Rail shippers are still digesting the Surface Transportation Board’s proposed rule for reciprocal switching, but initial reactions are mixed. Shippers back efforts to make the collection of first- and last-mile data permanent and standardize metrics for sufficient rail service, but some also wish the rule would do more to incentivize rail competition.
“All five board members said yes. That’s huge, right? There were no dissenting votes. So, we as the shipper community and the railroad community need to recognize that this is a bipartisan, if you will, attempt, and it’s really designed to appease both the shippers and the railroads,” Herman Haksteen, president of the Private Railcar Food and Beverage Association, told FreightWaves. “This rulemaking and the way it’s presented is workable today. And I think it addresses a lot of the shippers’ needs. So that’s why I’m positive about it.”
Said Jeff Sloan, senior director of regulatory affairs for the American Chemistry Council: “This is a very different approach that the board has taken here than they did back in their 2016 proposal where the previous proposal was really designed to help shippers get better access to competitive rail service as an overall goal. Competition was the end in and of itself.
“Here, it’s a narrower approach where they’re offering reciprocal switching basically as a remedy when a railroad is failing to provide adequate service. At first blush, we’re a bit disappointed that the board has gone away from using this as a tool to promote competition more generally. However, we’re very hopeful that this proposal will provide meaningful relief to shippers who are not getting quality service from the railroads.”
Rail shippers that have access to one Class I railroad but want access to the network of another can use reciprocal switching to gain that access at an interchange point between the two railroads. The system currently exists in Canada, where it is called interswitching, although there are some legacy contracts in the U.S. where reciprocal switching is an option for a limited number of shippers.
STB’s proposed rule, announced on Sept. 7, would allow shippers to seek reciprocal switching if the railroad to which they have access fails to meet certain service thresholds. Those parameters would be based on service reliability, service consistency and adequacy of local service. STB is seeking comment on those parameters as well as the overall proposed rule.
The proposal also would make permanent the collection of first- and last-mile service data from the Class I railroads. STB began requiring the railroads to submit that data on a regular basis following an April 2022 public hearing on deteriorating rail service.
Regarding the proposed rule, shippers generally like the idea that STB would continue collecting that data.
But where their initial responses varied was on STB’s decision to make reciprocal switching a remedy that addresses subpar rail service as opposed to a means to encourage competition.
“This is the Surface Transportation Board’s way of addressing bad service, and it’s giving shippers of dedicated facilities a choice …,” said Haksteen, of the Private Railcar Food and Beverage Association. “It’s a great rulemaking because it’s actionable. With some of these other general reciprocal rulemakings, there was never any way that you’re going to get that through in the U.S., so the rule being actionable is the exciting part.”
But switching the intent of reciprocal switching has drawbacks, according to ACC, because it seems more to be reacting to rail service performance than proactively encouraging the railroads to ensure competition.
However, the proposal is still significant because “for the first time, the board has really laid out specific clear criteria on what constitutes adequate service,” ACC’s Sloan said. “Having those metrics reported and available, and then having standards based on those metrics, I think is an important step forward for the board, and hopefully will help to resolve some service problems that rail shippers have been experiencing over the years.”
ACC is also hopeful that STB Chairman Marty Oberman and others will address incentivizing rail competition through future board action.
Reactions among other trade associations representing shippers fell along similar lines. Rob Benedict, vice president of petrochemicals and midstream for American Fuel and Petrochemical Manufacturers, also thought the proposal could have gone further in addressing competition.
“Free markets do not work when there is no competition or even a realistic threat of competition to empower consumers … . Reciprocal switching would present railroads with a simple decision: Provide better service to customers or risk losing their business to a competitor,” Benedict said in a release last week. The proposal “is a good start with potential to make the rail system more efficient and responsive to consumers by shining a light on bad service through clear reporting of metrics, but it would limit reciprocal switching to captive shippers who experience service failures instead of making it available broadly to promote competition industry-wide.”
Other groups applauded STB’s actions: The Freight Rail Customer Alliance “welcomes” the unanimous proposed rule, including the first- and last-mile data on industry spot and pulls. The National Industrial Transportation League (NITL), which first brought up before the board the issue of potential remedies for captive shippers in July 2011, said that “while this new proposal … is a departure from the initial NITL intent of developing a new reciprocal switching process to facilitate railroad economic competitiveness, it promises to help shippers achieve service-based alternatives for switching under certain circumstances.”
Corey Rosenbusch, president and CEO of The Fertilizer Institute (TFI), said, “TFI has long advocated for reforms such as reciprocal switching to promote competition and enhance rail service. Market-based incentives will encourage rail carriers to be more customer-oriented. The unanimous, bipartisan vote is a clear acknowledgement by the STB that these challenges must be addressed.”
Jeremy Ferguson, president of the union the International Association of Sheet Metal, Air, Rail and Transportation Workers – Transportation Division,, chimed in his support: “Any time a monopoly is broken up, and competition is emphasized in the workplace, American workers win … . [STB’s proposal] is a clear result of this administration’s dedication to railroad workers and workers in general over the insatiable appetite of the railroad companies to feed their bottom lines to the detriment of all else … . Our hope is that introducing the spirit of capitalism into our industry will force the railroads to run their companies more responsibly, starting with demonstrating more respect for their greatest asset, OUR MEMBERS.”
STB will be taking comments on the proposed rule through Oct. 23.
Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.
Click here for more FreightWaves articles by Joanna Marsh.