Surface Transportation Board pushes back reciprocal switching comment period deadline to December 20

The Washington, D.C.-based Surface Transportation Board (STB), an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers, recently announced it has extended its reply comment period, for Docket No. EP 711, a Notice of Proposed Rulemaking (NPRM) focusing on providing rail service with access to reciprocal switching as a remedy for poor service, by two weeks, to December 20.

On September 7, the STB unanimously released a railroad service-focused NPRM focused on reciprocal switching. Entitled “Reciprocal Switching for Inadequate Service,” STB explained that this NPRM addresses providing freight railroad shippers “with access to reciprocal switching as a remedy for poor service.”

Reciprocal switching has long been a prevalent topic in industry circles. As previously reported by LM, STB’s previously proposed reciprocal switching legislation offered up in 2016 would allow a rail shipper to gain access to another railroad if the shipper makes certain showings. As has been defined by the STB, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper facility switches rail traffic to the facility for another railroad that does not have physical access. And the second railroad compensates that railroad that has physical access in the form of a per car switching charge, with the shipper facility gaining access to an additional railroad.

What was introduced in September, in the NPRM, though, differs from the previous incarnation, in that the STB’s proposed reciprocal switching regulations offer what it called a streamlined path for the prescription of a reciprocal switching agreement when service to a terminal-area shipper does not meet any of three performance standards. Which it said are geared towards reflecting a “minimal level of rail service below which a shipper would be entitled to relief, with each standard providing an independent path for a petitioner to obtain prescription of a reciprocal switching agreement,” adding that the standards “are intended to be unambiguous, uniform standards that employ Board-defined terms and are constantly applied across Class I carriers and their affiliated companies.

The three STB performance standards include:

Service Reliability: The measure of a Class I rail carrier’s success in delivering a shipment by the original estimated time of arrival (OETA) that the rail carrier provided to the shipper, with the OETA to be compared to when the car was delivered to the designated destination and would be based on all shipments over a given lane over 12 consecutive weeks.  One proposed approach would be to set the success rate during the first year after the rule’s effective date at 60%, meaning that at least 60% of shipments arrive within 24 hours of the OETA, and increasing the success rate thereafter to 70%;

Service Consistency: The measure of a rail carrier’s success in maintaining, over time, the carrier’s efficiency in moving a shipment through the rail system.  The service consistency standard is based on the transit time for a shipment, i.e., the time between a shipper’s tender of the bill of lading and the rail carrier’s actual or constructive placement of the shipment at the agreed-upon destination.  The NPRM proposes that, for loaded cars, unit trains, and empties, a petitioner would be eligible for relief if the average transit time for a shipment increased by a certain percentage—potentially 20% or 25%—as compared to the average transit time for the same 12-week period during the previous year; and

Inadequate Local Service: The measure of a rail carrier’s success in performing local deliveries (“spots”) and pick-ups (“pulls”) of loaded railcars and unloaded private or shipper-leased railcars within the applicable service window, often referred to as “industry spot and pull” (ISP).  The NPRM proposes that a rail carrier would fail the standard if the carrier had an ISP success rate of less than 80%, over a period of 12 consecutive weeks, in performing local deliveries and pick-ups within the applicable service window.  The ISP success rate would measure whether the carrier provides the service within its customary operating window for the affected shipper, which in no case can exceed 12 hours.  STB said that this service metric provides rail customers with the long sought-after information on all important first mile/last mile service.

What’s more, STB said that in order for rail shipper customers to be able to readily monitor and measure their rail service, this rule would require Class I rail carriers to provide customers with historical data for service metrics within seven days of being requested by a customer. And it also noted that this would, for the first time, require the three service metrics to be standardized across all Class I carriers.

STB Chairman Martin Oberman said in September that going back to at least 2010, STB has been considering different ideas focused on reforming the current reciprocal switching regulations so captive shippers would have a practical and realistic opportunity to obtain a reciprocal switching order when warranted. And he observed that even though the number of Class I carriers has gone from 40 before 1980 to six today, not one rail shipper has been successful in obtaining a reciprocal switching order in the last 40 years, with no rail shippers having sought a reciprocal switching order from the STB since before 1990.

“The Board has determined to focus its efforts with respect to reciprocal switching on providing relief to rail customers suffering from poor service,” he said. “With the issuance of today’s NPRM, the Board is proposing that one approach to improving rail service is to afford affected shippers the opportunity to obtain a reciprocal switch to a competing Class I carrier when service falls below a standard set in the proposed rule. The new rule contains a distinct advantage over both the existing regulations and the proposal in the 2016 NPRM.  The proposed new rule sets specific, objective, and measurable criteria for when prescription of a reciprocal switching agreement will be warranted.  This rule will bring predictability to shippers and will provide Class I carriers with notice of what is expected of them if they want to hold on to their customers who might otherwise be eligible to obtain a switching order.  As a result, litigation costs to obtain a switch should be greatly reduced and petitions to obtain a switching order should be able to be litigated much more swiftly.”

At the recently-held RailTrends conference in New York, which was hosted by Progressive Railroading and Tony Hatch, principal of ABH Consulting, Hatch explained that a key difference between this NPRM and previous proposals is that it is service-based, as opposed to being mileage-based, which is what he initially expected.  

“I also call this [NPRM] the ‘STB Full Employment Act,’ because you need a regulator who looks at the service issues all of the time, and [industry stakeholders] are all on the same side of getting that done, so that is really a positive thing.”

Ian Jefferies, president and CEO of the Association of American Railroads (AAR), said at RailTrends that the STB made the right move in abandoning the initial 2016 reciprocal switching proposal, which the AAR viewed as a backdoor rate regulation without justification, while shifting to what he called a conduct-based proposal based on service.

“Everyone on the board and everyone in the industry desires to provide a strong service to our customers,” he said. “And, so, the Board has taken the approach that in instances with sustained levels of non-satisfactory service that a shipper might have the opportunity to come to the Board and question a switch to another railroad. The devil is always in the details with this. So, are the metrics right? There's a question about whether contract traffic should apply…Absolutely not. Contract traffic is for private contracts not regulated traffic.”

The top railroad lobbyist added that there are opportunities to improve this proposal, with the STB having its work cut out in going through the NPRM’s comments, and also noted outgoing STB Chairman Martin Oberman went to extreme lengths to keep all stakeholders together and get to a consensus.