Rails challenge STB over market dominance

Railroads anger shippers by appealing a board ruling on rate cases.

By Staff -- Logistics Management, 10/1/1999

The railroad industry has gone to court to challenge a Surface Transportation Board (STB) decision that eliminated product and geographic competition as factors in determining market dominance. The challenge has angered shippers, who are already upset about what they widely consider to be inadequate rail service.

The railroads are taking aim at the way in which the STB will determine in rail rate disputes whether a railroad dominates the market in question. The board has the authority to roll back rates for a captive rail shipper if it determines that the railroad dominates the shipper's market and the freight rate is unreasonable.

Last year, the STB changed the ground rules for determining market dominance. It overturned a policy established by its predecessor agency, the Interstate Commerce Commission, under which a shipper's request for rate relief could be denied if the railroad could demonstrate that the shipper could obtain a substitute product or obtain access to the product from an alternative source in another location.

The Association of American Railroads (AAR)--the trade organization representing rail carriers--has asked the U.S. District Court of Appeals for the District of Columbia Circuit to review the 1998 STB decision. AAR spokesman Thomas White says his organization acknowledges that the current procedure for determining market dominance is cumbersome but insists that geographic and product competition should be taken into account in rate cases. "In [its] own ruling, the STB recognizes that product and geographic competition exists and serves as a restraint on rail rates," White argues. "Our point is that if it's the procedure that's the problem, you don't throw out the principle. Product and geographic competition do exist."

Shippers, however, had argued that the railroads had abused the process for determining market dominance with burdensome requests for information that raised legal costs and delayed resolution. No surprise then, that shipper groups hailed the STB's decision to make the rate-relief process simpler. "We're very supportive of the Surface Transportation Board," says Edward H. Rastatter, director of rail and truck policy at the National Industrial Transportation League (NITL), the nation's largest shipper group. "It's one of the few good decisions [the board has] made in the last few years." The league has filed motions with the court to intervene in the case and plans to file a brief in support of the board's decision.

The Alliance for Rail Competition also was critical of the railroads' decision to challenge the STB in court. "This is very consistent with the railroads' inability to accept the concept of deregulation," says Diane Duff, the alliance's executive director. "The board stripped away regulatory barriers to the process. And it was a modest win for shippers. [The rails are] taking the position that their customers' concerns are without merit."

The appeals court is not expected to take up the matter until this fall at the earliest. NITL officials, however, remain optimistic that the judges will side with the shippers in this dispute. "We don't think [the rails] have a leg to stand on," says Rastatter. "The courts give great deference to regulatory agencies acting within procedural guidelines."