CEI renews call over stalled out state of railroad competitive switching rulemaking

While the interminable debate between business interests and the freight railroad sector’s chief regulatory arm continues to linger, one thing remains certain: the state of proposed freight railroad competitive, or reciprocal switching remains divisive and stalled out on the tracks.

That was made clear in a letter sent today to Surface Transportation Board Chairman Ann Begeman, Vice Chairman Patrick Fuchs, and Member Martin Oberman from the Washington, D.C.-based Competitive Enterprise Institute (CEI), a Washington, D.C.-based non-profit libertarian think tank.

In the letter, CEI stated that it is deeply concerned about the current status of the competitive switching rulemaking.

“The STB argued that its inability—and the inability of the Interstate Commerce Commission before it—to uncover any evidence of anticompetitive conduct on the part of the railroad industry justifies its call for eliminating the post-deregulation requirement that anticompetitive conduct be found before mandatory reciprocal switching could be imposed,” wrote CEI. “The STB provided no economic analysis to support its conclusion that the anticompetitive conduct requirement ‘effectively operated as a bar to relief rather than as a standard under which relief could be granted.’ Indeed, this absence of analysis could just as easily be used to support the opposite conclusion: that the lack of successful demonstrations by shippers of anticompetitive abuse on the part of carriers effectively shows no such abuse exists and thus no relief is warranted.”

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.

CEI went on to note in its letter to STB leadership that, in its current incarnation, the proposed competitive switching rule threatens railroads, shippers, and consumers with degraded service quality and higher prices on goods, which, it said, would naturally follow the resulting reduction in operational efficiencies and private railroad investment.

And it pulled no punches in explaining that the railroad industry—as well as other modes of freight transportation—is amid significant transformation, coupled with the competitive transportation landscape of the future and new technologies and related business practices, will look very different than it does today.

“Heavy-handed administrative action based on outdated regulatory analysis is dangerous and needlessly threatens the competitive viability of rail carriers,” CEI wrote. “Over the last 30 years, Congress has repeatedly rejected railroad re-regulation, regardless of political control. On numerous occasions, it has explicitly rejected attempts to eliminate the anticompetitive conduct requirement, recognizing that reducing private railroad investment is not in the public interest. We strongly urge the STB to withdraw the proposed competitive switching rule. The STB should take action to improve its economic analysis in rulemakings in order to avoid similar missteps in the future.”

Conversely, the Association of American Railroads (AAR) has long maintained 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.

AAR officials have explained over the years 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. Since 2000, freight railroads have invested more than $110 billion in privately financed capital improvements to their networks.