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Trust Busting the Trains

June 2, 2009 - by Donny Shaw

You would think that any talk of antitrust laws in Washington these days would have to do with too-big-to-fail banking. Not so. The Senate today is poised to take up legislation that would apply new antitrust rules to a different industry — the railroads.

The Railroad Antitrust Enforcement Act of 2009 would take away a long-standing exemption to antitrust laws for the railroad industry. It would allow the government, the states and private parties to seek injunctive relief against anti-competitive railroad companies and refer these matters to the DoJ’s antitrust division. This would put railroad companies in parity with companies in just about every other industry.

Here’s what Sen. Herbert Kohl [D, WI], the bill’s sponsor, says about it on his website:

Due to industry consolidation, as of now only four major Class 1 railroads carry 90 percent of the nation’s freight, resulting often in unreliable service and exorbitant fees. Kohl’s and Baldwin’s bills, titled The Railroad Antitrust Enforcement Act, responds directly to concerns that freight railroads are abusing their dominant market power and raising rates for those who rely on them to ship dozens of vital commodities, including coal and agricultural products. Their legislation, introduced in the Senate and House, would result in placing the rail industry under the same antitrust laws that apply to other industries, including trucking, aviation, telecommunications and energy. […]

Many industries – known as “captive shippers” – are served by only one railroad. These captive shippers have faced constantly rising rail rates. In many cases the ordinary protections of antitrust law are unavailable to these captive shippers – instead, the railroads are protected by a series of exemptions from the normal rules of antitrust law to which all other industries must abide.

As an example, Dairyland Power in La Crosse serves the electricity needs of more than 575,000 people. In 2005, Dairyland experienced a 13 percent shortfall of scheduled coal shipments, but was hit with a 93 percent rate increase – resulting in about $35 million of increased cost passed along to its customers.

Current antitrust law protects a wide range of railroad industry conduct from scrutiny by antitrust enforcers. Railroad mergers and acquisitions are exempt from antitrust law and are reviewed solely by the Surface Transportation Board. Railroads that engage in collective ratemaking are also exempt from antitrust law. Kohl’s and Baldwin’s bills will eliminate these antitrust exemptions by allowing the federal government, state attorneys general and private parties to file suit to enjoin anti-competitive mergers and acquisitions. Their legislation will restore the review of these mergers to the agency where they belong – the Justice Department’s Antitrust Division. And they will eliminate the antitrust exemption for railroad collective rate making.

UPDATE: Actually, I got this wrong a little bit. They aren’t taking up the bill just yet. They were going to, but it has been pulled from the floor for now and will be included in comprehensive legislation to reform the Surface Transportation Board, Progressive Railroading reports.

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