Opinion: New regulations will increase rail competition, which will be good for the economy — via fpcomment
The two major Canadian railroads are interconnected at various track junctions known as switching points. In very dense trackage areas, the two will sometimes voluntarily move one another’s traffic on their tracks, using switching points. This is known as “inter-switching.” A rail regulation known as “extended inter-switching” exists to support all Canadian shippers.
Extended inter-switching has led to policy controversy before. As part of its response to significant railroad service issues, in 2014 the Harper government allowed extended inter-switching over a radius of 160 km. By all shipper accounts this trial was successful, but the longer limit was ultimately lobbied away by the railroads and replaced in 2017 by the railroad-friendly policy of long-haul inter-switching.
What data are available from the 2014-2017 trial suggest, first, that although the new policy did not lead to many actual inter-switches by 2017 rates for affected shipping groups were falling at least slightly while service was becoming more reliable and, second, that because it took time for shippers to learn the new regulations three years probably was not long enough for the market to reach a more-competitive equilibrium.
The trial also showed that 160 km extended inter-switching neither overwhelmed rail capacity nor ruined the railroads but instead provided Canadian shippers some market contestability: the mere threat to exercise the extended inter-switch was enough to alter railway behaviour. Its re-implementation therefore gives shippers additional bargaining leverage in negotiating with railroads, which will need to offer improved service and rates if they want to retain market share.
Mr. Dufort argued that U.S. railroads are “rubbing their hands with glee” at the prospect of extended inter-switching being imposed on their Canadian competitors. They almost certainly are not. In fact, the U.S. rail regulator is currently working to implement its own inter-switching policy to enhance competition. If U.S railroads are doing anything with their hands, it is waving goodbye to long-standing market power in many freight transportation markets.
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