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ROB BENEDICT
To produce essential goods for both U.S. and global consumers, refineries and petrochemical manufacturers across the country rely on the freight rail network to move critical materials to and from their facilities. Over 2 million carloads of AFPM members' feedstocks and products -- including crude oil, natural gas liquids, refined products and plastics -- are transported by rail each year. However, federal policies have not kept up with the massive changes in the railroad industry over the past four decades. With little to no competition in this industry, railroads are failing to deliver reliable service and shipping rates have skyrocketed, outpacing inflation and transportation rates for other modes.
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Balancing competition and consolidation: In 1980, Congress passed the Staggers Rail Act, which partially deregulated the freight rail system. This legislation sought to revive an ailing rail industry by relying on market competition instead of prescriptive government regulation. The premise was simple, a financially strong rail industry, released from most government regulation, would result in a competitive, viable rail system that benefits railroads and shippers. However, this freight rail renaissance was short-lived. Over the past 30 years, without government oversight, freight railroads consolidated their market power so much that competition was disappearing. Our country went from having nearly 30 rail carriers in 1980s to the seven (and soon to be six) that currently serve U.S. consumers.
A free market no more: While the Staggers Act focused on free market solutions, consolidation in the railroad industry has created a system of regional duopolies and nearly 80 percent of U.S. fuel refiners and petrochemical manufacturers are "captive shippers," meaning they are only served by a single railroad, with no ability to shop around. This, paired with the widespread adoption of operating practices that prioritize cost-cutting over customer service, has railroads raking in record profits, while rail customers are paying more for less service. The railroad industry's most recent financial reports tell this story with revenues at all-time highs and service metrics, like on-time performance, at a record low.
Rail policy and your wallet: While it may not be apparent, these policies impact the consumer. Each year, over 205 million barrels of crude oil are moved by rail in the U.S. That same crude oil is used to make gasoline, jet fuel and diesel. In fact, the EIA estimates that approximately 15 percent of the cost of gasoline and diesel are attributed to transportation costs alone. Petrochemical manufacturers also rely on rail to move feedstocks to their facilities and products to consumer markets. The absence of freight rail competition increases shipping costs and forces U.S. consumers to pay more for everyday goods.
Help on the horizon: The freight rail system is currently failing rail shippers and U.S. consumers, but it is not beyond repair. Reintroducing competition into the rail system will revitalize the rail network and benefit all parties. Policies like reciprocal switching would allow for more competition and make the U.S. rail network more efficient by giving rail customers that are served by a single rail provider the ability to switch over to a competing rail carrier at the first interchange. Reciprocal switching is not new. Congress granted the Surface Transportation Board (STB) -- the economic regulator of railroads -- the authority to require reciprocal switching in 1980. In 2016, the STB introduced a reciprocal switching rulemaking proposal and in a 2021 executive order, it was mentioned as a way to address rail competition issues.
Policies that encourage competition like reciprocal switching are needed to get America's freight rail system back on track and working for the American people. AFPM members are eager to work with the STB to increase competition and remove obstacles in the way of a freer, more efficient and customer-focused rail system.
For more information, visit www.afpm.org or call (202) 457-0480.
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