Reciprocal Switching: Complex, Expensive, Time-Consuming (i.e. Mostly a Bad Idea)

Here are a few observations about the often operationally complex competitive rail carload service that many shippers and public advocates would like federal regulators to shove down the throats of the railroads: “reciprocal switching,” or as the Association of American Railroads calls it, “forced access,” a “misguided” method that could, ultimately, undermine the railroads’ ability to reliably serve customers.

Based on experience, in some places, reciprocal switching could indeed work as a public benefit.  But in most locations, it could be very complex and time-consuming. Does anyone really know how it works? Here is introductory-level background , with AAR graphics from a published assessment and video. 

In the published AAR video, AAR experts show why some reciprocal-switch proposed competitive solutions could be very expensive, with complex movements requiring up to six days to complete. Remember the basics of what a railroad is: a form of transportation operating on a fixed guideway with movements restricted to a “single degree of freedom.” Trains move forward or backward only.

In this example of reciprocal switching area geography, a shipper in the northeast quadrant (upper right) wants to move a carload from its dock to a receiving customer on a second railroad’s tracks ( lower left connecting yard on the graphic). This actually might require more movements if we add in the empty car placement at the XYZ Corporation plant site—assuming it requires the use of the shipper’s dedicated freight cars.

Granted, every such proposed or shipper-requested reciprocal or terminal switch competitive operation need not be this complex or time-consuming.  Is there a business case here? Yes and no.

To be practical, the expenditure of resources and time has to be reasonable. In this example, moving a single car requires 68 locomotive operating work task movements, the use of three major switching yards, and up to six days total time. Is it worth it to all parties, including the shipper and the receiving customer? To answer, we need to monetize the chain of events. That is, the parties have to estimate a production and time-based cost vs. the monetized supply chain and car asset benefit. This can be done using spreadsheets with various cost and cost allocation data sets—a typical  STB cost/benefit analysis. To the regulators, this will be something different than what was used in previous merger or competition analysis reviews.

Here is a much-more simplified method: Just assume, in this AAR case, that each car has a nominal $30 per day rental or usage valuation, and that each hour of locomotive use has an embedded hourly railroad internal cost of approximately $250 per hour. (Feel free to substitute other cost figures.)

Adding up both time and equipment asset costs, plus adding in a minimal above variable operating cost “profit margin,” often results in shippers seeing a tariff charge of between $250 and $500 for each such reciprocal second-railroad carrier competitive service. The variance reflects localized recognized costs of the movement process.

If the traffic level is only 1 to maybe 3 cars per block delivery or car pull, then the second eligible competitive carrier might not earn enough to make i’s service offering worthwhile. And if the shipper owns or leases the railcars, the customer might not calculate a resulting second-service monetized benefit, if car utilization rates deteriorate. Or, the receiving company’s supply chain might not accept the additional transit days of such movements because the delay time value exceeds the expected lower railroad tariff or contract rate level.

AAR’s example doesn’t capture these economic differences. My point is that solving for a solution takes a lot more work effort.

There are other switching solutions that would substitute limited trackage rights for local area terminal movements, thus cutting down the total of 68-movements in this AAR business case example to something far less complicated.

Based upon similar switching or terminal access studies I directed at Conrail and later at Zeta Tech Associates, determining the possible public benefits and added pro-competitive delivery benefits of more open switching will likely require a case-by-case business calculation estimate. There is no shortcut economic rule.

Bottom line? Localized or regional added second-carrier access can be an effective tool for railroad customers. But in some physical or traffic level circumstances, the costs may exceed the expected benefits. And in many cases, the possible second rail carrier will decide it’s not worth trying to bid for serving selected “open” locations—too time-consuming, and a shortage of crews and locomotives will make some movements too complicated for all involved.

If you are a public policy practitioner, a regulator or an STB staff person, you will need to sort out each suggested solution. Do you have the investigative resources?

Independent railway economist and Railway Age Contributing Editor Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna Cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age. As always, contrary business opinions are welcome.”