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Market Matters Blog 05/06 07:43
STB Adopts Final Rail Reciprocal Switching Rule in Unanimous Vote
The Surface Transportation Board recently announced it has, by unanimous
vote, implemented the final rule for reciprocal switching.
Mary Kennedy
DTN Basis Analyst
The Surface Transportation Board (STB, Board) announced in a press release
on its website April 30 it has adopted a final rule version of 49 CFR (Code of
Federal Regulations) part 1145, that reflects certain modifications to the
proposal in the 2023 Notice of Proposed Rulemaking (NPRM) Reciprocal Switching
for Inadequate Service.
By unanimous vote, the STB implemented new regulations at 49 CFR part 1145
which sets forth a path for shippers and receivers to petition for the
prescription of a reciprocal switching agreement. The final rule is designed to
promote adequate rail service.
Under the final rule, customers within a terminal area with access to only
one Class I rail carrier may petition the STB to order a reciprocal switching
agreement when the customer's rail service falls below specified levels.
Board-prescribed reciprocal switching agreements will allow shippers or
receivers to gain access to an additional line haul carrier, while still
allowing the incumbent carrier to compete for the customer's traffic.
Reciprocal switching orders will be for a minimum of three years and a maximum
of five years, according to the announcement.
This contentious issue has been ongoing since July 27, 2016, when the STB
issued an NPRM in Reciprocal Switching under which the agency would exercise
its statutory authority to require rail carriers to enter into reciprocal
switching agreements.
On Sept. 7, 2023, the STB issued an NPRM that would provide for the
prescription of reciprocal switching agreements with emphasis on rail service
performance. The STB explained, "given the recurring service problems that
plague the industry, it would focus reciprocal switching reform on
service-related issues." The STB received many comments from interested parties.
"Nearly 40 years ago, the ICC, by rule and by subsequent decisions,
established what was perceived as a high bar for the issuance of a reciprocal
switching order. Indeed, no reciprocal switching orders have been issued since
before 1985, and none have even been sought since 1989. The rail network of
1985 is a far cry from that of today, and significant change is overdue," said
STB Chairman Martin J. Oberman.
"By a unanimous vote, the Board took a crucial step to lifting these
decades-old barriers to reciprocal switching for captive shippers. The rule
adopted today has broken new ground in the effort to provide competitive
options in an extraordinarily consolidated rail industry. Given the repeated
episodes of severe service deterioration in recent years, and the continuing
impediments to robust and consistent rail service despite the recent
improvements accomplished by Class I carriers, the Board has chosen to focus on
making reciprocal switching available to shippers who have suffered service
problems over an extended period of time," added Oberman.
"I hope that the Class I carriers will heed the call of this rule and not
only improve their service levels but maintain them consistently over time. If
they do, they will be fulfilling their critical obligations to both their
customers and the public, while at the same time minimizing the need for the
Board to enact even more far-reaching regulatory requirements," concluded
Oberman.
The Association of American Railroads commented in the final decision
document, "Sweeping switching requirements would undermine the use of
differential pricing, which AAR characterizes as critical to the health of the
rail network. Additional disadvantages include inefficient routing, increased
congestion, environmental costs that are associated with increased use of fuel
and emissions, train delays, higher risk of service failure due to increased
'touches,' depressed incentives for future investment with resulting reductions
in the quality of service, operational inefficiencies, safety risks, and
threats to carriers' ability to recover the costs of their entire networks and
to maintain financial viability."
While naming a litany of alleged disadvantages in the final decision
document, AAR asserted that provision for the prescription of reciprocal
switching agreements would provide no public benefit. AAR suggested the only
benefit would be any benefit that accrued to the successful petitioner and that
this benefit would impose burdens on others, for example, by causing
disruptions or inefficiencies in rail service on a system-wide basis.
National Grain and Feed Association (NGFA) President and CEO Mike Seyfert in
a news release said, "NGFA is committed to continuing to work with the STB and
railroads as much as possible to improve the performance and efficiency of the
rail network. Throughout the rulemaking process, NGFA agreed with the Board
that Class I railroads must have greater incentives to improve rail service to
their customers and to make continued investments in crews and equipment.
Data-sharing measures supported by NGFA included in the final reciprocal
switching rule will serve to both inform and incentivize railroad performance."
The American Chemistry Council (ACC) said in a press release on its website
that the STB missed an opportunity to address freight rail problems when it
adopted the final rule on reciprocal switching. "It's good to see that there is
unanimous agreement at the STB that the status quo is not acceptable and
freight rail reform is needed. Unfortunately, the Board's reciprocal switching
rule is too narrow to help most shippers and does not address the heart of the
matter; removing barriers to competition for all freight rail customers. It
simply does not go far enough and do enough to incentivize the railroads to
provide reliable and competitive service," said Chris Jahn, ACC President and
CEO.
Board Member Robert Primus said in a separate expression, "I am voting for
the final rule because something is better than nothing. But there is far less
'something' in it than I had hoped there would be.
"I also do not share the optimism reflected in the decision's expectation
that part 1145 will be a significant step in incentivizing Class I railroads
through competition to achieve and maintain higher service levels on an ongoing
basis. This is a missed opportunity. Almost 13 years after the National
Industrial Transportation League filed its petition for rulemaking with regard
to reciprocal switching, the Board is adopting rules that do nothing with
respect to the statute's competitive rail service prong and may not do very
much under the public interest prong. We should do more, we should do better,
and we should do it without letting another decade pass."
The STB's decision will be effective 120 days from the date of publication
in the Federal Register.
Link to Federal Register 49 CFR Part 1145:
https://public-inspection.federalregister.gov/2023-19543.pdf
The entire rule can be found here on April 30, 2024, docket number EP_711_2:
https://www.stb.gov/proceedings-actions/decisions/
Statement From STB Chairman Martin J. Oberman Regarding Final Rule For
Reciprocal Switching:
https://www.stb.gov/news-communications/latest-news/pr-24-21/
Mary Kennedy can be reached at Mary.Kennedy.dtn.com
Follow her on social platform X @MaryCKenn
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