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Two Democratic Wisconsin lawmakers, Sen. Herb Kohl and Congresswoman Tammy Baldwin, are leading an effort to repeal 30-year-old exemptions to anti-trust laws that favor the railroad industry. They say the exemptions stifle competition and have allowed the country’s largest freight haulers to jack up rates against customers with few or no other rail companies to turn to. The railroad industry is fighting the legislation, which has failed in previous years, arguing the industry is already well-regulated and can ill-afford to fight costly anti-trust lawsuits.

Since 2007, Kohl, chair of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, has tried to repeal the anti-trust exemptions, which Congress approved in 1980 as part of the Staggers Rail Act, a package designed to help the then-fractured and struggling rail industry streamline its operations and replace aging infrastructure. Kohl argues that the exemptions have become grossly outdated since most freight in the country is now moved by four large carriers.

“Vigorous application of our nation’s antitrust laws is the best way to eliminate barriers to competition, to end monopolistic behavior, to keep prices low and quality of service high,” he testified earlier this month before the Senate Committee on Commerce, which produced a broader rail reform package sponsored by Committee Chairman Jay Rockefeller, the Democratic Senator from West Virginia. Kohl’s bill, the Railroad Antitrust Enforcement Act of 2009, has been incorporated into Rockefeller’s legislation. “For decades, freight railroads have been insulated from the normal rules of competition followed by almost all other parts of our economy,” Kohl said.

“There were concerns that rates were increasing rapidly and unfairly while service was deteriorating,” says Matt Brumley, Wisconsin coordinator of the Consumers United for Rail Equity (CURE), a national group lobbying for rail reform. Supporting the lobby group is a Wisconsin coalition made up of Wisconsin electric utilities, which rely on rail for coal supplies; paper companies, which require a steady supply of pulp and other resources; agricultural interests and customers.

Railroad companies are already regulated by the national Surface Transportation Board, which approves all mergers and hears service and rate complaints. But Brumley says appeals to the STB are expensive, time consuming and rarely undertaken by customers. STB critics argue that although the board reviews mergers and hears the opinions of U.S. Department of Justice anti-trust lawyers, it’s ill-suited to push the industry to be more competitive.

Brumley says previous rail reform packages have failed under the heel of the rail industry’s power. “I’m impressed with the amount of power the railroads have in the halls of Congress,” he adds. Rockefeller has bemoaned that railroad interests are the “most powerful, effective lobby in town” and capable of sweeping aside unwanted legislation. It sounds like something from an old Western movie, big railroad bosses pulling political strings to advance their agenda.

Those dern railroads

But in those old movies, the theme is typically ruthless expansion. In modern times, in the years since the passage of the 1980 Staggers Act, freight haulers have aggressively consolidated their operations and become far more competitive. Today, according to a Senate Commerce Committee report, the four largest U.S. railroads are the Union Pacific and Burlington North Santa Fe, which dominate freight west of the Mississippi River, and the Norfolk Southern and CSX Corp., which control freight to the east.

In the 1980s, the railroads were suffering badly under the boom in trucking, which was spurred along by the continual development of the Interstate Highway System. At the time, railroads also needed to make major investments in infrastructure, a burden government more often carries for truckers, rail companies point out, in the form of public road projects. According to the Commerce Committee report backing Rockefeller’s bill, the Staggers Act allowed companies to charge “captive shippers,” customers with no competing rail provider to turn to, higher rates to support the companies’ overall networks.

herb kohl

According to a 2007 CURE study, captive shippers, which make up a large percentage of all customers, regularly pay rates that are over twice that of shippers in areas with competition. Brumley says that rural states in particular have few options.  He says paper companies in northern Wisconsin have complained of sparse service since the Canadian National Railway acquired the homegrown Wisconsin Central Limited in 2001. “They’re just not getting the service they need,” he says.

The railroad industry, represented by the Association of American Railroads, says Kohl’s legislation “could drag us back to pre-deregulation days of weak investment and withering rail networks.” If the Justice Department is allowed to step into the regulatory ring alongside STB, says President Edward Hamberger, “we face two disparate schemes that spell nothing but confusion for the railroads and those charged with enforcing the regulations.” Anti-trust lawsuits brought by the DOJ, state attorneys general or even customers could be costly for the industry.

Hamberger credits the Staggers Act of making freight railroads “a true American success story” enjoying a “fair and balanced regulatory system.” STB Chairman Daniel Elliott told the Commerce Committee the board has created quicker, easier procedures for customers to appeal rates. But since their creation, appeals have remained scarce. Only 16 appeals were filed since the beginning of 2009, many from the same company. The board declared rates unreasonable in three cases and parties reached settlements in eight. STB found that a rate was reasonable in only one of the cases. Four are still pending.

A bi-partisan bill in the Senate would create a 25 percent tax credit for investment in freight railroad infrastructure. The railroad trade group says the legislation is needed because the country’s rail infrastructure depends so heavily on private investment. The group says companies have spent $460 billion on infrastructure since 1980.

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