“Switching” Mentality: Possible End to Railroads' Antitrust Protection

In May 2009, the U.S. Senate Judiciary Committee passed the Railroad Antitrust Enforcement Act of 2009, a bill intended to eliminate antitrust exemptions for freight railroads. If passed in the House, these exemptions would be officially ended during 2009. Currently, four railroads—CSX Transportation, Norfolk Southern, Burlington Northern & Santa Fe, and Union Pacific—hold a 90 percent share of the nation's rail freight shipments.

Freight tariffs and costs associated with rail shipping have created longstanding complications for food processors and manufacturers. Logistics managers have criticized the complexity of negotiations between end users and railroads as examples of the “my way or the highway” mentality. In other words, due to limited competition, rail freight users have had a limited say in everything from tariff rates and ship times to railcar turns, demurrage charges, and late railcar pulls.

This legislative action may lead to lower shipping costs in the long term for manufacturers dependent on the railroads for ingredient deliveries. Lower rail freight costs could also indirectly affect prices for other forms of transportation including truck and barge freight. Lower costs to get these products to transfer terminals and into processor facilities should be welcome news to companies attempting to manage and moderate freight costs.

Most importantly, legislation such as this leads to competition, something that is much needed for improvements of existing rail lines and the expansion of rail transportation. Instead of throwing federal funds at the four major railroads that have benefitted from limited competition for years, capital investment could be made for new entrants and for smaller, existing participants that want to expand their presence.

If you have any questions about how this may impact your business, please contact us.

McKEANY-FLAVELL COMPANY, INC.