Chemical distributors depend on reliable, competitive rail service to deliver products to customers in nearly every industry sector. Unfortunately, the railroad industry is currently a near-monopoly with only four rail providers controlling 90 percent of the traffic regulated by outdated policies that hinder competition and fair service.
Monopolies may provide financial certainty for shareholders but they do not provide the best outcomes for customers. Freight rail service has experienced a 98 percent rate increase since 2001, and the higher rates aren't paying for better service. According to the Rail Customer Coalition, shippers wait the same amount of time for their loaded cars to move today as they did in 2005.
There are solutions to these problems, but the federal agency key to enacting much-needed reform has long been hamstrung. With the recent confirmation of Patrick Fuchs and Martin Oberman, three of the five Surface Transportation Board (STB) seats are filled and therefore in a better position to enact meaningful reform.
One long-overdue reform is competitive switching. Shippers are often forced to work with one rail company because current regulations shield railroads from competition. Essentially, railroads can charge whatever they like, and customers have no recourse. Competitive switching would allow a shipper served by a single railroad to request that its freight be moved to another railroad for a fee. Arguments by the rail industry that this would degrade shipping are misplaced. Competitive switching would not negatively impact efficiency in any way. In fact, it may even provide shorter routes that would not be available without it.
Regulation of demurrage policies provides another avenue to increase competition and fairness in the rail industry. In the past year, several rail providers have instituted strict demurrage policies where they charge hefty fees for delays caused by shippers. According to a recent article in The Wall Street Journal, railroads argue that these policies are meant to keep the railroad running smoothly. The railroads insist that they offer credits to shippers if they are late to pick up railcars, but shippers “have not yet really seen the benefits to these operational changes but they certainly have suffered the service problems and are seeing new costs being added on,” according to the American Chemistry Council. It’s encouraging that the STB is following this issue and the resulting fees more closely. The STB can improve the freight rail system by instituting reciprocal demurrage.
Competition and fairness in our nation’s freight rail system will provide more timely and efficient deliveries and reduce costs and wastefulness across the system. We look forward to the positive changes a reformed and more fully operational STB can make so that chemical distributors and all freight rail shippers can keep our economy moving.