The Surface Transportation Board (STB or Board) on September 22 released an independent study it commissioned from InterVISTAS Consulting LLC that examined the STB’s approach to freight rail rate regulation and options for simplification of that approach. Edward R. Hamberger, president and CEO of the Association of American Railroads (AAR), says the findings confirm the critical need for sound economic regulation and today issued the following statement:
“The findings are clear: shippers have cost-effective alternatives to bring rate complaints to the STB, and changes to the existing regulatory structure – including different rate review approaches or new access regulations – would not benefit the larger transportation system. Five findings within the report particularly validate the industry’s view that many of the currently proposed policy changes are misguided:
1. Shippers have several avenues to challenge the reasonableness of rail rates, including not only the full-SAC method (which the report confirms is the correct, economically sound approach), but also two lower-cost and simpler alternatives that will produce similar outcomes.
2. Artificially limiting the ability of railroads to earn adequate revenues, including through economically unsound methodologies such as rate caps, would be detrimental to the freight rail network and the majority of shippers it serves.
3. Replacement cost, which recognizes the massive economic expense to build and maintain a railroad, is the economically correct measure to use.
4. The STB’s rate regulation regime correctly reflects the economies of scale, scope and density of the railroad industry.
5. Forced access would not provide an appropriate or cost-effective method of rate regulation, and would only inject further government intervention and rate reviews.
“The InterVISTAS Consulting report rightly credits partial deregulation as the driver of today’s healthier freight rail industry,” concluded Hamberger. “Upending the positive effects that exist today from that landmark change through a series of policy ‘fixes’ is bad policy, particularly at a time when railroads face a permanently changed customer base and uncertain headwinds in the market. These market changes only increase the longstanding demand for intensive capital investment in the freight rail network. We look forward to continued dialogue with the STB and hope the Board will incorporate these findings into its ongoing work.”