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Walz: How to Make Freight Rail More Competitive

America’s transportation system is the envy of the world. Our network of land, air and sea infrastructure gives consumers access to a wealth of products, from all over the United States and the globe.

Our freight railroads are an important part of the nation’s transportation system. This importance has been reflected in government policy since the 1860s, when the government gave thousands of miles of land to the railroads in order to encourage a network of transcontinental lines to the West Coast. More recently, freight railroads were the largest beneficiaries of $1.5 billion in economic stimulus grants awarded by the Department of Transportation and will also benefit from $8 billion in stimulus money being spent on upgrades for high-speed rail service. These public-private investments will help maintain a robust rail infrastructure to transport goods across the country.

But in return, we need to ensure that our small businesses and manufacturers that make use of the rail system are treated fairly. Unfortunately, for many businesses around the country, a lack of competition in the rail industry has led to rising costs and shrinking profits. These businesses, already struggling to survive in this tough economic climate, are forced to devote greater and greater shares of their operating expenses to cover the rising cost of rail service, instead of reinvesting this money into future economic growth.

I believe strongly in free markets, and I think that markets work best when competition is allowed to flourish. Competitive markets spur innovation and permit customers to shop around. But when competition disappears, the need for a referee on the field becomes more pressing.

Unfortunately for many businesses that ship by rail, competition among railroads for their business simply does not exist. Of the more than 2 billion tons of freight shipped on American railroads last year, roughly 44 percent was “captive,” meaning that the companies shipping the products only have access to one railroad. These captive shippers have no choice but to pay whatever rate the railroad decides to charge them. As a result, they frequently pay more than double — and sometimes triple or quadruple — the rates to ship their products, compared to companies with access to competing railroads.

Excessive shipping costs in turn get passed along to consumers. A Consumer Federation of America report last year found that excessive rail rates cost consumers almost $3 billion annually in higher prices. One proposal before Congress would help restore some balance and competition to the rail industry. This would give the federal agency in charge of regulating rail rates and service, the Surface Transportation Board, some new authority to exercise on behalf of rail shippers and, ultimately, consumers.

This proposal would not represent “reregulation,” as its opponents like to suggest. Instead, it would restore competition and fairness to a broken system that is badly in need of repair. Promoting competition in the rail industry is an issue that cuts across party lines.

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