Railroads to STB: Reject Proposal to Regulate Private Railcar Handling

Written by Marybeth Luczak, Executive Editor
image description

The Association of American Railroads, plus CSX and Union Pacific, are calling on the Surface Transportation Board to deny a Petition for Rulemaking that would update the demurrage and accessorial rules governing the railroads’ use and handling of privately owned freight cars.

The North America Freight Car Association (NAFCA), National Grain and Feed Association (NGFA), Chlorine Institute (CI), and National Oilseed Processors Association (NOPA) on July 26 submitted the petition requesting the STB “to promulgate regulations governing the use by the nation’s Class I railroads of freight railcars supplied to them by railcar owners, shippers, and other non-railroad entities. [A]n update to the rules governing the railroads’ use of private railcars is long overdue because the railroad industry has evolved to the point that approximately 73% of the railcars in service today nationwide—approximately 1.2 million railcars—are no longer owned by railroads, but are … purchased, or leased, and maintained, by non-railroad entities at little or no cost to the railroads that use them.”

The four organizations are seeking STB’s adoption of a “regulatory mechanism that utilizes existing principles governing demurrage and accessorial charges to provide greater incentives for railroads to utilize [such cars] in their possession more efficiently. More efficient use … by railroads will protect the huge investment non-railroad entities have made acquiring and maintaining them, and will result in the national railcar fleet being of a more rational size to utilize existing rail system capacity and meet demand. The overall goal of this proposal … is to maximize the Class I railroads’ efficient use of private railcars without unduly infringing upon the railroads’ freight operations over their respective systems, recognizing that some level of service variability is inherent in any railroad’s operations.”

AAR responded in an Aug. 30 STB filing (download below), stating that the “Board should reject the Petition outright. Petitioners seek to invoke regulatory powers the Board does not have to solve a problem that does not exist. Petitioners point to no actual problem of ‘car service’ that could be reached by Section 11122 [49 U.S.C. § 11122(a)], but instead seek to regulate the transportation services railroads provide to shippers—not to car owners—by establishing a new regime of service standards and penalties governing those services. The proceeding Petitioners desire is ill-conceived and would be a waste of the Board’s resources. …”

AAR offered the following reasons:

  1. “The Board does not have the authority to do what Petitioners ask because the Board’s ‘car service’ authority does not extend to the micromanagement of rail transportation services, much less the subset of those services that happen to entail the use of private cars.
  2. “[T]here is no car service problem or any other problem warranting a new regulatory scheme.
  3. “The kind of micromanagement of railroad transportation service Petitioners propose would be misguided and inconsistent with the well-established legal framework governing railroad service levels.
  4. “Petitioners’ proposed rulemaking would raise a host of complex issues relating to car supply, railroad operations, and the Board’s regulatory authority that Petitioners—with their narrow and pecuniary interests as private car owners—have not even begun to address. The endeavor would be a profoundly poor subject of the Board’s regulatory attention.”

AAR pointed out that if the STB does consider initiating a regulatory proceeding, “it should first require that Petitioners come forward with evidence demonstrating some specific set of public interest harms and the manner in which their proposal purportedly addresses them. If the Board then wishes to explore certain facets of the issues raised by Petitioners, the Board should do so in a manner that allows for an appropriate scoping of the issues prior to putting forward any concrete rulemaking proposal—such as via a request for comments. …”

In a separate response submitted on Aug. 30 (download below), CSX pointed out that “[m]oving cars as efficiently and safely as possible is the core of CSXT’s business model.” While the petitioners argue that an STB-imposed regulatory fee—“reverse demurrage”—on delayed private car movements is “necessary to incentivize railroads to move private cars efficiently,” this premise “is simply not true,” the Class I railroad wrote. “Railroads have every incentive to move cars as quickly and efficiently as possible, whether they be a railroad’s own system cars, another railroad’s system cars, or private cars. CSXT in particular has worked hard over recent years to improve the velocity of cars on its network. CSXT knows that moving cars more quickly to and from customer locations drives its ability to earn existing and additional business, particularly from trucks and other rail carriers.

In backing AAR’s reply to the petitioners, CSX emphasized that new regulations would be “unnecessary and harmful” because:

• “[T]here is no market failure to justify additional regulation of railroad dispatching practices. CSXT has prioritized car velocity because it enables CSXT to compete more effectively. CSXT receives no benefit from car delays—on the contrary, cars that dwell occupy valuable track space and obstruct operations, making it harder for CSXT to operate efficiently. That is true whether the delayed cars are railroad-owned system cars or private cars.”

• “[T]he ‘reverse demurrage’ proposed by the Petition would create market distortions and unintended consequences. Private cars would be privileged over system cars, since a railroad could face financial penalties for a private car delay that it would not face for system car delays. Shippers who rely on system cars would thus be disadvantaged over shippers who own cars. This unequal regulatory treatment would encourage freight customers to invest in private cars when they might not otherwise. It may also introduce inefficiencies into operational and interchange practices.”

• [T]he burdens of this proposal outweigh any perceived benefits. If adopted, a reverse demurrage rule would spawn contentious litigation between the carriers and [their] customers over the multifaceted reasons railcars are delayed during transit, with little to no perceivable benefit to customers, while risking unintended consequences from incentivizing preferred dispatching for private cars that customers are not demanding in the marketplace.”

In sum, CSX wrote: “There is no cause for the Board to explore a proposed new regulation that would carry so many negative consequences, particularly in the absence of any evidence that railroads require further incentive to transport private railcars as quickly as possible.”

UP also spoke out. In its own Aug. 30 filing with the STB (download below), UP wrote: “Railroads already have powerful operational and commercial incentives to handle all freight cars so as to maximize the efficient use of railroad resources. These strong incentives align with the interests of all shippers in a national rail network that is both efficient and fluid. A rule that coerces railroads to prioritize movements of private freight cars would reduce overall network efficiency and favor shippers who use private freight cars over other shippers. The proposed rule would not even guarantee faster service for shippers using private cars because it regulates only the amount of time cars may remain idle at any one location, not the total amount of time cars may be idle while en route.” (The proposed rule, UP pointed out, “would penalize railroads if they do not move private freight cars in transit on their systems at least once every 72 hours.”)

UP concluded that the “Board should firmly reject the idea of taking day-to-day car movement decisions out of the hands of railroad managers and placing them under control of railroad regulators.”

While the American Short Line and Regional Railroad Association (ASLRRA) did not submit a reply, it wrote in an Aug. 30 STB filing that the association “has a significant interest in the in the proposed rulemaking and intends to actively participate in these proceedings to assure its interests and those of its members are adequately represented and considered.”

Categories: Class I, Finance/Leasing, Freight, Freight Cars, Freight Forecasting, Mechanical, News, Regulatory, Short Lines & Regionals Tags: , , , , , , , , ,