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Viewpoint: The market, not regulators, should set freight rail prices

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

By Roslyn Layton, PhD

A recent party-line vote at the Surface Transportation Board following a complaint from a coal shipper against a freight railroad is headed to court. A request to stay the decision at the STB was rejected. The conflict is shaping up to be a referendum on STB Chair Martin Oberman’s interpretation of common carriage.

The case features a Western coal company, the Navajo Transitional Energy Co. (NTEC), and BNSF Railway. The two had a contract in 2022 but were unable to finalize an agreement for 2003.

In its complaint to the STB, NTEC charged that BNSF was failing to meet its common carrier obligation, which by law requires a railroad to serve all customers at a reasonable rate and level of service.

However, BNSF never refused service. It merely refused to meet every demand of the customer, largely due to capacity concerns. In today’s global energy crunch, the price of coal has exploded. U.S. coal shippers are speeding their stocks to Asian countries, which are willing to pay more than domestic consumers in many cases. NTEC wants 29 trains a month, but BNSF can only provide 23. NTEC prevailed on the regulator to force BNSF to provide the additional six trains — at a “tariff rate” — which requires BNSF to reduce capacity for other contracted customers.

The U.S. has multiple state-of-the-art transportation networks. Shippers can use other freight railroads, trucks, barges, pipelines, airplanes and so on. If shippers walk away from negotiation and get exactly what they want from regulators instead, the market incentives to build and run freight networks dissolve. This sets a dangerous precedent that accelerates central planning in a railroading sector critical to the economy.

Roslyn Layton, PhD, argues why the Surface Transportation Board erred in its decision regarding Navajo Transition Energy Co.’s proceeding against western U.S. Class I railroad BNSF. (Photo: Roslyn Layton)

The case is important on two levels. First, the agency — which I have argued should be considered for sunsetting altogether — typifies the problems with bureaucratic rule, overinterpreting the law to suit the needs of favored stakeholders. Second, if continued, this rent seeking (getting preferred price from the regulator which can’t be realized in a negotiated contract) will disadvantage countless businesses and limit their ability to move goods on U.S. railroads.

Networked industries require accurate information and transparent pricing to work. If network operators can’t adapt their service based on supply and demand, they can’t serve their customers or run their networks. Consumers are negatively impacted when goods are not shipped in the quantities they request. Railroads require flexibility to make countless, nuanced business decisions to serve the needs of all shippers, as often as possible outside of government dictates.

Yet the STB turned this on its head when it ordered the railroad to meet every demand of the shipper, disregarding other shippers that protested the STB’s decision, noting that shippers too must operate in a market with supply and demand under competitive conditions.

The STB decision, in which the regulator decides how many trains are devoted to any one shipper, subverts the concept of common carrier, a commercial enterprise that transports goods for a fee and is available to the public, for a freight network must still honor its existing commitments to other shippers. 

Indeed, STB Commissioner Michelle Schultz dissented, noting that “the decision muddies the concept of the common carrier obligation because of uncertainties over what the board might consider in determining the railroad’s capacity.” Per a recent report, “Schultz pointed to STB’s reliance on private negotiations and draft contracts between the parties in order to base BNSF’s compliance with meeting its common carrier obligation.”

Regulatory decisions like this one of the STB eat away at democracy and private enterprise. Companies learn that they can lobby the regulator rather than engage in the market. The government, rather than serving the people and upholding the framework for a market economy, becomes a tool for favored industries and firms. Just 20% of Americans say that Washington does the right thing most of the time. Sadly, this STB decision demonstrates in part why voters have a negative view of the federal government.

Roslyn Layton, PhD, is a regulatory policy expert of networked industries. She serves as executive vice president of Strand Consult, a consulting firm specializing in the telecom industry, and she is a fellow at both Lincoln Policy, an advisory firm on free markets and Silicon Valley, and the National Security Institute of George Mason University. She also serves on the Advisory Council of the Krach Institute for Tech Diplomacy at Purdue University.

  • STB decides against BNSF’s request to stay coal order
  • BNSF sues federal regulator over coal shipment mandate
  • STB orders BNSF to send more coal trains to Montana mine
  • Western coal producer seeks regulator intervention against BNSF

The post Viewpoint: The market, not regulators, should set freight rail prices appeared first on FreightWaves.