Cash Market Moves 10/19 11:43
Staggers Rail Act Turns 40
The Staggers Rail Act, named for its sponsor, Rep. Harley O. Staggers, a
West Virginia Democrat, just celebrated its 40th birthday.
DTN Basis Analyst
The Staggers Rail Act of 1980, a U.S. federal law that deregulated the
American railroad industry to a significant extent, celebrated its 40th
birthday last week. In this week's column, we'll look at the history of the law
and its impact on the rail industry.
The Staggers Rail Act of 1980 was signed into law by President Jimmy Carter
on Oct. 14, 1980, and implemented by the Interstate Commerce Commission (ICC,
now the Surface Transportation Board (STB)). The STB is the successor agency to
the Interstate Commerce Commission (ICC). Effective Jan. 1, 1996, the ICC was
abolished pursuant to the ICC Termination Act of 1995 (ICCTA). Under ICCTA,
many of the ICC's functions -- particularly regarding economic regulation of
the freight rail industry -- were transferred to the newly established STB.
Prior to 1980, economic regulation prevented railroads from any flexibility
in pricing needed to meet both intramodal as well as intermodal competition.
Regulation also prohibited carriers from restructuring their systems, including
abandoning redundant and light density lines, a necessity for controlling cost.
Added to these problems was the industry's inability to cover inflation due to
the regulatory time lag in rate adjustments. As a consequence, nine carriers
were bankrupt, the industry had a low return on investment, was unable to raise
capital and faced a steady decline in market share.
According to the Federal Railroad Administration, the U.S. freight railroads
are private organizations that are responsible for their own maintenance and
improvement projects. Compared with other major industries, they invest one of
the highest percentages of revenues to maintain and add capacity to their
system. The majority of this investment is for upkeep to ensure a state of good
repair, while 15% to 20% of capital expenditures, on average, are used to
enhance capacity. The seven Class I freight railroads are: BNSF Railway,
Canadian National Railway (Grand Trunk Corporation), Canadian Pacific (Soo Line
Corporation), CSX Transportation, Kansas City Southern Railway, Norfolk
Southern Combined Railroad Subsidiaries and Union Pacific Railroad.
In the 1980 Staggers legislation, many regulatory restraints on the railroad
industry were removed, providing the industry increased flexibility to adjust
their rates and tailor services to meet shipper needs and their own revenue
requirements. Fast forward to September 2019 when the STB issued a Notice of
Proposed Rulemaking (NPRM) to propose a new process for rail customers to
contest the reasonableness of an individual rail rate. This proposal is known
as FORR, final offer rate review.
According to the STB, the FORR procedure is designed to bring economy to the
rate review process and provide complainants with smaller cases, who otherwise
have been deterred from challenging a rate due to the cost of bringing a case
under the STB's existing rate reasonableness methodologies, with a more
accessible option. The proposed relief for cases brought under FORR would be
subject to a two-year limit on rate prescriptions (unless the parties agree
otherwise) with a proposed cap of $4 million. The cap is consistent with the
potential relief afforded under the STB's existing methodology for smaller
cases (known as Three-Benchmark).
But critics disagree with the proposal.
"Railroads serve shippers in a highly competitive market and set rates based
on market conditions. FORR would allow rail customers to effectively set their
own rates wholly independent of actual market conditions. The STB's proposal
lacks standards for determining rate reasonableness and replaces the
longstanding practice of careful deliberation with a single binary decision,"
said the American Association of Railroads (AAR) on their website.
"The STB's proposal is predicated on simply choosing between two proposed
rates, neither of which is necessarily the maximum reasonable rate. The STB
proposal abdicates the agency's responsibility to exercise its expert judgment
and does a disservice to railroads and shippers by eliminating regulatory
predictability," added AAR.
According to Freight Waves, pro-reform supporters contend that STB proposal
smacks of the "regulatory creep" that threatens the Staggers Act's viability
and could reverse the free-market norms that have made it a success.
During the Oct. 7 STB Rail Energy Transportation Advisory Committee virtual
fall meeting, board member Marty Oberman highlighted what the STB has been
working on this past year. "The most significant is the final offer rate review
proposal," said Oberman. "If implemented, the goal is to constrain cost and
time and complexity of a rate case. We expect this will receive its next action
during the month of October. Stay tuned."
Mary Kennedy can be reached at email@example.com
Follow her on Twitter @MaryCKenn
(c) Copyright 2020 DTN, LLC. All rights reserved.
Get your local Cash Bids emailed to you each morning from DTN – click here
to sign up for DTN Snapshot.