America's freight railroads: thirty years after the Staggers Act.

Author:Spraggins, H. Barry
Position::Report
 
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  1. INTRODUCTION

    After more than 90 years of intense government regulation, the Staggers Railroad Act of 1980 significantly deregulated America's freight railroads bringing them back from the brink of ruin. The benefits of the Staggers Act were quickly realized and significant. Among the most notable was improvement in railroad productivity which resulted in lower freight rates.

    The Staggers Act established a more balanced rail regulatory environment under which they could determine the optimum routes, services offered, and pricing based on market conditions rather than have micro-managed government regulatory decisions. The new balance brought about by the Staggers Act did not exempt railroads from all government regulatory oversight or take away from many customer protections. Government regulators still have the authority to set maximum allowable rail rates if a carrier has "market dominance" or engages in anti-competitive actions (AAR, 2010).

  2. RAIL AND LEGISLATIVE HISTORY OF THE 1970s AND 1980s

    The 1970s saw a flurry of railroad bankruptcies. Years of over-regulation, intense competition from trucks and barges, and changing shipping patterns had plunged many railroads into bankruptcy or on the brink of bankruptcy. During this period, most Northeast rail lines and several Midwestern railroads went bankrupt. More than 21 percent of rail mileage was owned by bankrupt railroads. Safe rail operations were in sharp decline and equipment was in serious disrepair, all because of lack of funding. The rate of return on investment peaked at 2.9 percent but averaged 2.0 percent in the 70s. This return was down from 4.1 percent in the 1940s; 3.7 percent in the 1950s; and, 2.8 percent in the 1960s (AAR, 2010).

    The railroad share of intercity freight had fallen to 35 percent by 1978, down from 75 percent in the 1920s. By 1976, more than 47,000 miles of rail track had to be operated at reduced speeds because railroads did not have funds to properly maintain their tracks (AAR, 2010). The unsafe conditions were brought about because of the deferred maintenance due to lack of funding.

    The deteriorating rail industry condition led to congressional action in the area of regulatory policy. The result was a series of acts by Congress including the Rail Passenger Service Act of 1970; the Regional Rail Reorganization (3R) Act of 1973; and the landmark Railroad Revitalization and Regulatory Reform (4R) Act of 1976.

    This debacle was long in the making. The U.S. Department of Transportation stated in 1978, "The current system of railroad regulation ... is a hodgepodge of inconsistent and often anachronistic regulations that no longer correspond to the economic condition of the railroads, the nature of intermodal competition, or the often-conflicting needs of shipper, consumers, and taxpayers" (AAR, 2010).

    Congress basically had two options at this point in time: nationalization or balanced regulation to replace the excessive regulation that existed. They chose the path primarily of less regulation. Key committees in both the Senate and House moved forward with legislation aimed at further reducing railroad regulation. Hence, deregulation of the railroad industry was a legislative priority throughout 1979 and into 1980 (Willig, 1987).

    The 1970s was called the decade of deregulation, but events and legislation of the 1970s set the stage for the passage of the single most important congressional act of rail deregulation in 1980. It was known as the Staggers Rail Act of 1980. This legislative act was passed because...

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