Regulation of Freight Railways in North America and Europe
DREW J, Drew Management Consultants, UK
Railways world-wide have traditionally been subject to extensive regulations coveting entry and exit to the industry, prices and services. Initially this was because they were often monopolies. However, even after rail lost its dominant position to road,
Railways world-wide have traditionally been subject to extensive regulations coveting entry and exit to the industry, prices and services. Initially this was because they were often monopolies. However, even after rail lost its dominant position to road, regulation continued because railways were still perceived to be natural monopolies due to their high fixed costs, economies of scale and high entry costs.
During the first half of the 20th century, public interest concerns, together with the poor financial and operating performance of their railways, led most countries to nationalise the railways. The principal exceptions to this were the United States and Canada. In the United States, the railways remained entirely in the private sector until part was transferred to public (federal) ownership following major bankruptcies during the 1970s. Public ownership of Conrail only lasted 11 years (1976-1987). In Canada, one of the two national carriers (Canadian Pacific) has never been in the public sector
By the 1960s, however, there was growing pressure for railway rationalisation and reform in most countries. This was for two main reasons:
* Financial constraints on Governments to support growing deficits of the railways
* Declining market share
More recently the aim of using competition to increase efficiency has become important, especially in the EU
Reform began in a small way in the 1960s and 1970s in some countries. For example:
* In Britain the Beeching cuts led to many freight facilities being closed
* In Canada, freight rates were made more market responsive in 1967.
However, it was not until 1980 that the first major reform of regulation was introduced in the United States with the introduction of the Staggers Act. This act replaced a set of very detailed regulations covering most aspects of the freight rail business, including rates, by a regulatory regime with a "light touch".
Since the Staggers Act, a number of other countries have begun to deregulate their rail freight industries though none have gone as far as the United States. The European Union has been attempting to apply the competition provisions of the Treaty of Rome to the rail sector by requiring member states to provide open access to rail infrastructure, initially just for international operations. Australia has a similar policy, though the focus there is on interstate traffic. So far, however, open access has had only limited success in both the EU and Australia.
This article focuses on freight services because they are more often run as commercial services by the private sector than is the case for passenger services. It will examine why, what and how railways are regulated, primarily using the examples of the United States, Canada, Britain and Germany. Finally it will draw conclusions from the analysis.
Association for European Transport