Be careful what you ask for

Be careful what you ask for

While attending the recent Coalition of New England Companies for Trade conference, one speaker discussed the difficulties of some of his constituents. These were officials of power plants moving coal into their facilities in trainload quantities. They were recently told that their rates were going up 100 percent. They were in a virtual "take-it-or-leave-it" position.

The speaker attributed the situation to the lack of a competitive alternative and the inaction of the Surface Transportation Board to do anything about the apparent abuse of market power. Two important factors were left unsaid, however: One, this was the first rate increase for the power plant in a long time, and two, more than 25 years ago, the utilities, among many other groups, clamored to deregulate the rail industry.

I recall sitting at numerous Delta Nu Alpha and American Society of Traffic and Transportation (now Transportation and Logistics) meetings in the late 1970s and being told, "There will be a day when there will only be three or four railroads, and competition will be scarce." Most of those views were ignored; the very large shippers believed that given a deregulated environment, their overall costs of doing business would decline.

Deregulation no doubt benefited some to the detriment of others. Thousands of miles of railroad tracks have been closed; consolidations have left us with - yes - four major railroads. And many are questioning the true competitive situation.

Let's switch gears a little: the subject is still deregulation, but now it is the ocean carriers' complete deregulation as recommended by the Antitrust Modernization Commission in its "Report and Recommendations" dated April 7, 2007, to President Bush and Congress.

The commission recommends that ocean carriers have no antitrust immunity; rate agreements should be eliminated; and because of the issues that carriers must discuss to manage alliances, and the theory that it would create more competition if the alliances were not allowed, they, too, should be abolished.

Let's look at those two recommendations independently and consider the consequences.

It's difficult to disagree with the argument that agreements such as the Transpacific Stabilization Agreement and the Trans-Atlantic Conference Agreement shouldn't exist. In a debate, one might make good points on how, in reality, conferences, rate agreements and stabilization agreements have not really worked in the carrier's favor. They did lend a level of stability to the trades that, in the long run, helped shippers. But why should ocean carriers have antitrust immunity if other industries don't? Is there a compelling reason to keep them?

Now let's consider alliances. One could argue that some of the market information exchanged shouldn't be allowed. The counterargument is that without it the alliance could never agree on the sizes of ships to be used, service frequency, port rotations, etc. The recommendation also surmises that alliances remove a level of competition. The counter to that is that they have created competition, allowing carriers that virtually never served certain trades to become involved in them as alliance members - more carriers to talk to, more competition between the carriers.

If alliances no longer existed, how many carriers would leave certain trades because they didn't have the capacity to serve those trades? Where would carriers put the precious few assets they have? In the most lucrative trades, naturally.

Think back 15 or 20 years ago. How many carriers were "global"? The answer is virtually none. Instead what you had was European carriers serving the Europe-based trades, Asian carriers serving Asia-based trades, and U.S. carriers (yes, there used to be U.S. carriers) serving U.S.-based trades.

Alliances helped to change all of that. In my opinion, cargo interests are much better served if alliances continue to exist. The European version of ocean transport deregulation kept alliances intact. The airline industry has its version of alliances. Let's not throw out the baby with the bath water. Let's think in terms of consequences, intended or otherwise.

Alliances have provided shippers with more choices, greater competition and lower costs. This is factual, not theoretical.

Theoretically, the power plants gained a level of competition with railroad deregulation, but in reality, more than 20 years later, they are in a take-it-or-leave-it situation. There's a lesson to be learned from that.