Leaders from the diverse chemical sector, a critical industry to the United States economy, convened in Colorado Springs beginning June 4. On the agenda are several public policy matters that common-sense Coloradans likely support.
From ensuring that infrastructure projects can be openly bid to deserving companies - not bound by bureaucratic mandates that favor politically favored entities - to ensuring chemical companies and downstream users such as Colorado shale gas producers can freely export products to global trading partners without crushing tariffs, the majority of readers likely agree with key tenants of the industry's agenda. After all, chemical companies in Colorado employ more than 6,100 workers and support nearly 9,000 more.
However, when it comes to an effort to roll back successful policy governing the economics of private freight railroads - which move a vast amount of chemical products alongside agriculture, energy, manufacturing and consumer products - here's betting that most will diverge from the pack. One needs to look no further than historical precedent to understand that government control of freight rail routes and pricing is antithetical to a vibrant freight rail sector.
After decades of decline, the U.S. railroad industry was revitalized when Congress partially deregulated freight railroads in terms of setting prices for services and setting rail rates, making decisions regarding what routes to use, and establishing shipper contracts. Current policy lets the market dictate key decisions.
The benefits from deregulation are recognized in vast improvements in industry efficiency and productivity, capital investment, maintenance and safety, market share, profitability, and reduced costs and enhanced service for customers. This year alone, Union Pacific, which operates through Colorado Springs, plans on spending $24 million on capital improvements in the state.
Today, freight railroads, with 140,000 rail miles, stand out as an essential bloodline for the U.S. economy. Yet the story of America's freight railroads - which employ nearly 3,000 people in Colorado and which maintain a testing and research facility in Pueblo - is also is a small business story.
A new report from the Small Business & Entrepreneurship Council looked at 13 major industries directly and indirectly impacted by railroads. It turns out that in all but one of these industries, the majority of employer firms are small businesses with fewer than 20 employees, ranging from 51 percent of firms in the warehousing and storage sector to 93 percent in the agricultural sector. In all 13 sectors, firms with fewer than 100 employees make up at least 69 percent of employer firms, all the way to 99 percent in construction.
For good measure, many short line railroads are small businesses themselves. According to American Short Line and Railroad Association, "Operating 47,500 route miles, or 29 percent of freight rail in the U.S., these small business railroad entities play a vital role in the hub-and-spoke transportation network, providing the connection between farmers, manufacturers and other industries, and ultimately, the consumer." Short line railroads, like their larger peers, are also capital intensive, investing a quarter of revenue in capital and maintenance.
Any relapses into a regime of over-regulation would bode ill for railroads in terms of their ability and incentive for investment, for rail maintenance and safety, and for their ability to compete in the freight transportation marketplace.
The threat is alive and well at the U.S. Surface Transportation Board, which seeks to re-impose price controls on the railroad industry and force private carriers to open their rail lines to competitors. If imposed, such measures would undermine profitability, investment and service. It is no wonder why my organization recently joined a large contingent of large policy organizations to oppose any such changes.
Clearly, policymakers need to stay focused on the fact that a healthy freight railroad industry, disciplined and encouraged to invest thanks to competition and deregulation, has been beneficial to countless small businesses throughout the economy. For the sake of the Colorado and U.S. economies, we should hope Congress halts any efforts to curb the important freight rail sector.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council, whose members include firms in the railroad industry. He is the author of a new report "All Aboard! Entrepreneurs and Small Businesses Power Freight Railroads."