Study confirms rate re-regulation is unnecessary, AAR says

A Surface Transportation Board study by an independent group confirms the Association of American Railroad's stance (AAR) that re-regulation of freight-rail rates is not necessary, AAR officials announced late last week.

Released last week, the study by InterVISTAS Consulting LLC examined the board's approach to freight-rail rate regulation and proposals to simplify its approach.

"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," said Edward Hamberger, AAR's president and chief executive officer in a press release.

Specifically, five findings in the report validate the rail industry's view that many of the proposed policy changes are misguided. According to AAR, those five findings are:

• Shippers have several avenues to challenge the reasonableness of rail rates, including not only the full stand-alone-cost method (which the report confirms is the correct, economically sound approach), but also two lower-cost and simpler alternatives that will produce similar outcomes.
• 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.
• Replacement cost, which recognizes the massive economic expense to build and maintain a railroad, is the economically correct measure to use.
 • The STB's rate regulation regime correctly reflects the economies of scale, scope and density of the railroad industry.
• 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," said 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."