Ahh - the basic insanity that applies to shortline economics.

Before deregulation, the ICC/state PUC would deny most abandonments or service reductions if there was a demand for service. The railroads still made an overall profit, and part of the justification was that the railroad would make money on the long haul even if they lost money operating the branch.

After deregulation, the economics which were evolving anyway, suddenly changed. Most large railroads do not want single or "loose" car traffic, they primarily want to operate unit trains on heavy density mainlines for the greatest return on their investment. They no longer needed as many yards, switch crews or engines, and the cars had a higher utilization. So they sell the branches and secondary lines they ran into the ground, restrict the new operator to only interchanging with them (no longer allowed by the STB), and then show limited interest in handling any loose car traffic the shortline develops. Note that many shortlines depend on their large railroad connections to set the tariffs and collect from the customer, car supply and marketing - and generally have no control. As stated, many customers now prefer rail service by a shortline (or contract switching) because they can get cars spotted where and when they want with an easy path of communication. They can't get that service from most Class 1 railroads any more.

The basic issue here is that the big railroads are paying a 7% tax on their fuel, already a substantial portion of their costs. They don't see this as providing them with more traffic from shortlines, but as an unnecessary illegal expense that gives money to another company instead of their investors. Is this redistributing wealth, or supporting a common carrier system of transportation? Obviously the shortlines have the political support since without a viable railroad you can't attract new or keep most substantial industries with good paying jobs.