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Some observations on the history of railroad rate regulation/deregulation will sharpen the analysis of several contributors to this thread: 1. The Transportation Act of 1958 ended the strangle-hold of ICC railroad rate regulation that had prevailed since the early 1900's. The "umbrella" theory of rate regulation which held railroad rates arbitrarily above truck and barge rates was ended. (Litigation was required to finally give full effect to the law, perhaps most notably in the "Big John" case which allowed the Southern to undercut barge rates for grain into the Southeast using high-capacity covered hoppers.) 2. The railroads had complete antitrust immunity for setting freight rates until the mid-1970's, and this ended entirely only with the Staggers Act of 1980. Every railroad had the unrestricted right to "independent action" under the antitrust agreement articles to set whatever rates it wished on its own line and for which it could obtain concurrence on interline traffic. In reality, this freedom was tempered because retaliation could, and did, occur. Rate "structures" were viewed as somewhat sacrosanct, and great deliberation went into their establishment and preservation, nearly always through rate-bureau deliberation. This tedious procedure often took months or years, and in some cases could still draw complaints at the ICC. Not the picture of competitive efficiency. 3. However, in light of the above realities it is inaccurate to believe that highly efficient routes were externally constrained in their rate-making to protect the inefficient. In most cases, the UP's, the PRR's, the SOU's of the industry had a "world view" of their own economics and competitive realities that they expressed forcefully in rate bureau and regulatory proceedings. 4. The period from 1967 to 1980 was a crucial one for the rairoad industry in many ways, not the least of these had to do with rate making. The financial results of the railroad industry for the year 1966 were viewed as vindication of the wisdom of the 1958 Act: Record profits, a competitively reinvigorated industry, no longer a "failing" mode. Huzzahs equivalent to those often used to describe the benefits of the Staggers Act blanketed the industry press. Sure, there was the passenger deficit ... and the stirrings of inflation ... and the emerging long-haul trucking industry using the rapidly abuilding interstate highway system ... and the pending Penn Central merger. But all things considered, the future looked promising. 5. Then came the 1967 recession, and as always, recessions were a major negative on railroad finances. Inflation began to stir to the 3-4% level. Stuart Saunders, the unions, the ICC, et al, reached agreement on the Penn Central merger. The stage was set for dramatic rate battles that would last until the Staggers Act was implemented in 1981. 6. In simplest terms, the battles pitted the "rate increasers" vs. the Southern Railway. Starting in 1967, railroad presidents, almost across the board, began pressing their traffic departments to approve in rate bureau proceedings so-called "Ex Parte" general rate increases to be filed with the ICC. These pleadings were couched in terms that held that external economic forces necessitated all rates to be increased by X%. 7. The Southern Railway had a very sophisticated competitive analysis matrix which evaluated all major traffic segments/flows versus truck, barge, commodity and geographic competition. While sympathetic to revenue needs, the Southern viewed any undifferentiated across-the-board rate increase as potentially self-defeating. Because of the above-mentioned right of independent action, the Southern could completely control rate levels on its lines, and it did. Much to the consternation of much of the rest of the industry. Only if profit became unsatisfactory or if competition allowed, would the Southern agree to rate increases on specific traffic segments. The Southern pursued this strategy throughout the 1970's. Not incidentally, the Southern flourished and was named one of the 5 best-managed firms by Forbes magazine in 1975. 8. The Southern Railway to the contrary notwithstanding, railroad presidents engaged in a veritable orgy of general rate increases, led by the majors. Ex Partes 256, 258, 259, 262, 265, 267, 281, ad infinitum, ad nauseum. Compounded, the general level of rates rose over 300% in that 14 year period. Diversion to other modes was in the tens of millions of tons. 9. The Staggers Act has been hailed as saving the industry (again). An ironic reality is that many railroad presidents felt its most important provision was for automatic quarterly rate increases based on increased costs! No more "regulatory lag" in going to the ICC for permission to raise rates across-the-board! History shows that provision to have been of modest import. Rather, rational single-line pricing quickly became the new norm. Something that had be fully available since 1958 ... and practiced by the Southern Railway.
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