Years ago, as general counsel to the Illinois Racing Commission, Surface Transportation Board (STB) Chairperson Martin J. Oberman chased the “gow”—jockey-speak for opium used illegally to improve race horse performance. These days, the 76-year-old Oberman is himself infused with a legal form of gow: an unabated resolve to use his regulatory cudgel to splinter railroad market power.
Shippers, long frustrated that the STB and its Interstate Commerce Commission (ICC) predecessor acted as a wholly owned subsidiary of railroads, are optimistic a leadership baton has been passed to a chairman predisposed to interpret rail regulatory statutes more in their favor. Railroads, by contrast, regard Oberman’s activism as an assault on private property rights. “He’s freaking out investors,” an analyst with a major Wall Street firm told this columnist.
Not to pour Oberman’s whiskey down the well, but his perceived shipper-friendly agenda faces speed bumps—maybe barricades—from a conservative federal judiciary, his needing two other votes on the five-member STB to prevail, and an STB workforce perhaps spread too thin to handle the likely workload.
Consider the federal judiciary, which historically has accorded deference to expert regulatory agency decision-making. Such may be coming to an end. Supreme Court Justice Clarence Thomas has raised “serious questions about the constitutionality of our broader practice to deferring to agency interpretations of federal statutes,” while Justice Neil M. Gorsuch, when a federal appellate judge, termed such deference “maimed and enfeebled.”
As for the STB’s workforce, it will be tested in coming months. The first major railroad merger application in two decades—Canadian Pacific and Kansas City Southern—will invite workload-challenging requests for pro-competitive conditions. A second merger application—of Class I CSX and Class II PanAm Railways—is proving more complicated than anticipated, owing to emerging New England rail competition concerns. Notably, merger cases have statutory time lines that must be met.
As for Oberman’s competition enhancing rulemakings favored by shippers, their progress could be further slowed were the merger applications to invite defensive mergers, or were a new rail rate challenge filed. Then there is a festering problem with the STB’s antiquated Uniform Rail Costing System (URCS), which allocates costs in regulatory proceedings. Its elements, some dating to 1907, are in urgent need of time-consuming and costly revision. An outside consultancy already is at work making suggestions.
Although the STB is chock-full of attorneys (39, plus six paralegals), its 15 financial and transportation analysts, eight economists, two professional engineers and two accountants could prove inadequate for Oberman’s activist agenda—especially in the midst of an again-surging pandemic.
What are the shipper-friendly rulemakings Oberman seeks to advance?
Reciprocal Switching (Ex Parte No. 711): This is the practice by which a railroad with physical access to a shipper facility switches cars to or from that facility on behalf of a second railroad lacking physical access—termed “competitive access” by shippers who seek to inject two-railroad competition, but viewed as “forced access” by railroads. STB precedent, dating to a 1985 case known as Midtec, holds that such a remedy not be imposed absent a showing of market-power abuse.
First-Mile/Last-Mile service issues (Ex Parte No. 767): This is a supply chain issue, with remedies sought by shippers when railroads delay freightcar switching from a local serving yard to the shipper or receiver facility.
Rules Governing Private Rail Car Use by Railroads (Ex Parte No. 768):Some 70% of the total railcar fleet is non-railroad-owned, with shippers complaining of railroad delays in returning empty cars for reloading. Sought by shippers is authority to assess a “private railcar delay charge.”
Final Offer Rate Review (Ex Parte No. 755): This is an alternative to an expensive Stand-Alone Cost (SAC) test where recoveries in rate disputes are relatively small. Considered is a process where each party makes a final offer and the STB chooses one, without revision. Railroads seek an exemption in favor of voluntary arbitration (Establishing a Voluntary Arbitration Program, Ex Parte No. 765.) But shippers say it would give railroads an advantage. Following the first arbitration, railroads would gain knowledge of strategy, expert witness testimony and arbitrator predilections not available to each new shipper entering the process, as arbitration awards are to be confidential.
Another problematic Oberman initiative is his scrutinizing of the railroads’ common-carrier obligation. Never defined by statute, it is broadly interpreted as a duty to provide transportation or service on reasonable request. Railroads say it does not apply to traffic exempt from economic regulation—some 80% of total rail traffic. If so, the STB could be asked—over strenuous railroad objections—to revoke non-statutory exemptions (such as for intermodal), with Congress prodded to end the statutory exemption for traffic moving under contract.
Stiffening Oberman’s resolve is a burgeoning bipartisan congressional interest in market concentration affecting products essential to commerce. A bipartisan supported American Innovation and Choice Online Act would specifically limit the market power of Amazon and Google—and be easily extended to railroads. Not so long ago, railroads only narrowly blocked a congressional attempt to bring them more completely under the antitrust laws from which they are largely exempt in favor of STB economic regulation.
For sure, shippers are bullish on Oberman, viewing his exertions as reminiscent of shipper advocate and former Sen. Jay Rockefeller (D-W.Va.). In January 2000, after then-Commerce Committee Chairman John McCain (R-Ariz.)—a recipient of substantial railroad campaign contributions—announced he “was not inclined to bring up any legislation affecting railroad transportation that will be reregulatory,” Rockefeller responded, “We are owed a hearing.” Shippers now look to Oberman as they once looked to Rockefeller—who, notably, was less than successful.
So, does Oberman, whose first term expires in December 2023, have the votes?
The STB currently has a 3-2 Republican majority, but Republican Ann D. Begeman, serving a statutory one-year maximum holdover following expiration of her term-limited second term, must depart by Dec. 31. Her presumptive successor is 73-year-old attorney Karen J. Hedlund, a Democrat awaiting Senate confirmation.
Hedlund has a reputation of a deep and independent thinker with a transportation consultancy background, and may possess the most practical understanding of railroad economics, operations and service since former STB member Debra L. Miller (2014-2018), who long-led the Kansas Department of Transportation. If confirmed, Hedlund’s first term will expire in December 2025.
The third Democrat is Robert Primus, age 50, whose first term expires in December 2022. Although he has a limited transportation background, he has proven a fast study and shown an independent streak in sharply worded dissents to Oberman-drafted decisions.
The STB’s two Republicans post-Begeman will be Patrick J. Fuchs, age 31, whose first term expires in January 2024, and Michelle A. Schultz, age 49, whose first term expires in January 2026. Fuchs arrived from the Senate Commerce Committee, where he was instrumental in drafting the 2015 Surface Transportation Reauthorization Act, which surprised railroads with shipper-friendly provisions. Schultz, an attorney with a commuter rail background, has limited experience in freight rail issues.
Frank N. Wilner is Railway Age Capitol Hill Contributing Editor. He is a former STB chief of staff, a past president of the STB’s bar association, and for two decades was assistant vice president for policy at the Association of American Railroads. Publication of his seventh book, Railroads & Economic Regulation, is pending.