Success Story? Twenty-Five Years Ago, Railroads Changed Forever, but the Debate Continues Over Whether the Staggers Act is a Success

WASHINGTON — On Oct. 14, 1980, the fate of American railroads changed.

Congress passed the Staggers Act, legislation that deregulated the industry. But a quarter of a century later, the debate over the law rages on.

By 1980, between a fifth and a third of the railroad industry was bankrupt, the byproduct of government regulation. An investor could have made more money putting money into the typical savings account than investing in the railroad industry.

Maintenance was, to say the least, sub par and the rate of wrecks was skyrocketing.

Despite the grim outlook of the railroad industry, it was still vital to the nation’s economy. And Congress took action with the Staggers Act.

Named for Harley O. Staggers, who chaired the House Energy and Commerce Committee, the Staggers Act addressed the nation’s regulatory system — one that made it difficult for railroads to respond to the disciplines and opportunities of the marketplace.

A recent study by Clifford Winston of the AEI-Brookings Joint Center on Regulatory Studies found that “the inefficiencies created by rail regulation put a stranglehold on the industry that prevented it from competing effectively.” The report also called the Staggers Act “a rare win-win for consumers and industry.”

Federal regulation of railroads began in 1887 with the Interstate Commerce Act. The Interstate Commerce Commission was responsible for administering the law.

Over the years, the ICC’s scope of regulation was expanded beyond railroad rates and practices to cover line construction, mergers, carrier practices and line abandonments.

Pro Staggers

Since the Staggers Act passed, productivity on the nation’s railroads has tripled overall and intermodal traffic has almost quadrupled, according to the Association of American Railroads (AAR).

“Since 1980 our productivity is up nearly 200 percent and yet our rates have dropped 60 percent, saving our customers $10 billion a year,” Edward R. Hamberger, AAR’s president and chief executive office, told a meeting of more than 500 rail customers and business associates during a railroad customer service forum in St. Louis

“This is largely due to the Staggers Act, which partially deregulated the industry and gives railroads a good foundation for meeting what is expected to be another record fall for rail freight transportation.”

In addition to improved railroad finances, the accident rate on the nation’s rail network is also down, according to AAR.

“This Act helped spur the creation of the modern short line industry,” Richard F. Timmons, president of the American Short Line and Regional Railroad Association said in 2004 testimony before Congress

“In fact, eighty-one percent of total short line mileage is operated by railroads that were established after 1980 when Staggers went into effect,” Timmons added. “These railroads have survived and prospered because of the provisions of the Staggers Act and the entrepreneurs who own and operate them.”

Anti Staggers

Railroad deregulation is “clearly not working for captive rail customers,” National Rural Electric Cooperative Association (NRECA) CEO Glenn English testified Oct. 19.

In testimony before the U.S. Department of Transportation, Surface Transportation Board (STB), English defined captive customers as those who, by virtue of physical location, have access to a single rail provider.

Congress had anticipated the plight of such a shipper class when it enacted rail competition 25 years ago, mandating continued regulatory oversight in order to safeguard against market power abuse by monopoly railroads, English contends.

Many cooperatives with only a single rail provider have unreasonably high rates and non-negotiable terms of service dictated to them on a “take-it-or-leave-it” basis, English contends.

“It is our desire to work with the rail industry to ensure better service and greater capacity,” he said. “However, we do not believe this should be accomplished on the backs of captive rail shippers. Such a situation was not the intent of Congress when it passed the Staggers Act in 1980.”

English’s testimony also outlined a few of the STB decisions that have contributed to the untenable situation where rail shippers find themselves today, including the 1996 “bottleneck” decision in which the board held that a railroad that could provide service at both the origin and destination of a freight shipment could use that power to deny the customer access to a competing railroad.

The consumer owned utilities also questioned the equity of the STB dispute resolution process, calling into question the prohibitive expense and arbitrary nature of the board’s “rate reasonableness” procedure.

“Rate appeal cases can cost in excess of $3 million and take years to resolve,” English said. ”All burdens of proof are on the petitioner; and the rate standard is so vague that its interpretation can shift from case to case. Indeed, over the last three years, the acceptable rate allowed to be charged to captive rail customers has increased 50 percent without any change in the rate standard.”

What’s Next?

In early May, U.S. Rep. Richard Baker, R-La., introduced into Congress a bill he says will enhance competition in the nation’s freight rail marketplace.

AAR opposes the bill, saying in a position paper the legislation would stifle railroads’ ability to make capital improvements.

The “Railroad Competition Improvement and Reauthorization Act of 2005,” would require carriers to provide service at “reasonable rates to captive shippers,” Baker contends. It would provide Class II and Class III railroads with greater ability to interchange freight with Class I carriers, and directs the Surface Transportation Board (STB) to take steps to address areas of the country that are found to have inadequate rail competition, according to Baker.

“Since 1980, more than 40 Class I railroads have consolidated into just seven serving the entire North American continent. Four of them – two in the West (Union Pacific and BNSF Railway) and two in the East (CSX and Norfolk Southern) – control over 95 percent of the railroad business,” said Rep. James Oberstar, D-Minn. “Because of this consolidation, entire states, regions, and industries are now captive to a single Class I railroad. This, in turn, has led to complaints from shippers over high costs and poor service by the railroads.”

— Staff and Wire Reports

Published in the November 2005 edition of The Cross-Tie.