Monday, February 10, 2014

Send iron horses to glue factory: NITL

Written by  Frank N. Wilner, Contributing Editor
Frustrated that rail rates are higher than desired by its members, and failing to convince Congress to repeal Staggers Rail Act provisions providing carriers greater rate-making freedoms, the National Industrial Transportation League (NITL) is attempting a Hail Mary, asking the Surface Transportation Board (STB) to confiscate railroad private property to achieve its aims.

The NITL Petition for Rulemaking to Adopt Revised Competitive Switching Rules asks the STB to allow shippers in origin or destination terminal areas, served by one Class I railroad that has at least a 75% market share at that terminal, to be granted mandatory terminal access to a second railroad having an interchange within 30 miles.

Under the NITL proposal, the railroad serving the shipper would be required to tender or receive any portion of a shipper’s traffic, upon demand, to or from a second railroad. A shipper would have only to demonstrate that the existing carrier handles at least 75% of the shipper’s freight and that there is no effective truck or barge competition. Why the percentage of traffic is not 90% or 30%, but 75%, is not explained.

There would be no requirement that a shipper document anticompetitive conduct as a requisite for obtaining competitive switching,” yet no shipper has ever asked the STB to waive or exempt the need for showing anticompetitive conduct to obtain terminal access.

The NITL does not indicate what is to be paid for moving the freight competitively switched, which would be less efficient than its handling by a single railroad. That price will be determined by the STB without any standards.

The Association of American Railroads (AAR) estimates that the NITL scheme could cost the industry some $8 billion annually, fully 80% of the railroads’ annual capital investment in service-quality improvement.

There is no statutory authority for “competitive switching,” although the STB has authority to “require terminal facilities, including main line tracks for a reasonable distance outside of a terminal . . . to be used by another rail carrier.” Regulators historically have limited such rulings to railroad consolidations and, in one case, new control of a bankrupt carrier.

For example, regulators ruled they were without authority to order Chicago & North Western (now part of Union Pacific) access to BNSF predecessor Burlington Northern’s line-haul trackage serving the Powder River Basin solely to create competition and achieve lower freight rates.

Converting railroad private property to communal trackage would overturn 126 years of legislation and regulatory rulings without any showing that the current regulatory arrangement protecting shippers from unreasonable rates is deficient.

Shippers served by a single railroad already have an effective rate-grievance forum at the STB.

Of 45 shipper complaints filed with the STB since 1996, shippers prevailed 11 times, and railroads eight times. The remaining 26 complaints, a majority, were settled voluntarily.

Yes, the number of competing railroads, owing to consolidations—many following massive financial failure—has declined to just seven, and railroads have cancelled many joint rates and routes to increase traffic density, reduce inefficient routes, and (under the pre-Staggers Act regime of collective ratemaking) eliminate an uneconomic system of equalized joint rates, prescribed divisions of rates among connecting carriers, and below-cost switching charges.

Why?

Because, previously, one-third of rail route-miles carried just 1% of freight—inefficiency that was a root cause of earlier railroad financial failures and widespread service degradation nationwide.

In years past, the NITL said an improvement in service quality—requiring substantial railroad capital investment—was an acceptable tradeoff for higher freight rates, and collaborated with the railroads on revised regulatory standards for resolving rate complaints.

Rather than rely on those guidelines, which have produced for shippers more victories than losses, the NITL now wants the STB to confiscate railroad private property solely to produce lower freight rates.

Rail service quality depends on profit that stimulates capital investment, making the NITL petition a prescription for returning railroads to the darkest days of the 1970s, when the healthiest railroad was but the fittest iron horse in the glue factory.

Macduff’s line in Macbeth well describes the NITL petition: “Confusion now hath made his masterpiece.”