s Transportation Research Board, noted regulations have remained largely the same since the enacting of the Staggers Rail Act of 1980. Although the Staggers Rail Act “enabled the modernization and stabilization of the U.S. freight railroad industry, federal regulation has not kept pace with the industry’s transformation and should be replaced with a system better-suited for today’s freight rail system,” the research group said.
The report said current policies that protect rail shippers from excessive rates are not functioning properly and made several recommendations on how to update these processes.
“Under the Staggers Rail Act, shippers have the ability to challenge some rates that seem unreasonable, but the formula used to identify unusually high rates that can be challenged is arbitrary and unreliable,” the committee wrote. The committee recommended the U.S. Department of Transportation “develop, test, and refine a more reliable tool that compares disputed rates to those charged in competitive rail markets for comparable shipments,” but noted that “repealing the current formula would require congressional action.”
According to the report, “This replacement would, in turn, allow the Surface Transportation Board (STB), which regulates railroads, to use faster and more economical methods for judging whether a shipper paying an unusually high rate is entitled to relief.”
“Customary adjudication methods can cost millions of dollars for litigation and some have taken years to resolve, deterring shippers with smaller claims from seeking rate relief,” it added.
The report recommended the government replace current STB hearings used to determine whether a challenged rate is reasonable with independent arbitration hearings. This would “compel faster, more economical resolutions of rate cases,” according to the report.
Another possible solution to these unreasonable rates would be to allow parties engaged in arbitration to use a process called reciprocal switching, which allows shippers to transfer freight at the interchange of tracks owned by competing railroads.
The report noted, however, “The Staggers Rail Act mandates that regulators not grant rate relief so freely that railroads are denied the revenues they need to invest in their networks,” and “recognized that railroads need to be able to charge rates that generally exceed their operating costs.”
“The committee’s two main recommendations go hand-in-hand,” said Richard Schmalensee, committee chair and professor emeritus at the Massachusetts Institute of Technology. “Currently, burdensome STB rate hearings compensate for an unreliable initial process for identifying unusually high rates and in effect, they safeguard railroad revenues by making it too costly for most shippers to litigate a case. So, a more credible method for identifying unusually high rates would permit the use of less burdensome arbitration procedures, while not risking the adequacy of railroad revenue.”
In addition, the report recommended the STB discontinue issuing annual reports on the financial performance of individual railroads, and transfer its responsibility for reviewing railroad mergers to the U.S. Department of Justice “because these STB functions no longer serve their original purposes.”
The committee also suggested a thorough review of the data collection and dissemination practices of STB. “Data that would permit systematic assessment of railroads’ service quality would be especially valuable,” according to the committee.
The study was sponsored by the U.S. Department of Transportation and disseminated by the National Academies, which comprises the National Academy of Sciences, National Academy of Engineering, Institute of Medicine, and National Research Council. The National Academies are private, independent nonprofit research institutions that provide science, technology, and health policy advice under a congressional charter granted to NAS in 1863.
National Academies releases U.S. freight rail regulations report
