Rapidly approaching, the US Surface Transportation Board is scheduled to hold a hearing in mid-March regarding its proposed new “reciprocal switching regulations”. This proposed rule would require a railroad that serves an industry (with no competing railroad accessing the site) must be willing to switch a railcar out and deliver it to a competing railroad for transportation to a destination. STB would then establish a fee that the receiving railroad would pay to the railroad with sole physical access. On February 14, 2022, counsel for the Association of American Railroads filed supplemental comments regarding reciprocal switching to the STB. One perceived benefit of the rule would be industries that would save shipping costs if they could make separate arrangements with a railroad other than that serving their site.
So, in its filing AAR states the following:
“But before confronting those overarching problems, pause to ask: Why should the Board even want to boost the profitability of, say, chemical and industrial shippers at the expense of railroads?
- Not because that would enhance the rail industry’s service to the public. To the contrary, the Proposed Rule can only discourage future investment by railroads.
- Not because railroads should share the wealth. To the contrary, the industries clamoring for the Proposed Rule have much higher returns on investment compared to their cost of capital than does the rail industry.
- Not because railroads gained an upper hand through consolidation in the 1990s. To the contrary, the efficiencies won through consolidation have benefitted everyone. The theory that consolidation has increased single-served shippers is refuted by the data: A smaller percentage of shipments today move to and from stations with single service than was the case in the early 1990s.
- Not because all shippers should pay the same rates. To the contrary, there is wide agreement that differential pricing is necessary to the rail network’s future viability.
- Not because forced switching would alleviate pressure on supply chains. To the contrary, additional switching means additional complexity and points of potential delay.
- Not because workers would benefit. To the contrary, railroads have higher rates of union employment than their customers. And because all railroad operations carry risks of accident or injury, the complex switching operations required by the Proposed Rule only create more safety risks for those workers.
- Not because it would help the environment. To the contrary, actions that increase operational complexity—as forced switching typically would—tend to decrease operational efficiency and increase greenhouse gas emissions. And less investment in fuel-efficient rail options means more trucking, along with more highway congestion and greenhouse gas emissions.
- Not because existing rates are unreasonably high. Nobody has done the necessary rate studies—but if they showed a problem, then the Board would be fully justified in ordering rate relief directly. True, many are frustrated with the difficulty of rate-reasonableness proceedings. But those inquiries are required to avoid market distortions and economic inefficiencies—risks that are at least as acute in a forced switching proceeding, and which will demand forced switching proceedings that are no less complex than rate reasonableness proceedings.
All this leaves the Board in a most peculiar position. Lacking even a desirable concrete goal, why would it embark on a program to re-regulate the industry?”
The outcome of this rulemaking process will be very important to shippers and railroads alike. We look forward to the process.