Surprise! New Federal Freight Rail Mandates Inspire SHORTAGES

P. Gardner Goldsmith | May 5, 2022
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In another educational example of how government manipulation harms economic calculation – and real people’s lives – a new “cause-and-effect” phenomenon has arisen in the freight rail sector.

This one is shocking, it’s bad, and, as you might expect during this time of government-created shortages and price spikes, it reiterates the truism that when governments attempt to artificially cap prices, they increase the probability of shortages.

The first indication of trouble could be seen within Veronique de Rugy’s March 25 Reason article concerning new freight rail “regulations” (i.e. commands) from the government-created Surface Transportation Board (STB). As de Rugy explains, ol’ “Amtrak Joe” Biden’s love of rail evidently extends not to him privately deciding to get into the rail business and compete, but in having a branch of the federal bureaucracy tell REAL rail track owners how to run their businesses.

Specifically, the president's team at the supposedly independent U.S. Surface Transportation Board (STB) just finished a marathon two-day hearing on a controversial regulatory proposal. The idea would force private railroads to subsidize their own competitors and disregard their property rights through a burdensome regulatory change to what is known as forced ‘reciprocal switching’—the practice of allowing one carrier access to another's infrastructure and customers.

Essentially, the new Biden mandate is a favor to freight-car carriers, allowing them to demand access to cheaper rail lines than the ones with which they might already be contracted to use, and forcing those cheaper lines to open a percentage of their rail access space/time to the demanding parties.

Anyone who knows basic economics recognizes this as a form of price control that will lead to fewer rail space/time opportunities being offered, i.e. to a shortage of rail space/time, and, thus, a shortage of the things consumers can obtain from shippers.

Reciprocal switching already occurs voluntarily through private agreements between railroads. Now, the administration wants to give more power to Washington bureaucrats to force open these privately owned networks for use by competitors and to offer below-market rates to shippers.

And, adds de Rugy:

While the rule sounds like a backdoor price control, the government asserts that turning more control over to Washington will promote competition. Their argument is that the railroad industry acts like a monopoly. However, data from the Bureau of Labor Statistics shows that over the past few decades, freight rail rates have not significantly increased, a fact difficult to square with the claim that freight rail is abusing its position to charge its customers excessive prices.

And, as Dominick Armentano spells out in his 1996 book, “Antitrust and Monopoly: Anatomy of a Policy Failure,” this appears to fit right in with the sad, sordid history of the Constitution-defying “Antitrust” judicial and “regulatory” mindset, seeing government illegitimately attack the free market, insert political commands that help friends of the government, and harm honest businesses and consumers. De Rugy offers this valuable point:

The answer, as always, seems to be powerful special interests. In this case, it's shippers. The Rail Customer Coalition's letter to the STB makes it clear that they are trying to get the government to artificially deflate their costs. The hearing also demonstrated an uncomfortable chumminess between the regulators—particularly the agency's chair—and the ring of regulatory proponents led by multinational chemical companies. Indeed, as it has been from the beginning, the biggest cheerleader for the change is the powerful American Chemistry Council, which includes Delaware-based DuPont—a longtime political ally and campaign contributor of the president.

Gosh, if only there were some way to insulate oneself against all these surprising – shocking – facts…

And, as one might expect, economic cause-and-effect now appear to be revealed. An April 14 press release from CF Industries, which explains that CF is a “leading global manufacturer of hydrogen and nitrogen products” headquartered in Illinois, tells us that Union Pacific rail lines has announced a REDUCTION in the slots it will offer for freight carriers to use its rails.

CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today informed customers it serves by Union Pacific rail lines that railroad-mandated shipping reductions would result in nitrogen fertilizer shipment delays during the spring application season and that it would be unable to accept new rail sales involving Union Pacific for the foreseeable future. The Company understands that it is one of only 30 companies to face these restrictions.

Related: Food Prices: How Biden’s Authoritarianism Has Contributed To Farmers’ Massive Fertilizer Shortage | MRCTV

This is very bad news, and reverberates with alarming news I discussed in written and video forms for MRCTV on January 24, news that dealt with Biden strangling the supply of fertilizer, in part, through his strangle-hold on natural gas:

One of the most important fertilizers in the natural category is bentonite, a clay that, surprise, requires heat, often derived from the burning of natural gas, to make it usable.

In the man-made category, natural gas is the key to many of the integral chemical components of fertilizers used to help produce the tons of feed needed for grazing animals and poultry. And, from early (January 27, 2021) in his takeover of the command-and-control U.S. economy that some erroneously and embarrassingly still call ‘free,’ Joe Biden has slammed natural gas production.

Now, the rail lines that could carry needed fertilizer that HAS BEEN created are going to be manipulated by the Bidenistas, per a July, 2021, Executive Order.

Offers CF Industries:

’The timing of this action by Union Pacific could not come at a worse time for farmers,’ said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. ‘Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers’ harvests and increasing the cost of food for consumers.’

In March, FreightWaves’ Joanna Marsh reported on the coming change, and the folks who tried to warn about these effects, at STB hearings:

(T)he railroads argued that allowing reciprocal switching would add operational complexity. Questions about where the railroads should provide access to reciprocal switching, as well as at what distances from terminals should reciprocal switching be permitted, were among the many issues raised. 

Reciprocal switching could also lengthen the time for a shipment to move from point A to point B because of the time it would take to conduct a switch, railroads said.

And while those details about added time, cost, and risk are important, they are secondary to the moral breach of politicians like Biden telling others how to run their lives.

By doing so, the government not only breaches basic Natural Rights, it harms our living standards and increases hardship for those we love.


Related: In Midst of Govt-Created Food, Supply Shortages And Price Spikes, Biden Pushes Farmers To STOP Growing Crops | MRCTV