Moving Ahead for Progress in the 21st Century Act

Floor Speech

By:  Herb Kohl
Date: Feb. 29, 2012
Location: Washington, DC


Mr. KOHL. Madam President, I come here today to speak about my amendment No. 1591, which is a bipartisan amendment to repeal the freight railroad industry's undeserved exemptions to the antitrust laws, exemptions that result in higher prices to hundreds of businesses and millions of consumers every day. These outmoded exemptions do damage to numerous industries across our country--industries that are vital to our economy and to the job market.

From power companies that rely on coal shipped by rail, to farmers shipping grain, to chemical companies that rely on rail to transport raw materials, to paper companies that ship their finished products via rail, the railroad's antitrust exemption leads to higher prices and renders rail shippers at the mercy of rail monopolies engaged in anticompetitive practices.

The railroads enjoy these antitrust immunities despite the industry's very high levels of concentration--with four freight railroads controlling nearly 90 percent of the market as measured by revenue and dividing up the country so that they face very little, if any, rail competition in many areas of our country.

This amendment is very simple. Wherever the law provides freight railroads with an antitrust exemption, this amendment repeals it. In this way, the railroads will have to abide by the same rules of free competition as virtually every other industry. This amendment is identical to the Railroad Antitrust Enforcement Act, bipartisan legislation that has passed the Judiciary Committee by overwhelming margins in this Congress as well as in the past two.

Virtually no industry--other than baseball and insurance--enjoys the sweeping nature of the antitrust exemptions as does the freight railroad industry. Yet, paradoxically, the consolidated nature of the freight railroad industry makes full application of antitrust law even more necessary.

Just three decades ago there were more than 40 class I freight railroads in the United States. But today, after massive waves of consolidation, nearly 90 percent of industry revenues are controlled by just four railroads. Many areas of the country are served by only one, leaving their shippers captive to rate increases and anticompetitive measures.

The effects of these antitrust exemptions protecting monopoly behavior are easy to see. Increased concentration, combined with a lack of antitrust scrutiny, have had clear price effects. A September 2010 staff report of the Senate Commerce Committee stated:

The four Class I railroads that today dominate the U.S. rail shipping market are achieving returns on revenue and operating ratios that rank them among the most profitable businesses in the U.S. economy.

Since 2004, this report found ``Class I railroads have been raising prices by an average of 5% a year above inflation.''

The four largest railroads nearly doubled their collective profit margins in the last decade to 13 percent, ranking the railroad industry the fifth most profitable industry as ranked by Fortune Magazine. A 2006 GAO report furthermore found that shippers in many geographical areas ``may be paying excessive rates due to a lack of competition in these markets.'' Given the industry's concentration and pricing power, the case for full-fledged application of the antitrust laws is plain.

It is more than just railroad shippers who pay the price of a railroad industry unchecked by antitrust oversight. These unjustified cost increases cause consumers to suffer higher electricity bills because a utility must pay for the high cost of transporting coal, higher prices for goods produced by manufacturers who rely on railroads to transport raw materials, as well as higher food prices for everyone.

Railroad monopoly conduct ripples through the economy, causing pain in countless corners of commerce. The current antitrust exemptions protect a wide range of railroad industry conduct from antitrust scrutiny. Unlike virtually every other regulated industry, the Justice Department cannot bring suit to block anticompetitive mergers--a fact that has greatly aided the sharp industry consolidation I have already described.

Private parties and State attorneys general cannot bring private antitrust lawsuits to obtain injunctive relief, leaving pernicious industry practices such as bottlenecks and paper barriers exempt from antitrust review. Railroad practices subject to the jurisdiction of the Surface Transportation Board are effectively immunized from antitrust remedies. Our amendment will eliminate these exemptions once and for all. Railroads will be fully subject to antitrust law and will have to play by the same rules of free competition that all other businesses do.

The rail industry's widespread grant of antitrust exemptions has its origin decades ago when the industry was subject to extensive regulation by the long-ago abolished Interstate Commerce Commission. But no good reason exists today for these exemptions to continue.

While railroad legislation in recent decades, including, most notably, the Staggers Rail Act of 1980, deregulated much railroad rate-setting from the oversight of the Surface Transportation Board, these obsolete antitrust exemptions remained in place, insulating a consolidating industry from obeying the rules of fair competition. There is no reason to treat railroads any differently than dozens of other regulated industries in our economy that are fully subject to antitrust.

When this amendment was filed a couple of weeks ago, the railroad industry responded by claiming this amendment ``goes way beyond antitrust laws and looks to create new regulatory law on matters unrelated to antitrust, and in so doing treats [railroads] differently than other regulated industries.''

These arguments are completely without merit. Nothing in this amendment goes ``way beyond antitrust law'' or ``looks to create new regulatory law.'' In fact, this amendment creates absolutely no new regulatory law whatsoever. It simply repeals all of the antitrust exemptions enjoyed by the freight railroad industry.

This amendment would not treat railroads any differently than other regulated industries. The mere fact that an industry is regulated does not exempt it from antitrust law. Many other regulated industries, including the telecommunications sector regulated by the FCC and the aviation and trucking industries regulated by the Department of Transportation, are fully subject to antitrust law.

This amendment simply seeks to end the special exemption from antitrust law enjoyed by freight railroads--an exemption which is both wholly unwarranted and raises prices to shippers and consumers every day.

Dozens of organizations and trade groups representing industries affected by monopolistic railroad conduct have endorsed the Railroad Antitrust Enforcement Act, which is identical to this amendment. Supporters of the legislation have included 20 State attorneys general in 2009; the leading trade associations for the electrical, agricultural, chemical, and paper industries; the National Industrial Transportation League; and the Nation's leading consumer groups.

In sum, by clearing out this thicket of outmoded antitrust exemptions, this amendment will cause railroads to be subject to the same laws as the rest of our economy. Government antitrust enforcers will finally have the tools to prevent anticompetitive transactions and practices by railroads. Likewise, private parties will be able to utilize the antitrust laws to deter anticompetitive conduct and to seek redress for their injuries.

In the antitrust subcommittee, we have seen that in industry after industry vigorous application of our Nation's antitrust laws is the best way to eliminate barriers to competition, to end monopolistic behavior, and to keep prices low and quality of service high. The railroad industry is no different. All those who rely on railroads to ship their products, whether it is an electric utility for its coal, a farmer to ship grain, or a factory to acquire its raw materials or ship out its finished product, deserve the full application of the antitrust laws to end the anticompetitive abuses all too prevalent in this industry today.

I urge my colleagues to support this amendment.

I yield the floor.


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