STB’s Competitive Switching Proposal: Is the Sky Falling or is the Tide Rising?

January 30, 2017

In one of its more important proceedings to date, the comment period just closed on the Surface Transportation Board’s (STB) long-awaited proposed changes to its outdated competitive switching rules. A large and growing chorus, including a broad range of manufacturers, farmers, and energy producers, weighed in with comments of strong support for the STB’s proposal, which would fulfill the Board’s mandate to provide greater access to competitive rail service.

As one would expect, the rail industry is not keen on losing its regulatory protections and is making dire and inaccurate claims that allowing the free market to work is actually a bad thing. Despite these dubious charges, the STB commissioners can take comfort in the fact that the sky will not come crashing down. Competitive switching will not make railroad operations less efficient, will not degrade service, and will not hinder railroad investments.

Testimony submitted to the STB demonstrates that claims by the rail industry are without merit. In his statement to the Board, John Orrison, a railroad operations expert with over 40 years of Class I railroad experience, concludes that competitive switching “will have little effect on the operating efficiencies that railroads have realized over the past three decades.”

As explained by Orrison, competitive switching often requires no additional handling of trains. Typically rail cars leaving a shipper facility are already taken to a local switch yard, where they are switched from a local train to an outbound train. In these scenarios, competitive switching simply allows a shipper to choose whether that outbound service is provided by the incumbent railroad or a competing carrier. Railroads are fully equipped to handle new traffic patterns and overall rail efficiency will not be degraded.

Furthermore, the STB would review competitive switching requests on a case-by-case basis. The Board would have discretion to deny a request in specific situations where switching would impose unreasonable challenges to railroad operations.

Orrison goes on to explain that competitive switching “is unlikely to chill a Class I railroad’s investment in its network.” While railroads claim that the potential loss of traffic will drive down investment incentives, experience shows that railroads actually invest heavily in areas where they face competition. They invest to capture greater market share and to lower operating costs. Competitive switching will provide similar investment incentives.

STB members should look skeptically at the hypothetical and baseless concerns that competitive switching will somehow grind rail operations to a halt, especially when there is also clear evidence that a similar system has worked well for more than a century in Canada. As stated by the Canadian Pacific Railway, railroads subject to Canada’s competitive switching requirements are “the two most efficient carriers in the industry today, demonstrating that a low-cost, service-focused carrier can increase revenues, operate efficiently, and reinvest in infrastructure in a competitive environment.”

The STB can take heart in the fact that testimony from a rail industry veteran and real-world experience in Canada demonstrates that competitive switching will help drive railroad efficiency and investment, just like it does in other industries. Now that’s a rising tide that everyone can benefit from.