European and US Intermodal Transportation, Research Paper Example

Introduction

Regardless of the industry and nation, the decision to regulate or deregulate is the result of political decisions based on past, current, and prospective economic conditions. Theory plays its part, particularly the theory of free markets, but theory has no traction unless there is collective agreement that it should be tried. That understood, it is necessary to explain the link between deregulation and intermodal shipping; that is, why the two tend to go together. In brief, deregulation and intermodal shipping go together because intermodal transport reduces labor costs, and such labor has historically been subject to both labor union and/or governmental control. Once agreement was reached that intermodal methods made sense, it was only a matter of time before laws were amended to permit cross ownership of shipping, rail, and trucking companies. So one may think of the standardized container as a strong facilitator of deregulation.

The United States

In the U.S., the deregulation of railroads, which began with the Staggers Act of 1980, is considered nearly fully achieved and successfully so (Caves, D., Christensen, L., & Swanson, J., 2010). Political consensus for deregulation held firm because costs fell and efficiency greatly improved. This is a big change since the 1970s, when railroads were in great financial difficulty, caused in part by excessive governmental regulation of rates. Here is where free market theories mentioned above came into play: there was nowhere else to turn. The regulation model was played out. And standard-sized containers made the choice a practical one. The success of a more open and free market in shipping also contributed to the North American Free Trade Agreement and made possible the great expansion of trade between the U.S. and the Pacific Rim.

Europe

In Europe, the situation is very different for two primary reasons. In spite of the European Union, there is much disagreement between its members as to how far deregulation should go and how it should be managed, although in principle there is formal acceptance that there is no economic need for rail freight to be state run (Aberle, G., 2002). Overall there has been less than desired progress towards standardization, which is the philosophical and practical basis of intermodal shipping. There has also been a reluctance of governments and industries both to surrender their rate-setting authority and subsidies. One doesn’t have to look far to see the reason: there is no guarantee that, if one nation and its transportation network opted for a more fully competitive system of prices and services, its neighbors would do the same. The other problem is more recent: the uncertain fate of the Euro and the European Union itself. Should it begin to break apart, as is certainly a possibility in the case of Greece, then all the familiar problems confronting deregulation and standardization (not to mention cross-ownership of transportation firms) will be that much more complex, perhaps to the point of political failure.

Re-regulation and Conclusion

The impetus back to regulation, both in the U.S. and Europe, lies in the perceived danger of climate change. There is a growing public consensus that subsidizing rail and light rail and raising the price of road user-costs is a legitimate way of reducing carbon emissions. Not surprisingly, this movement is further advanced in Europe, where the role of government in setting prices is widely accepted by the public, if not by its economists. The problem here is that intermodal initiatives are mainly financed privately to take advantage of profitable new markets. Such efforts require market pricing. Government-based goals are the opposite of that. Thus, the cycle of regulation and deregulation in intermodal transportation may come around full circle.

References

Aberle, G. (2002). European Integration of Rail Freight Transport: Report of the Hundred and Twenty Fifth Round Table. Economic Research Centre. Retrieved from http://internationaltransportforum.org/pub/pdf/04RT125.pdf

Caves, D., Christensen, L., & Swanson, J. (2010). The Staggers Act, 30 Years Later. Cato.org publication. Retrieved from http://www.cato.org/pubs/regulation/regv33n4/regv33n4-5.pdf