New Rail Consultant Report Comes Up Short on Solutions

The shortcomings of today’s freight rail policies are not lost on the members of the Surface Transportation Board (STB), who have gone on the record numerous times to say that the Board’s process for handling rate cases are too costly, too time consuming and unnecessarily complex. This growing concern was clearly stated by Commissioner Ann Begeman, when she recently declared that developing a new approach “has to be a top Board priority.”

Unfortunately, this fact was lost on InterVISTAS Consulting Group when they released a flawed and poorly developed report. Unfortunately for all rail stakeholders, the report fails to offer any new ideas for improving how the STB operates and embraces the status quo that has been roundly rejected by Congress, the National Academy of Sciences, and the STB Board Members themselves in their published decisions.

The report was commissioned well before Congress provided a new direction for the STB by unanimously passing the Surface Transportation Reauthorization Act. Moreover, the report was under the control of a consultant who has represented the railroads in the past and did not reflect any outside input from rail customers.

All of these shortcomings stand in stark contrast to the independent study that Congress directed the National Academies Transportation Research Board to conduct. Unlike the InterVISTAS report, the National Academies study was performed by an independent panel of transportation experts and economists with input from a broad range witnesses. The National Academies study concluded that the STB’s current rate review process is “arbitrary and unreliable” and should be replaced with a “more reliable tool that compares disputed rates to those charged in competitive rail markets for comparable shipments.”

The National Academies analysis eliminates any remaining argument that the status quo is working. Tellingly, the InterVISTAS report is embraced only by the rail industry that has a vested interest in maintaining a virtually inaccessible STB.

The STB should not waste any more precious time on a report that fails to provide solutions for the very real and ongoing freight rail issues that are plaguing manufacturers, farmers and energy producers across America.

Big and Small: There Is a Lot at Stake for Everyone When It Comes to Repairing Our Nation’s Freight Rail Policies

When the railroads claim that exercising their monopoly-like power only impacts a “narrow” group of big businesses, don’t believe it. Some of the hardest hit rail customers are small and medium sized businesses, including America’s farmers who are heavily reliant on freight rail.

Competitive switching, which simply allows a shipper to choose its service provider in limited circumstances, is already permitted under statute. However, the STB regulations put in place following the passage of the 1980 Staggers Rail Act made it virtually impossible for a shipper to access any railroad other than the one that directly serves their facility. The bureaucratic red tape invented by regulators has prevented any rail shipper from ever being approved for competitive switching.

As Bob Stallman, President of the American Farm Bureau Federation, explains, “All forms of transportation play a critical role in moving agricultural products, but farmers and ranchers can be especially dependent on freight rail.”

So it should come as no surprise that the agricultural sector is one of the biggest supporters of freight rail reform and a strong backer of competitive switching reforms. After the STB released a Notice of Proposed Rulemaking designed to reform their regulations around competitive switching Roger Johnson, President of the National Farmers Union, underscored the significance of the STB’s action to farmers, “Transportation of goods to market in a cost-effective manner is critical to our nation’s family farmers and ranchers. The Surface Transportation Board’s recently proposed rule on competitive switching is an important step in fostering fair and competitive shipping costs for the agricultural sector. NFU appreciates this action and looks forward to continued engagement with STB for the benefit of our nation’s producers.”

Richard Gupton from the Agricultural Retailers Association offered more support on behalf of the agriculture sector, “We appreciate the STB’s efforts to try to foster competition in the freight railroad industry. ARA believes this is a step in the right direction that will hopefully lead to more efficient and dependable rail service. Access to rail transportation through cost-effective switching between carriers is of critical importance to the agricultural industry, which is a seasonal business with retail- distribution facilities located in more rural areas.”

The U.S. Department of Agriculture has also recorded it support saying, “Competitive switching offers a market- based solution to balance the needs of the railroads and shippers and is in keeping with the goals of the Staggers Act.”

That is why the competitive switching proposals to open access to additional freight rail options have the strong support from a broad array of U.S. enterprises that depend on competitive and reliable rail service. In fact, more than 48 trade associations representing a broad range of manufacturing, agricultural and energy industries sent a letter to Congressional leaders urging them to support competitive switching reforms. As the letter explains, competitive switching works and it can work well for everybody, including the railroads:

“Competitive switching has been available for decades in Canada, and it works well. As stated by the Canadian Pacific Railroad, railroads that operate under Canada’s competitive switching system 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 notion that an improved competitive environment will damage the fundamental economics of the U.S. freight rail system is simply unfounded and runs counter to basic free market principles.”

So, don’t let the railroads sidetrack you. Freight rail reform is important to a great number of rail customers – both big and small.

U.S. Manufacturing, Agricultural and Energy Industries Welcome Proposal to Provide Regulatory Relief and Allow for Greater Access to Competitive Freight Rail Service

WASHINGTON (July 27, 2016)— The Surface Transportation Board (STB) announced a proposed rule today that would permit shippers without access to other transportation options to request that their freight be moved to a competing rail line if another Class I railroad is reasonably accessible. The proposed reform, referred to as competitive switching, was envisioned by the Staggers Rail Act more than three decades ago, but it has never been allowed at the STB. 

Competitive switching has the strong support of the Rail Customer Coalition, which represents the largest users of freight rail service and a broad cross section of manufacturing, agricultural and energy industries. Furthermore, the U.S. Department of Agriculture has gone on record as saying, “Competitive switching offers a market based solution to balance the needs of the railroads and shippers and is in keeping with the goals of the Staggers Act.”

STB’s decision follows years of deliberation and strong calls from shippers to adopt reforms in response to soaring freight rail rates and poor service. While the details of the STB proposal will need to be reviewed carefully over the coming days, the following organizations issued statements in response to STB’s announcement:

 

“We appreciate STB’s support of the revised reciprocal switching regulations proposed by the National Industrial Transportation League (NITL). Our member companies across a host of industries need this type of competitive, market-based rail transportation alternative. NITL is grateful that the Board is providing a forum for stakeholder comment, and we look forward to responding on behalf of our members following further review and analysis of the STB’s decision.”

Jennifer Hedrick, Executive Director

National Industrial Transportation League (NITL)

 

“We welcome STB’s decision to move forward on competitive switching, which will help put the marketplace back in the driver’s seat and improve the flow of goods throughout our economy. Easing regulatory barriers to competitive switching will help reduce the need for government intervention and foster a healthy and efficient freight rail system. We look forward to working with the Board to ensure that its final rule will provide our industry, and other major freight rail customers, with better access to competitive and reliable service.”

Cal Dooley, President & CEO

The American Chemistry Council

 

“We appreciate the STB’s efforts to try to foster competition in the freight railroad industry. ARA believes this is a step in the right direction that will hopefully lead to more efficient and dependable rail service. Access to rail transportation through cost-effective switching between carriers is of critical importance to the agricultural industry, which is a seasonal business with retail- distribution facilities located in more rural areas.”

Richard Gupton, Senior Vice President, Public Policy & Counsel

Agricultural Retailers Association

 

“Any effort that seeks to increase competition in the rail industry would decrease costs for the chemical industry while providing better options to ship and receive product. NACD is pleased STB is moving forward with this long awaited proposed rulemaking, and we welcome this advancement in light of exorbitant rail costs due to the lack of competition in the rail industry.”

Eric R. Byer, President 

National Association of Chemical Distributors

 

“The timely transportation of fertilizer is of critical importance to the fertilizer industry and its farmer customers. We are very pleased that STB has moved forward with this important proposal and look forward to reviewing the details and providing comments on the matter.”

Chris Jahn, President

The Fertilizer Institute

 

“Steel shippers rely upon efficient, competitive rail service.  As such, the SMA views expanded access to competitive switching as a useful method to maximize efficiency within the existing rail network.”

Philip K. Bell, President

Steel Manufacturers Association

 

“We’re pleased to see the STB move forward with this proposal.  Nearly 70 percent of all ethanol is shipped by rail, so improving access to competitive rail service is essential for our members to get low-cost, renewable fuels to consumers at the pump.”

Emily Skor, CEO

Growth Energy

 

“Transportation of goods to market in a cost-effective manner is critical to our nation’s family farmers and ranchers. The Surface Transportation Board’s recently proposed rule on competitive switching is an important step in fostering fair and competitive shipping costs for the agricultural sector. NFU appreciates this action and looks forward to continued engagement with STB for the benefit of our nation’s producers.”

Roger Johnson, President

National Farmers Union

 

“The Freight Rail Customer Alliance (FRCA) is pleased that the Surface Transportation Board has issued its Decision on a request to adopt revised competitive switching rules  – a pending matter before the Board since 2011.  The alliance has long supported efforts at the STB to increase competition in the railroad industry and spread its benefits more widely, especially for rail-dependent captive shippers.  Competitive switching is one avenue to help achieve this. FRCA views this NPRM as an important step, and will be reviewing the proposal in the coming weeks.”

Ann Warner, Executive Director

Freight Rail Customer Alliance

 

STB Moves on Closing Loopholes for Railroads

The Surface Transportation Board (STB) recently concluded what rail shippers have known for the last 15 years: few commodities are spared from the railroads’ increased market power. Specifically, the STB recently proposed restoring access to the Board’s rate review challenge process for rail customers that have been left out in the cold because of arcane exemptions that the railroads currently enjoy for certain commodities.

In its announcement, the Board couldn’t have been clearer when it stated, “A number of factors suggest the transportation markets for these commodities have changed significantly since the exemptions were adopted, in ways that point toward an increased likelihood of railroad market power.”

The Board’s proposal comes more than five years after it received public comments and held a public hearing on the issue. The Rail Customer Coalition welcomes this change since it would close an important rate review loophole that has allowed railroads to take advantage of their customers without any access to recourse.

The foundation for the Board’s decision was its use of waybill data to show that certain commodity groups “may be subject to increased market power from the railroads.” The STB’s analysis shows that the share of potentially captive traffic and the average RVC ratios have increased for these commodity groups. This echoes the findings of our coalition’s economic research, which determined that freight rail rates are skyrocketing for many farmers, manufacturers, and energy producers that depend on the railroads. The question is no longer if the railroads abuse their market power but how much longer will it take the STB to fix this problem.

We are encouraged that the STB is taking this long overdue step, and we hope that this is an indication that the Board will adopt a series of reforms that have been under its consideration for years, including competitive switching and providing a workable rate review process.