As one of the oldest “heavy” industries in the United States, railroads have been at the vanguard of how the private sector and government interface. The Interstate Commerce Act of 1887 created the Interstate Commerce Commission (ICC) to regulate railroads as common carriers by eliminating rate discrimination and ensuring fair rates. The legislation, which arose from public outcry against perceived monopolistic practices, specifically demanded that railroad rates be “reasonable and just.”
This regulatory regime remained in place until the deregulation initiatives of the late 1970s. The Staggers Rail Act of 1980 reduced the ICC’s authority by allowing railroads to set rates more freely and become more competitive with the trucking industry. Congress abolished the ICC in 1995, and many of its remaining functions were transferred to a new agency, the Surface Transportation Board (STB).
Most of the STB’s impact has been in the area of its review of railroad mergers. However, this function has been mostly dormant since the agency turned down the proposed BNSF-Canadian National (CN) merger in 2001. Nonetheless, this responsibility is back in public view with the proposed acquisition of Kansas City Southern (KCS) by both CN and Canadian Pacific Railway (CP).
The history of regulating railroad mergers in the U.S. is fraught. Following rail deregulation in 1980, the ICC oversaw a rapid series of end-to-end mergers. After the ICC was “sunset” in 1995, the STB approved a series of ever larger and more disastrous railroad mergers.
Those mergers led to horrendous rail-service meltdowns. In the face of rising shipper opprobrium, the STB and the rail industry reached agreement on publishing a very limited set of service metrics. As shown in Figure 1, most of the STB’s current metrics apply to traditional carload service, and only a few specifically or meaningfully apply to intermodal. Yet intermodal is increasingly important: Not only does this segment represent half of all U.S. rail volume today (Figure 2), but it also is growing, while other commodities, especially coal, are declining.
