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Railroad Barriers and Supply Chain Control

In Oklahoma’s third congressional district, there is an opportunity to install a textile mill and purchase a virtually endless supply of raw cotton from our neighbors in Texas. However, establishing a cotton industry in the state is proving to be more difficult than expected. First, we are expecting little production in the state and must source the cotton from out of state. Once we possess the cotton, we have to carefully navigate state regulations for building our processes. But buying the raw materials and installing a legal process is not where we are blocked; we are blocked from utilizing the national supply chain to obtain a competitive advantage.

Railroad companies, the large ones that span across North America, have a long history of using rates to control the national supply chain. From the mid 1800’s into the 1900’s, the United States Congress and several presidents tried earnestly to prevent railroads from controlling industry; it is evident in 2019 that the US railroad industry needs restructuring. I say this because we built the railways to foster industrial expansion, now we must restore them for our national economy to thrive and for us to reach our true industrial capacity.

The Surface Transportation Board is the governing federal agency over the railroad industry and we must work with them to ensure our smaller, younger businesses can be successful. 

There are several ways in which railroad companies control distribution within their networks. When you visit the rail company websites, you will be able to locate their tariff policy, rules for shipping with them, and their fees and penalties and other service costs; some of these rule books are 65 pages, some are only 11. No matter how elaborate their pricing and tariff policies are, each company has about the same fundamental concept for shipping; they charge their own tariffs for interstate commerce within their network, they charge their own switching service fees, and they have a long list of charges for various penalties and other options.

The Class One railroads have enormous power and they can control the nation's supply chain through rate manipulation that dictates activity. This is only one component of the railroad barriers; there are more practices that prevent the national supply chain from flowing.

Railroad companies have a switch fee that is charged every time a railcar changes from one rail network to the jurisdiction of another. This is not necessarily an issue with the larger customers who travel long distances on the same network and stop at the nation’s largest cities to unload and reload freight. This becomes devastating for our rural routes that switch over and over to reach their destination; the switch service fee is typically hundreds of dollars per carload and accompanied with the tariffs, can cause a business venture to fail.

Lastly, a citizen must be a shrewd businessman in order to play in the railroad industry. There are fines for leaving an empty railcar on a return trip and the switch fees still apply. There are also demurrage charges for not emptying your freight within a specified time period and penalties for being overweight and fees for carrying hazardous materials. As you can see, it is impractical for small businesses to incorporate railroads in their supply chain given the dominance of the largest networks and the current cost structure for the US railroad industry.

For Oklahoma to industrialize to capacity, we must create a set of rules for our nation’s railways. I completely agree that networks, the distinct rail industry jurisdictions, are important to enhance safety and promote organization across North American routes. However, these networks cannot use their tariffs to control the industry. We also cannot be penalized for switching networks; the switch service fees limit market access and combined with tariffs, prevent comprehensive industrial participation in the United States.

The penalties for being overweight, returning empty railcars, or being late unloading cargo is acceptable as it is the responsibility of the customer to ensure they do not interfere with the railroad’s operations. I am aware that this approach to expanding our nation’s industry will bring about a level of economic loss for our railroads, but the subsequent industrial expansion will help compensate for the loss of revenue, especially among the smaller tracks. Our citizens must have affordable access to railways and they must have complete autonomy when determining trade routes; we can give them this competitive advantage by breaking down the existing distribution barriers.

The railroad industry is complex and I have rolled up my sleeves and dug in. I will be discussing railroad utilization more with some of my mentors in the business to thoroughly understand the limitations so that we can overcome them with legislation. One thing is certain; it is critical that our businesses are able to transport raw materials and finished goods throughout North America via our railroads. They must be able to dictate their supply chain needs based on their operations and our railroad companies need to be service providers instead of service deciders.

Committee to Elect Bevon Rogers
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