Will STB Take Up Reciprocal Switching?

Shipper associations in early August met with Surface Transportation Board (STB) members to answer questions about STB’s options for advancing Ex Parte 711 (Sub-No. 1), reciprocal switching.

The meetings followed President Biden’s July 9 Executive Order (EO) on competition, which encouraged the STB to “consider commencing or continuing a rulemaking to strengthen regulations pertaining to reciprocal switching agreements pursuant to 49 U.S.C. 11102(c), if the Chair determines such rulemaking to be in the public interest or necessary to provide competitive rail service,” among other measures.

STB, on July 27, 2016, proposed new regulations in Docket No. EP 711 (Sub-No. 1; download below) “to improve the availability of reciprocal switching” and “allow a shipper to gain access to another railroad if the shipper makes certain showings,” Railway Age reported at the time. Its Notice of Proposed Rulemaking (NPRM) was “an outgrowth of a petition for a rulemaking submitted by The National Industrial Transportation League (NITL) in July 2011,” which the Board granted in part.

According to Aug. 4, 2021 meeting summaries (one issued for STB Chairman Martin J. Oberman and another for Vice Chairman Robert Primus), the shipper associations told STB it could choose to proceed with EP 711 (Sub-No. 1), solicit supplemental comments before advancing it, or start from scratch. The associations included attendees from NITL, Packaging Corporation of America, Nutrien, Cargill, The Fertilizer Institute (TFI), American Chemistry Council (ACC) and CF Industries.

The associations’ preference was to proceed with “completing Ex Parte 711 (Sub-No. 1) on the current record, which is extensive,” noted the summary issued for Primus. “They explained that, although the proposal is not perfect, it is good and feasible, provided the Board considers proposed modifications in the record to avoid lengthy proceedings. They also explained that the proposed rule reflected a case-by-case approach that addresses railroad concerns by enabling the Board to address any issues with competitive switching if and when they arise. They commented that starting the proceeding from scratch would introduce extensive delay and that it is unnecessary to supplement the record because the need for competitive switching has grown, railroad opposing arguments have not changed over time, and the financial situation of railroads has improved. They also commented that recent service issues strengthen the case for moving forward on Ex Parte 711 (Sub-No. 1). …”

Chairman Martin Oberman asked the shipper associations if “it would be worthwhile to obtain more information in light of the adoption of Precision Scheduled Railroading, service issues and the appointment of new Board members,” according to the meeting summary issued for him.

“The shipper associations commented that the record tackles service issues and Precision Schedule Railroading, and that the implementation of Precision Scheduled Railroading creates a greater and more urgent need for competitive switching,” the meeting summary noted. “The shipper associations also commented that the Canadian experience with interswitching shows that the likelihood of negative impact is low and that competitive switching has benefits.”

Additionally, Chairman Oberman asked about the scope of traffic affected by a competitive switching rule. “The shipper associations explained that their prior analysis of the NITL proposal demonstrated that less than 4% of overall carloads would be eligible and that even fewer carloads were likely to qualify under the Board’s proposed case-by-case approach,” according to the summary. “The shipper associations also explained that, even if competitive switching is available only to a small percentage of captive locations, it provides additional pressure for railroads to compete more broadly.” The “true scope of affected traffic would depend on how the Board interprets the reasonable distance factor under the proposed rule and that, even where competitive switching is made available, shippers may not use it because they are able to obtain a competitive rate from the incumbent.”

STB Member Michelle Schultz held a similar meeting with the shipper associations (NITL, ACC, Packaging Corporation of America, Nutrien, Cargill and TFI) on Aug. 10.

For more on the STB and shipper associations’ comments, download the summaries:

For more on reciprocal/competitive switching, see Railway Age Contributing Editor Jim Blaze’s story on “Reciprocal Switching: Complex, Expensive, Time-Consuming (i.e. Mostly a Bad Idea).”