Judge rail industry by performance, not processes

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As Congress prepares to consider as much as $1 trillion in new infrastructure spending, it bears remembering that among the nation’s most essential infrastructure industries is one of its oldest: freight rail. In fact, 40 percent of all the miles that freight travels in the United States each year are by rail, with nearly a half-trillion dollars of goods shipped by freight rail in 2012 alone.

Despite those impressive stats, the industry doesn’t always enjoy the best public profile. Though the nation’s freight carriers are coming off their safest year to-date, with derailments and track-caused accidents declining year-on-year by 10 percent, the fact remains that a handful of high-profile train derailments leave the public with a skewed view of freight rail’s safety.

Safety on America’s rails is expensive, but the freight rail industry has a track record of making those investments. Since 2011, freight-rail lines have invested an average of $26 billion annually in track maintenance and improvements. It’s time the industry’s regulator, the Federal Railroad Agency, make a similar investment in modernizing how it oversees this key sector of the economy. For too long, the FRA has operated an outdated command-and-control model that discourages innovation and raises costs for consumers.

As one example, the agency issued new rules last year that require each train maintain a minimum of two crew members on board while in service. Most firms do, in fact, currently maintain a crew of two on each train, but the need for human staff is diminishing as automation and autonomous operations become viable options in this sector, as they have in many others. Freight carriers that want to experiment with automation and cut redundant crew would have to go through the hugely costly and time-consuming process of petitioning the FRA to change its rules.

Rather than continue to prescribe inflexible standards, the FRA should move toward “performance-based” regulation, an idea explored in a recent report by Marc Scribner of the Competitive Enterprise Institute. The premise of performance-based regulation is that measuring outcomes—and not specific “processes, techniques, or procedures”—is the best regulatory approach, as it leaves industries the flexibility to meet and exceed tangible goals without accruing costly and unnecessary regulatory overhead.

In practice, this would mean that freight-rail lines must, for instance, not exceed certain track failure rates. Companies would face stiff consequences if they fail to meet the goal, but how they go about doing so would be left to their own judgment and ingenuity.

To some, moving away from requiring specific safety processes may appear to give industry too much leeway. However, it’s important to remember that firms already face powerful incentives to invest in safety. Accidents are tremendously costly and the reputational harm can be ruinous. Running a safe transportation service—be it on the nation’s roads, in its skies or on its rails—is simply good business.

Encouragingly, the FRA has shown itself willing to consider performance-based regulatory approaches in other contexts. For instance, the agency currently is considering moving away from requiring passenger rail cars to meet certain specific crashworthiness requirements. The effect of those requirements largely has been to increase the weight and bulk of passenger cars and prevent U.S. firms from buying cars from other markets. Under proposed crash rules, the FRA would allow cars to comply if they employ crumple-zone technology.

The need for performance-based regulation in the freight-rail industry is underscored by the sheer scale of the industry and its impact on the American economy. Freight rail touches virtually every aspect of commerce. In 2014, 1.88 billion tons of goods were shipped on freight-rail lines. For one regulator to micromanage all of that activity is impossible, and the attempt to do so translates directly into costs borne by nearly all American consumers. By contrast, allowing freight rail to deliver safety in more cost-effective ways would have benefits that spread out across the entire economy.


Image by GE_4530

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