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

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date, the comment period just closed on the Surface Transportation Board’s (STB) long-awaited proposed changes to its outdated competitive switching rules.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.

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

 

Advancing STB Reform: Congress Puts Its Money Where Its Mouth Is 

The Senate helped lead the way again on Surface Transportation Board (STB) reform last week, but it might have been easy to miss. As was widely reported, the Senate Transportation, Housing and Urban Development, and Related Agencies Appropriations Subcommittee passed a $57 billion measure to fund a number of transportation priorities for fiscal year 2017.

This was good news on many transportation fronts, but it was especially good for the STB. That’s because the bill includes a sizable increase to the Board’s budget by providing an additional $4.6 million.

This increase is most likely the largest the STB has seen in a long time and comes at a pivotal point in the Board’s history. The new funding will help ensure the Board has the necessary resources to fully implement the reforms President Obama recently signed into law that makes significant improvements to how the STB operates. Among other things, the new law requires the STB to—

  • Expand voluntary arbitration procedures to make rate cases quicker and less costly
  • Initiate investigations on matters other than rate cases when needed
  • Set rate review timelines for the stand-alone cost test to ensure the STB efficiently decides on relief
  • Establish a database of complaints and prepare quarterly reports on them
  • Expand membership from three to five members and allow board members to talk with one another without a prior public hearing notice

The Rail Customer Coalition wholeheartedly welcomes the budget increase. In fact, the Coalition recently sent a letter to Congressional appropriators urging them to provide this additional funding so the STB could fulfill the intent of Congress.

We applaud the members of the Subcommittee for listening to our request and acting so quickly. This new funding will be critical to bringing the STB into the 21st century, and we call on the rest of Congress to make sure this increase makes it to the President’s desk this year.

Senator Thune Recognized for Championing Sensible Freight Rail Reforms

 

Chairman Thune has developed a reputation for providing thoughtful leadership on an array of Congressional issues.  So when the nation’s freight rail laws were in desperate need of modernization, he worked with farmers, agricultural businesses, other shippers, and freight railroads to craft sensible reforms that would make the Surface Transportation Board work better.

He delivered by introducing the STB Reauthorization Act, legislation that pushes the STB to finally address long standing issues, including making it easier and quicker to pursue remedies for unreasonable rates and poor service. Thanks to Thune’s leadership, the legislation won unanimous support in the Senate and the House and was signed into law last year.

The American Farm Bureau is pleased to join with the other agricultural, energy and manufacturing groups in the Rail Customer Coalition to present Chairman Thune with the Murdo MacKenzie Leadership Award in recognition of his significant achievement. The award is named after one of the earliest shipper advocates who had a hand in passing legislation that helped rail customers, the Hepburn Act of 1906.

Two years later, the town of Murdo, South Dakota, was founded in honor of MacKenzie and his accomplishments. While small in size (just under 500 people), the town knows how to turn out strong leaders; Murdo also has the distinction of being Chairman Thune’s hometown.

We witnessed that strength from Senator Thune and his staff as they worked tirelessly to attract the bipartisan support we needed to overcome past obstacles and get the STB Reauthorization Act over the finish line.  The new law is the most significant piece of freight rail legislation to pass Congress since the Staggers Rail Act more than 30 years ago.

We are thankful to the town of Murdo for sending us Chairman Thune, and we are glad that he chose to build on Murdo’s legacy.

The passage of the STB Reauthorization Act, like Murdo’s efforts almost a century ago, marks another significant milestone in moving our nation’s freight rail system forward. Of course, there is still more work to do and we are grateful that Chairman Thune continues to stay engaged and advance reforms at the Surface Transportation Board.

This guest blog post is by Zippy Duvall, President, American Farm Bureau Federation.

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.