Differing opinions prevail ahead of STB reciprocal commutation hearing
With the February 14 filing date for the reciprocal commutation regulations proposed by the Surface Transportation Board (STB) earlier this week, various freight rail stakeholders made their pros and cons in comments filed with the STB. A public hearing organized by the STB on these regulations is scheduled for March 15 and 16 at the STB’s headquarters in Washington, DC.
The STB’s proposed reciprocal switching legislation, proposed in 2016, would allow a rail shipper to switch to another railroad if the shipper makes certain visits. According to the STB’s definition, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper’s facility switches rail traffic to another railroad’s facility 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 fee, with the shipper facility having access to an additional railroad.
STB officials said this hearing will focus on the proposed reciprocal commutation regulations in Reciprocal Commutation Filing No. EP 711 (Sub-No. 1) et al (NPRM), which introduced new regulations under which it would exercise its legal power to require rail carriers to establish switching agreements in certain circumstances. They added that the NPRM has received varying responses from industry stakeholders, noting that the STB has reviewed the existing record in this instance.
STB explained that under reciprocal switching, an incumbent carrier moves a shipper’s traffic to an interchange point, where it transfers the cars to the competing carrier. And she observed that the competing carrier pays the incumbent carrier a switching fee to bring or pick up cars from the shipper’s facility to the interchange point, or vice versa.
“Switching charges are somehow rolled into the competing carrier’s total shipper rate,” the STB said. “Reciprocal switching thus allows a competing carrier to offer its own single line to compete with the incumbent’s single line rate, even if the competing carrier’s lines do not physically reach the facility of a sender.”
In its comments, the Association of American Railroads (AAR) explained that at the bottom of the matter, shippers are asking the STB to adopt a forced, or competitive, commutation rule in order to pay lower fares.
“The apparent purpose of this rule is to force a carrier to offer switching services which the carrier has no reason to offer, and which the shipper does not need, because the carrier already has other means to route sender traffic from origin to destination,” the AAR said. “But shippers will demand reduced origin-destination rates, negotiating in the shadow of the threat of regulatory orders requiring these switching services, regulatory orders setting their prices, and regulatory orders on how this switching should proceed. produce. [T]The end result would be to increase shippers’ profits at the expense of carriers.
Other key points arguing against reciprocal commutation cited by the AAR include:
- the possibility of discouraging future railway investment;
- industries that want the proposed rule have much higher returns on investment relative to their cost of capital than the rail industry;
- not because all shippers should pay the same tariffs, as it is widely accepted that differential pricing is necessary for the future viability of the rail network; and
- additional switching means additional complexity and potential lag points, among other things
In the comments provided to MLAAR President and CEO Ian Jefferies said AAR’s filing provides sound economic and legal analysis, making it clear that the Board must abandon its misguided forced switching NPRM.
“With a wide range of input from a diverse number of affected stakeholders, it is clear that forced change is widely opposed and would have myriad downsides, including negative impacts on efficiency, investment and sustainability. environment,” he said. “I hope the Council will consider this input as it continues to deliberate on this matter.”
The Intermodal Association of North America (IANA) aligned with the AAR in its filed comments, with IANA President and CEO Joni Casey noting that he encourages the STB to proceed with method and with restraint as it contemplates major market intervention in the form of the ‘reciprocal switching’ regulation project.
Historically, IANA has opposed policies that significantly alter current laws under which freight railways operate – including widespread forced switching as recommended in the 2016 Notice of Proposed Rulemaking (NPRM)” , Casey said. “In the absence of a definitive demonstration of market failure and a conclusive cost-benefit analysis, the efforts contemplated under this proposed rule are unwarranted. We believe that the impact of a forced switch to intermodal freight would most likely be: a decline in rail infrastructure; a decrease in network speed; a deterioration in domestic intermodal service; and a negative impact on the ability of intermodal to compete with road trucking. These results are troubling given the supply chain challenges that persist, both domestically and internationally.
The National Stone, Sand & Gravel Association took a different view in its comments, saying the STB was looking for ways to improve the use of reciprocal commutation consistent with Congressional intent.
“These proposed rules will also ensure better rail service which is now crucial to the aggregates industry following the passage of the IIJA (Infrastructure Investment and Jobs Act,” he said. “NSSGA urges the Board to give life to this remedy that has been essentially dormant for decades and to provide rail shippers with a method to counter the relentless market power of Class I railroads over NSSGA member companies.
As previously reported by MLSTB Chairman Martin Oberman told the November RailTrends conference hosted by Progressive Railroading and independent railroad analyst Anthony Hatch that the STB has had many discussions about EP 711 with industry stakeholders. industry expressing, for the most part, diametrically opposed opinions on the subject.
“It has become clear to me that this issue is too big and has a significant improvement to improve the competitive playing field to just have these endless discussions between the STB, the railroads and their customers,” he said. . “These issues should be aired publicly, the kind of vigorous discussion that such a hearing will bring. Since joining the STB, I have focused much of my attention on promoting as much competition as possible in the provision of rail services. Because in our American system, more competition in business almost always means better products, better prices, and a stronger economy. I believe there is potential for a more accessible reciprocal switching mechanism to provide this concurrency response. Any railroad that truly offers this kind of service at fair prices should welcome such an environment. »
Additionally, Oberman echoed the sentiment expressed by the late E. Hunter Harrison, who ran CSX, CN and CP, at various times in his career, and conceived the concept of the precision programmed railroad.
Harrison, Oberman noted, saw reciprocal switching as one of those regulations in place, but people don’t really benefit from it because individual carriers don’t have to do their job.
“My opinion is that for years many rail workers have been afraid of the term open access and I don’t know why,” Oberman said quoting Harrison. “What that tells me is that all they’re going to do is open up more competition and with a very limited number of players in North America, it’s important to maintain that competitive balance. If an individual carrier…provide the right kind of service for the customer at a fair and appropriate price, we have nothing to worry about.If we don’t provide the service, we shouldn’t be reluctant to have someone another come and provide this service.”
Oberman concluded his comments on reciprocal switching by noting that while reciprocal switching was good enough for Harrison – and it’s good enough to be accepted as a condition in many parts of the US networks that have been subject to the mergers of the years 1990 – then it should be good enough for the industry today.
About the Author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman