The trucking and railroad industries face little risk of regulatory surprises in the next few years, as the pipeline of rules laid out in President Obama’s first term will continue to flow through his second. Environmental and labor policies, however, could affect shippers’ and carriers’ bottom lines.
With Obama re-elected, carriers and shippers will have to take into account new costs fueled by health care reform legislation, said Randy Mullett, vice president of government relations and public affairs at trucking and logistics giant Con-way. There was some hope that in addition to repealing health care reform, the Republican presidential nominee would have paused or rebooted the Federal Motor Carrier Safety Administration’s CSA enforcement initiative. “There will be no substantial changes” in trucking regulation, Mullett said. “That certainty in itself is helpful.”
The same goes for ongoing regulation facing major railroads, namely an unfunded mandate to implement crash-avoidance technology. Although the Department of Transportation isn’t expected to make rail regulatory or safety issues a priority, the roughly $12 billion positive train control initiative isn’t likely to get off track, either. The National Transportation Safety Board last month named PTC one of its top 10 priorities for 2013, suggesting the railroads, at best, can postpone the 2015 deadline.
“The mandate and implementation of PTC is an unprecedented undertaking and, despite nearly a decade of research and development, still faces significant hurdles to deployment,” said Ed Hamberger, president and CEO of the Association of American Railroads. “Implementing a technology like this, with so many players, has never been done before.
The rising costs of implementation overshadow railroads’ modest success in reducing the mandate requirements. Railroads already have spent $1.5 billion on PTC technology, according to the AAR. Congress appears open to extending the deadline, and a Federal Railroad Administration recommendation to do so bodes well for breathing room.
But Congress is unlikely to get directly involved in the freight railroad industry, choosing instead to focus on passenger rail legislation next year. The divided nature of Congress “suggests there is little to no chance” of rail regulation legislation passing both houses,” according to a Morgan Stanley report. The biggest threat is that Sen. John Rockefeller, D-W.Va., allows shippers to complain about carriers’ pricing power during a hearing, much like he did in 2010, the report’s authors wrote.
The Surface Transportation Board, the industry’s regulatory agency, won’t likely deliver any “controversial or far-reaching findings” regarding the elimination of paper barriers and a long-delayed decision on reciprocal switching. The National Industrial Transportation League wants the STB to allow shippers with no other feasible transportation alternative to switch their goods from one rail line to a competing network if the interchange is within 30 miles. Bruce Carlton, president and CEO of the largest U.S. shipper group and petitioner, hopes the agency will decide on whether to pursue the rule-making by year-end.
Coal shippers also are watching to see if the STB grants the major U.S. railroads’ request to consider indirect competition, specifically from the natural gas industry, when the agency determines whether it has oversight on coal rate cases. The AAR argues there is ample data to help the STB determine where indirect competition exists and whether it “puts downward pressure on coal rail transportation rates, particularly given the low price of natural gas in recent years.”
Unless there is a summary judgment, the class action lawsuit against the four largest U.S. major railroads could last until 2014, and the appeals process could add another year to the timetable. Eight shippers accuse BNSF Railway, Union Pacific Railroad, Norfolk Southern Railway and CSX Transportation of conspiring to fix, raise, maintain or stabilize prices from mid-2002 until 2008. The next step in the lawsuit will be railroads’ rebuttal of expert reports in mid-January.
The outlook for regulation affecting the surface transportation sectors indirectly is less clear. Tighter federal carbon emissions rules have cut into railroads’ lucrative coal hauls, and in turn, buoyed rail and truck companies’ natural gas-related business. With a Republican-controlled House, Obama isn’t likely to push for major greenhouse-emissions legislation, but further emissions tightening via the Environmental Protection Agency would increase natural gas’s edge over coal.
Obama hasn’t signaled whether he will fully open the natural gas and oil sectors for exports. Detractors warn the exporting of domestic fuel sources will raise prices, stifling the small but expanding use of natural gas-powered trucks. They also fear higher fuel costs will slow the growing movement of near-sourcing, as U.S. manufacturers find their electricity pricing edge slip. Mullett disagrees, arguing more natural gas exports would benefit the domestic industry in the long term because the broadening of markets would help reduce the glut of supply and fund better infrastructure in the fuel network.
With the election over, Obama faces increasing pressure to approve the construction of a Keystone XL pipeline. Although some analysts argue the $5.2 billion pipeline would take away railroads’ crude oil business, that’s far from certain. A new pipeline wouldn’t diminish the railroads’ booming oil transport business, largely because shippers enjoy the distribution reach offered by the rail network, BNSF Chief Marketing Officer John Lanigan said this year.
Tighter environmental rules ultimately could squeeze trucking companies, but the bigger threat comes from the labor front. It’s unknown how the Obama administration will react to increased Teamsters-backed lawsuits seeking the classification of owner-operators as employees instead of as contractors.
In July, a federal judge in New Jersey dismissed a Teamsters-backed lawsuit against a drayage carrier. The administration, “which is pretty disposed to a pro-labor policy,” has yet to step into the state-level skirmishes, Mullett said. “When you don’t know things, you assume the worst,” he said.