Differing comments prevail for STB’s proposed reciprocal switching regulations

Far from unexpected, replies regarding the Department of Transportation’s Surface Transportation Board’s (STB) proposed reciprocal switching regulations, which the STB proposed in late July, were very mixed.

As previously reported, the impetus for the proposed reciprocal switching regulations stems from a petition for rulemaking submitted by the National Industrial Transportation League in July 2011. The STB said the proposed regulations would augment the availability of reciprocal switching, allowing a rail shipper to gain access to another railroad if the shipper makes certain showings. And it added that these proposed regulations create an avenue for the STB to impose a reciprocal switching arrangement.

As defined by the STB, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper facility switches rail traffic to the facility for another railroad that does not have physical access. And the second railroad compensates that railroad that has physical access in the form of a per car switching charge, with the shipper facility gaining access to an additional railroad.

In order for the proposed reciprocal switching to come to fruition, the STB said that a shipper must show that the arrangement is “practicable and in the public interest” or “necessary to provide competitive rail service.” STB’s findings would be based on evidence presented by the shipper and the railroad, while the existing standard that was adopted by the STB’s predecessor, the Interstate Commerce Commission in 1985 requires a showing that reciprocal switching is necessary to prevent an uncompetitive act. STB added that going back to 1985 nearly no requests for reciprocal switching have been filed and none have been granted.

Reciprocal switching has been viewed as a hot button topic by freight railroad industry stakeholders since its inception more than five years, something which was made very clear in comments filed to the STB that were due earlier this week.

NITL Executive Director Jennifer Hedrick said that her organization appreciates the groundwork the STB has laid out toward the development of a competitive rail marketplace, which will benefit all who utilize rail transportation.

And heads of myriad industry associations representing rail shippers were in lockstep with Hedrick, including Cal Dooley, president and CEO of The American Chemistry Council.

“Competitive switching is a commonsense reform that will finally put an end to an archaic system that has helped shield railroads from having to compete with one another and has allowed freight rail rates to nearly double in the past ten years,” Dooley noted.  We urge the Board to adopt a workable policy that will at long last provide shippers with greater access to competitive rail service.”

Other factors cited by those in favor of reciprocal switching included: competition being one of the fairest and most efficient ways to promote increased service, having a rail system that is more accountable to the U.S. marketplace and lead to a more dependable, efficient, and economical rail service for retailers and distributors of agricultural commodities and the rural communities they serve, and being able to provide more consistent delivery of raw materials, among others.

Conversely, those against reciprocal switching, maintain it is a step backwards on various fronts.

Association of American Railroads President and CEO Ed Hamberger said that forced access is an ill-conceived approach that compromises the efficiency of the entire network by gumming up the system through added interchange movements, more time and increased operational complexity.

“The freight rail industry acknowledges the complexities the STB had to take into consideration in arriving at this proposed rule, but, at the end of the day, the Board should have dismissed the petition without further proceedings, as imposing new regulations like this are a step backward from the deregulatory path that has allowed railroads to make the capacity investments required to meet customer demand and further modernize a nationwide rail network that benefits shippers and consumers. The freight rail industry’s position remains unchanged: forced access is an ill-conceived approach that compromises the efficiency of the entire network by gumming up the system through added interchange movements, more time and increased operational complexity.”

Citing 2010 data from the STB, AAR officials explained that an annual revenue loss of up to $7.8 billion could result from rate reductions stemming from these proposed regulations for the benefit of a select group of shippers. And without this income, they said the freight rail industry could no longer invest the billions of private dollars needed to maintain and expand the nation’s 140,000-mile rail network. As LM has reported, since 2000, freight railroads have invested more than $110 billion in privately financed capital improvements to their networks.

In its comments filed to the STB, UPS said its “experience in other contexts leads it to conclude the implementation of a new reciprocal switching scheme will lead to decreased network velocity, diminished capital investments into the freight network, and deteriorating rail intermodal service levels.” 

The STB action does somewhat broaden shippers’ theoretical access to reciprocal switching by removing the requirement that the serving railroad must be acting in a non-competitive manner in order for the reciprocal switching remedy to be made available, explained Larry Gross, senior partner at freight transportation consultancy FTR.

“While the NITL petition that triggered the rulemaking contained a number of specific requirements that could trigger an STB mandate for reciprocal switching, the board preferred to leave things a great deal more vague, proposing to deal with each application on a case-by-case basis,” said Gross. “The decision seems to leave wide open exactly what information a shipper must provide in order to justify and support a petition for reciprocal switching access.  But the particulars may be clarified as a result of the comments received prior to finalization of the rule. In the absence of specific rules and criteria it would appear that the board will be taking on quite a burden in adjudicating each case on its own merits.”