PREZ: Competition Order In the Wrong Lane

President Biden’s 09.July executive order On Promoting Competition in the American Economy targets corporate consolidation and anticompetitive behavior in the freight-rail and ocean shipping industries (among others). In his recent article, One If By Land, Two If By Sea, Manhattan Institute fellow Connor Harris asserts that, regulations that subsidize trucking while raising costs on heavy carriage are a bigger impediment than oligopolistic structure to economical freight-rail and ocean shipping.

Connor Harris {Manhattan Institute}

Excerpted and edited with permission from
One If By Land, Two If By Sea

{City Journal, 27.July.2021}

Harris tees-up by citing elements of a White House press release explaining the executive order: 

“[‘In 1980, there were 33 Class I freight railroads*, compared to just seven today …’ The executive order ‘encourages the STB . . . to strengthen [freight railroads’] obligations to treat other freight companies fairly’ by not overcharging other railroads [exercising] trackage rights. [The press release also detailed] consolidation of ocean shipping … noting that the 10 largest shipping companies control 82% of the global shipping business, up from 51% in 2000, adding that ‘carriers’ behavior is [leveraging the] oligopolistic structure,’ [that maritime] consolidation [is leading to excessive detention and demurrage, and] that the executive order ‘encourages … vigorous enforcement against [carriers] charging American exporters exorbitant charges.

Harris challenges the White House’s focus as misguided:

“[Competition among] freight railroads … pales in comparison to the competition they face with the trucking industry, which has also seen substantial consolidation in recent years yet escaped attention in Biden’s executive order. The American system of road funding constitutes a massive subsidy for trucking. Interstate highways are maintained with a mixture of general tax revenues and gasoline taxes collected from all drivers (and local roads are typically funded by general revenues), but trucks cause almost all road damage. A rule of thumb in transportation planning is that the damage a vehicle causes to roads is proportional to the fourth power of the weight on each axle: for instance, a four-axle, 30-ton truck, possessing ten times the weight per axle as a two-axle, 1.5-ton compact passenger car, causes about 10,000 times more damage to the road.

“[The] executive order ignores other disadvantages that freight rail faces. Railroads not only have to maintain their own rails as well as their trains but also generally must pay property taxes on the improved value of their own facilities. That policy helps make many infrastructure upgrades uneconomical, such as electrification that could allow faster, higher-powered trains to compete with trucking on time-sensitive deliveries.

“As for [maritime] shipping, the White House frames [the executive order as protective of] American manufacturers, as shipping-industry consolidation is ‘leaving domestic manufacturers … at these large foreign [shipping] companies’ mercy.’ [However, American] manufacturers [shipping] domestically [are] out of luck. [Recent Administrations have] repeatedly supported … the Jones Act, [which limits cargo] between American ports to ships built, owned, and flagged in the United States and crewed by U.S. citizens. (Might as well ship by unicorn – Ed.)

“The Jones Act ostensibly exists to maintain U.S. shipbuilding capacities that could prove necessary for national defense, [but to that end it has failed spectacularly] …

“[The executive order] to de-consolidate the freight rail and shipping industries may prove salutary, [but addresses] only a small, politically convenient part of the problem with freight transport in America. Far worse inefficiencies … are the fault of bad regulations and sops to narrow special interests. The Biden administration plans to leave these unaddressed, and in some cases to exacerbate them.”

Editor’s note: It is disingenuous for the Class I railroad industry to be characterized as an oligopoly in the Executive Order. While the top tier of the industry has indeed become concentrated in the Staggers Era, nearly all of the Class Is are publicly owned and traded. The current oligopolistic control exercised by strategic capital entities reflects the industry’s progress over the last 30 years in restructuring a vastly overbuilt/underutilized asset base, and prior decades of failure to face the realities of economic evolution. That said, evolution should continue, and it may be time for the private equity era itself to conclude, leaving a stronger, more consolidated rail network returning faith to improved operational efficiencies as a basis for competing with trucking for traffic, and indeed to collaborate with other modes in reducing carbon emissions from supply chain transportation.

* The list below of Class I railroads in 1980 was posted in a very old online thread, claiming to be calculated from the Year 1980 Class I revenue requirement of $50 million. Presented for comparison only. 

  1. Alabama Great Southern (owned by Southern)
  2. Atchison, Topeka and Santa Fe 
  3. Baltimore and Ohio 
  4. Bessemer and Lake Erie 
  5. Boston ans Maine 
  6. Burlington Northern 
  7. Central of Georgia (owned by Southern) 
  8. Chesapeake and Ohio 
  9. Chicago, Milwaukee, St. Paul and Pacific 
  10. Chicago, Rock Island and Pacific (until March) 
  11. Chicago and North Western 
  12. Cincinnati, New Orleans and Texas Pacific (owned by Southern) 
  13. Clinchfield (owned by Seaboard and L&N) 
  14. Colorado and Southern (owned by BN) 
  15. Conrail 
  16. Delaware and Hudson 
  17. Denver and Rio Grande Western 
  18. Detroit, Toledo and Ironton (sold to GTW in June, merged in 1983) 
  19. Duluth, Missabi and Iron Range 
  20. Elgin, Joliet and Eastern 
  21. Florida East Coast 
  22. Fort Worth and Denver (owned by BN) 
  23. Grand Trunk Western (owned by CN) 
  24. Illinois Central Gulf 
  25. Kansas City Southern 
  26. Long Island Railroad 
  27. Louisiana ans Arkansas (owned by KCS) 
  28. Louisville and Nashville (owned by SCL) 
  29. Missouri-Kansas-Texas 
  30. Missouri Pacific 
  31. Norfolk and Western 
  32. Pittsburgh and Lake Erie 
  33. St. Louis-San Francisco (merged into BN in November) 
  34. St. Louis Southwestern (owned by SP) 
  35. Seaboard Coast Line 
  36. Soo Line 
  37. Southern 
  38. Southern Pacific 
  39. Union Pacific 
  40. Western Maryland (owned by C&O+B&O) 
  41. Western Pacific

{posted by nanaimo73 13.Oct.2005 on trains.com}