The National Industrial Transportation League said Friday it estimates shippers could save more than $900 million if the U.S. Surface Transportation Board would increase competition by giving shippers greater ability to have freight switched between railroads.
During a telephone press conference, NIT League President and Chief Executive Officer Bruce Carlton discussed a comprehensive study and analysis of the League’s proposed new rule to govern competitive or reciprocal switching between railroads that’s being submitted to the STB today.
It’s unclear how quickly filings by the NIT League and others will be available on the STB Website. However, the STB explained that because it made a sample of waybills available to participants to use in their analysis, it will
first “expeditiously review parties’ submissions,” before releasing them to
the public on its Website, to ensure that comments “do not
inadvertently contain confidential information from the Waybill Sample.”
Competitive switching or reciprocal shipping refers to giving a rail shipper or receiver that’s “captive” to a single railroad the opportunity to have its freight moved on a competing carrier’s line, with an appropriate paid access fee.
The NIT League said switching is important because it creates competition in rail markets by giving shippers an opportunity to seek a competing bid from another rail carrier that might offer savings or service improvements.
In July 2011 the NIT League asked the STB to adopt the new rule on
competitive switching in a petition for rulemaking. The STB did not
begin the rulemaking, but opened a new docket, Ex Parte 711 (Petition to
Adopt Revised Competitive Switching Rules), to receive additional
information from interested parties on the impacts of the NIT League’s
proposal. The STB has asked for opening comments on the proposal in Docket Ex Parte 711 by March 1 and for responses by May 30.
The NIT League said its proposed changes “would inject reasonable competition into the captive freight rail market for the benefit of shippers, without economically harming the nation’s Class I rail carriers.”
“Captive rail shippers deserve an opportunity to seek a competing bid for their business from another Class I railroad under the conservative and carefully defined circumstances we detailed 20 months ago in our competitive switching proposal to the Surface Transportation Board” Carlton said.
“Our response to the board’s request for more information in Ex Parte 711 clearly demonstrates our proposed new approach to competitive switching would increase the opportunity for captive shippers and receivers to obtain access to a second rail carrier and would not be harmful to the Class I railroads,” he said. “Our objective is to give captive rail customers access to a measure of competition where none currently exists. This is not ‘re-regulation’ or ‘open access.’”
The NIT League, which is the largest group representing shippers in the country, said its petition was in response to a clear preference by members to use competitive switching arrangements as a means to obtain access to a second railroad when their facility or facilities are served by only one Class I carrier. It also responded to the STB’s own request for suggested regulatory changes that could improve competition in the rail industry.
Under current law, the STB has the authority to order “competitive access” for shippers served by one railroad, through mandatory switching to enable a second railroad to provide competitive rail service. But the NIT League said the legal standards make it so difficult to obtain such an order that no shipper has ever obtained access to competition under the current legal standards.
The NIT League has asked the board to abandon its present rules on switching and related decisions and implement a new rule to lower the barriers captive shippers face in seeking increased rail competition, by requiring competitive switching to be available to captive shippers under certain specified conditions.
The NIT League said using data from the STB, it estimated shipper savings based on a fully competitive model at about $1.293 billion, or about 2.4 percent of $52.92 billion in gross revenue of four largest U.S. Class 1 railroads, namely CSX, Norfolk Southern, Union Pacific and BNSF.
But since many shippers are located where competition is limited to that between a duopoly of railroads, the NIT League said savings more like $908 million are likely. It also noted shippers with a small number of movements would probably not seek a switch and that the changes it’s seeking to enable would not happen all at once.
The League’s proposal would provide access to a second rail carrier for shippers now captive to a Class I rail carrier who are located within a radius of 30 miles of an interchange where railcars are regularly switched between rail carriers. The 30-mile radius is not “set in stone;” captive shippers with facilities located more than 30 miles from a working interchange would be able to obtain competitive switching by showing that an alternative distance from the working interchange is “reasonable.”
Only shipper’s facilities that are served by a single Class I carrier without effective inter- and intramodal competition would qualify for a competitive switching opportunity, and the NIT League said its proposal includes simplified standards for meeting this condition. The affected rail carrier would have the opportunity to demonstrate that a switch is unsafe, infeasible or harmful to existing service.
The NIT League said it has gotten support for its proposal by groups such as Consumers United or Rail Equity, the American Chemistry Council, and Alliance of Automobile Manufacturers.
The American Chemistry Council said in January that “the premium paid by chemical and plastic shippers for rates above the railroad’s ratio of 180 percent Revenue to Variable Cost (RVC) exceeded $3.9 billion in 2010 alone – a 75 percent increase from 2005. The RVC is an important indicator because traffic with rates greater than 180 percent RVC are subject to potential Surface Transportation Board (STB) review for being unreasonably high.”
This week the Association of American Railroads said the American Chemistry Council’s study was “fundamentally flawed and its primary conclusion is meaningless. Today, the vast majority of U.S. rail rates are set by the market, just like chemical companies’ prices are set by the market. But the study wrongly claims that a rail rate for a shipper should automatically be considered excessive, and the shipper would be paying a ‘premium,’ if the rate exceeds a certain percentage markup over the costs a railroad incurs in serving that shipper.”
AAR said “the study also claims that constraining rail rates in this fashion is consistent with the Staggers Rail Act of 1980. That’s just not true. No statute or Surface Transportation Board (STB) regulation states, or even implies, that rail rates should be capped in this way. Chemical companies would never accept this kind of cost-based pricing for themselves, but they want it for railroads.”
AAR President and CEO Edward R. Hamberger warned the NIT League’s proposal would harm all rail network users.
“The National Industrial Transportation League’s (NITL) proposal will trigger serious service failures on today’s nationwide rail system and wipe out the efficiencies U.S. businesses have come to expect and rely on if they are to survive in today’s competitive global marketplace. Those failures will be caused by a substantial and unnecessary increase in the handling of loaded and empty freight rail cars, if the NITL proposal were to be enacted,” Hamberger said.
“At a time when American businesses are just beginning to turn the corner, NITL is ignoring the needs of the vast majority of U.S. shippers,” he added.
However, last week, Sen. Al Franken released a letter calling on President Obama to take action to address monopolies in the freight rail industry.
He noted the STB has “several policy proceedings pending that address both the level of competition in the national freight rail system,” and said “other executive branch agencies who have identified the lack of rail competition as a problem should engage in these proceedings and advocate for increased competition in the national freight rail system and a less burdensome rate challenge process.”
The NIT League said its submission includes an “extensive assessment of Canadian regulation of switching.”
“In Canada, switching is a ‘given;’ it is a matter of right, and shippers and carriers have a very long experience with that regime. It works. The government of Canada has reviewed the system many times; it requires the shipper to pay a government-set fee that is built on audited cost data submitted by the railroads; and both carriers and shippers have voiced support for their system over and over. We have used some of the
Canadian regime to model our proposal in order to answer the STB’s questions in order to simplify the analysis based on a proven and time-tested approach to this matter,” the League explained.
The NIT League has prepared a question-and-answer piece on its proposal. – Chris Dupin
NIT League says rail reform could save shippers $900 million
