Daily Archives: March 13, 2013

Free Market? What Free Market?

In the developed world, we supposedly have a free market, defined as a market structure in which the distribution and costs of goods and services, wage rates, interest rates — along with the structure and hierarchy between capital and consumer goods — are coordinated by supply and demand unhindered by external regulation or control by government or monopolies. (Dictionary.com) However, every time you turn around these days, governments are imposing new policies to restrict free trade (which allows for a free market on a global scale) or failing to abolish old policies that allow monopolies to persist in this day and age.

For instance, after taking steps to bust up the telco monopolies, the U.S. has now made it illegal to unlock your cellphone. (Read the full decision if you like.) In other words, instead of being forced to use one monopoly, you now get to choose between six mini-monopolies. (Now, it’s true that the FCC will investigate the U.S. mobile phone unlocking ban, but it’s no guarantee they will reverse the decision.) The absurdity of this cannot be put into words. (Imagine if you had to buy your TV through the cable company and you couldn’t use the TV again if you switched cable providers. Does this make sense? Basically, the law is saying a telco carrier gets to choose how you use YOUR phone.)

But this isn’t what I’m ranting about today, as this is a Supply Management blog after all. My rant today is about the fact that it’s 2013 and we are still subject to captive shipping in the railroad and inland barge industries because there is no mandated reciprocal switching (in the United States). So, not only are you forced to use the carrier that owns the line your port/warehouse/etc. is located on, but you cannot ship to a destination if that carrier does not service it. Not only does this increase shipping rates by an average of 20% by some accounts, but it forces many shippers to use long-haul trucking way more than they would otherwise need to.

The fact that captive shipping has not been eliminated is costing the U.S. economy billions of dollars each year. As per a recent report issued by the National Industrial Transportation League (NITL), and summarized in DC Velocity, the introduction of new switching rules that would allow for limited reciprocal switching between the nation’s four major railroads could save rail customers up to 1.2 Billion a year. Simply allowing a (truly) captive shipper or receiver to gain access to a second rail carrier if the customer’s facility is located within a 30-mile radius of an interchange where regular switching occurs would shave up to 1.2 Billion off of shipping costs according to the accepted Revenue Shortfall Allocation Method (RSAM) formula. (So imagine how much could be saved if reciprocal shipping was mandated across the board or more freight shipped rail instead of truck!)

The Surface Transportation Board (STB) could use the powers granted to it under the Staggers Rail Act of 1980 and order the railroads to create reciprocal switching agreements between each other to eliminate captive shippers, but since they’ve had thirty three years to do this, and have made zero progress, it’s not likely to happen. So we’re going to have a monopoly until, as the DC Velocity article notes, angry shippers descend on Capitol Hill and demand that Congress update the Staggers Rail Act to include mandatory reciprocal switching. Maybe then we’ll finally have a free market on the rails two-hundred and fifty years after the first railroad* (Montresor’s Tramway) was built in the US.

* Note that the first railway in North America, drawn by horses, was not built in New York, but in Nova Scotia forty-four years earlier to support the construction fo the Fortress of Louisbourg in Cape Breton! (Source: Nova Scotia Railways)