STB issues proposed rule change for railroad paper barriers

By Jeff Berman, Group News Editor
November 05, 2012 - LM Editorial

The Department of Transportation’s Surface Transportation Board (STB) last week announced it is requesting the disclosure of additional information in regards to a new rule regarding interchange commitments underlying a lease or rail-line sale filed with the STB, also known as paper barriers.

The STB defines paper barriers as “a contractual clause limiting the ability or incentive of the purchaser or lessee of a rail line to interchange traffic with railroads other than the line’s seller or lessor.”

It explained that STB rules currently require that a party seeking Board authority to sell or lease a line disclose an interchange commitment in the transaction. The Board’s proposed rule would require a party to include with its initial filing additional information on any interchange commitment’s impact on shippers and on the purchaser or lessee railroad.

STB officials said that as a result of both the Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980, it has become easier for rail carriers to abandon, sell, or lease a line or part of a line by utilizing exemptions from regulatory procedures, adding that this flexibility has helped to revitalize the railroad industry. And it said that the issue of interchange commitments—or paper barriers—were often coming up in regards to short line railroads. The STB said that the existence of these restrictions in turn encouraged large railroads to sell or lease lighter-density lines at reduced prices because they were guaranteed to retain a portion of the future revenues from the traffic on those lines.

And STB also explained that these paper barrier commitments took varying forms, including lease payment credits for cars interchanged with the seller or lessor carriers, monetary penalties for traffic interchanged with another railroad, or a total ban on interchange with any carrier other than the seller or lessor carrier, with several of these provisions not having fixed termination dates.

Some of the major components of the proposed rule include:
-a list of shippers that currently use or have used the line in question within the last two years;
-the number of carloads those shippers originated or terminated;
-a certification that the railroad has provided notice of the proposed transaction and interchange commitment
-a list of third party railroads that could physically interchange with the line sought to be acquired or leased; and
-an estimate of the difference between the sale or lease price with and without the interchange commitment, among others.

The National Industrial Transportation League said that according to its counsel, the additional disclosure and notice requirements would enable affected shippers to object to any proposed transaction before the transaction is effective under the STB’s authority, and it would also facilitate changes to paper barriers that go into effect under the new rules.

The STB said that comments for this proposed rule are due by December 3 and reply comments are due by January 2.

In a January 2011 interview with LM, CURE (Consumers United for Rail Equity) Executive Counsel Bob Szabo said that the two main problems with the current lack of antitrust enforcement are paper barriers—or contractual obligations incurred when short lines acquire lines from the larger, connecting carriers—and other bottlenecks that he said gives railroads an unfair and anticompetitive advantage over shippers on rates. If antitrust laws currently applied to railroads and the STB did not allow it to occur, he said these would be viewed as illegal transactions.

Even if antitrust or paper barrier exemptions for the railroad industry were to be removed or altered, there are some that say that doing so would not necessarily make things better for shippers due to myriad factors.

According to William J. Rennicke, director of Oliver Wyman, a Boston-based management consultancy, one factor is that U.S. railroad freight rates are among the lowest in the world. Coupled with that, said Rennicke, is that the regulatory risk this measure may bring would drive private investors away from the railroad industry.

“The Department of Transportation is predicting an 88 percent increase in railroad freight tonnage by 2035,” said Rennicke. “So, if you are going to have private capital come into an industry, investors want to invest in something where they are not going to be blindsided by changes in regulatory structure.”



About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Even though China’s costs have risen and the U.S. has now surpassed Mexico as the preferred locale for relocating offshored manufacturing, advantages can be fleeting and the challenges great

Memphis-based FedEx reported solid fiscal second quarter earnings results today. Quarterly net income of $616 million was up 23 percent annually, and revenue, at $11.9 billion, was up 5 percent. Operating income at $1.01 billion was up 22 percent.

UPS said this week that it has added significant space to some of its North America-based distribution facilities, which the company increases the total size of its supply chain solutions network size by roughly 1.2 million square-feet. The company’s total global supply chain solutions network is comprised of 596 facilities and about 32.8 million square-feet. UPS offers various services at these facilities, including: warehousing and fulfillment inventory, transportation and returns management; custom kitting and packaging; and store-ready displays.

A week ago, the average price per gallon of diesel gasoline saw its steepest decline in more than two years, when it fell 7 cents to $3.535. This week took that decline a step further, with the Department of Energy’s Energy Information Administration (EIA) reporting that the average price this week fell 11.6 cents to $3.419 per gallon.

With an eye on further expansion of its e-commerce business and related reverse logistics processes, transportation and logistics bellwether FedEx last night announced it has inked an agreement to acquire Pittsburgh-based GENCO, a third-party logistics (3PL) services provider specializing in product lifecycle and reverse logistics.

Article Topics

News · Rail Freight · Railroad Shipping · STB · All topics

About the Author

Jeff Berman, News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA