Consumers Pay Higher Prices for Food, Energy Because of Anticompetitive Rate Hikes in the Railroad Shipping Industry

           WASHINGTON – U.S. Senator Herb Kohl today testified before the Senate Commerce Committee about the lack of competition in the freight railroad industry during a hearing on national rail policy.  Kohl is the sponsor of the Railroad Antitrust Enforcement Act, his bipartisan bill to repeal the obsolete antitrust exemptions protecting freight railroads from competition. These exemptions deny rail consumers antitrust protections available to consumers in virtually every other industry.Kohl introduced the legislation in response 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.  Kohl is chairman of the Senate Antitrust, Competition Policy and Consumer Rights subcommittee.

“On 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, to keep prices low and quality of service high,” Kohl told the Committee.

           “I raise the importance of antitrust and competition principles because our current federal rail policy does not include enforcement of the antitrust laws in most respects.  For decades freight railroads have been insulated from the normal rules of competition followed by almost all other parts of our economy by an outmoded and unwarranted antitrust exemption.  The railroads’ obsolete antitrust exemptions mean higher prices for consumer and manufactured goods, for food and electricity,” Kohl said.

 Kohl noted that consolidation in the railroad industry in recent years has resulted in only four Class I railroads providing nearly 90 percent of the nation’s freight rail transportation, as measured by revenue.   Three decades ago there were 42.    

   Kohl’s Railroad Antitrust Enforcement Act was passed unanimously by the Senate Judiciary Committee on March 5, 2009, and Kohl reached an agreement with Senate Commerce Committee Chairman Jay Rockefeller (D-WV) last June to include the provision in Rockefeller’s rail regulatory reform bill.

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. Several years ago, Dairyland was hit with a 93% rate increase - resulting in about $35 million of increased cost.

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.  Private parties have no right to obtain injunctions to halt anti-competitive practices.   Kohl’s bill will eliminate these and other antitrust exemptions by allowing the federal government, state attorneys general and private parties to file suit to enjoin anti-competitive mergers and acquisitions.  It will restore the review of these mergers to the agency where they belong, the Justice Department’s Antitrust Division.  And it will eliminate the antitrust exemption for railroad collective rate making.