‘Poor Service’ Drives STB’s Proposed Reciprocal Switching Rule

The Surface Transportation Board (STB) on Sept. 7 issued a Notice of Proposed Rulemaking (NPRM) that it said focused on “providing rail customers with access to reciprocal switching as a remedy for poor service.” It called the move “an important step in addressing the many freight rail service concerns expressed by stakeholders since 2016.” Comments are due by Oct. 23, and STB said it anticipates “acting expeditiously” on the proposal.

“In the past several years, and particularly since 2021, it has become clear that many rail customers nationwide have suffered from inadequate and deteriorating rail service,” STB Chairman Martin J. Oberman said during the announcement of the NPRM (download below), which the Board members issued by unanimous vote. “These problems were documented in detail in the hearings conducted by the Board in April 2022 [Docket No. EP 711 (Sub-No. 1)] … The Board has continued to closely monitor the state of rail service.

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“For this reason, the Board has determined to focus its efforts with respect to reciprocal switching on providing relief to rail customers suffering from poor service. 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.”

The Sept. 7 release of the NPRM closes Docket No. EP 711 (Sub-No. 1) and proposes, in a new Subdocket (Docket No. EP 711 [Sub-No. 2]), a new set of regulations.

According to the STB, the newly proposed regulations would provide “a streamlined path for the prescription of a reciprocal switching agreement when service to a terminal-area shipper fails to meet any of three performance standards.” The proposed standards, it explained, “are intended to reflect a minimal level of rail service below which a shipper would be entitled to relief, and each standard would provide an independent path for a petitioner to obtain prescription of a reciprocal switching agreement.” STB said they are “intended to be unambiguous, uniform standards that employ Board-defined terms and are consistently applied across Class I rail carriers and their affiliated companies.” The three STB-proposed standards are:

1. Service Reliability. This is defined as 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,” according to the federal agency. STB reported the “OETA would 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, STB said, “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%.” STB said it also seeks comment on other approaches, such as “maintaining the required success rate at 60% permanently or raising it to higher than 70% after the second year.” Phasing in a higher success rate over time, STB said, would provide the Class I railroads “with time to increase their work forces and other resources, or to modify their operations, as necessary, in order to meet the required performance standard.”

In the NPRM, STB said that “as a starting point for possible percentages in the service reliability standard, the Board notes that in Docket No. EP 770 (Sub-No. 1) it directed BNSF, CSXT, NSR, and UP to provide an indicator and target for trip plan compliance (TPC) as well as weekly data measuring manifest service, unit trains, and intermodal traffic placed at destination 24 hours past OETA … Although the carriers refer to the TPC indicator by different names and measure performance in different ways, these four carriers reported the below initial TPC metrics for manifest traffic (the largest category of non-intermodal traffic), initial six-month performance targets, and one-year performance targets”:



“While the Board recognizes that these figures are system averages, each of the four carriers required to submit service recovery plans has acknowledged that their service fell short of public expectations or needs during the time when the carriers reported their initial performance levels. The Board finds that the carriers’ performance levels during this challenged time are a reasonable starting point for setting standards for inadequate service and, as such, has used these levels to formulate proposals for potential performance standards under part 1145.”

2. Service Consistency. STB said this is 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, according to the agency, “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.” STB’s 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,” according to the agency.

3. Inadequate Local Service. STB defined this as 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 railroad would “fail the standard” if it 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. “This service metric provides rail customers with the long sought-after information on all important first mile/last mile service.”

In the NPRM, STB provided the following table:



“Although the carriers refer to industry spot and pull indicators by different names (e.g., Local Operating Plan Adherence or LOPA) and measure performance in different ways, these four carriers first reported ISP metrics and interim targets for manifest traffic,” STB said of the table. “While the Board recognizes that these figures are system averages, each of the four carriers that were required to submit service recovery plans have acknowledged that their service fell short of expectations during the time when the carriers reported their initial performance levels. As such, these averages are a reasonable starting point for setting standards for poor or inadequate local service.”

According to STB, the proposed rule would require all Class I’s to provide their customers with “the historical data for these service metrics within seven days of a customer’s request” so that customers can “readily monitor and measure their rail service.” It also provides for “affirmative defenses for service failures resulting from issues beyond the rail carrier’s control, such as natural disasters or actions of third parties,” STB reported.

In the NPRM, STB wrote that it also proposed “to make permanent the collection of certain data that is relevant to service reliability and inadequate local service and that is currently being collected on a temporary basis in Docket No. EP 770 (Sub-No. 1). The Board’s permanent collection of this data under part 1145 would be adapted to the design of part 1145 as follows. The Class I carriers would be required to provide to the Board on a weekly basis: (1) for shipments moving in manifest service, the percentage of shipments for that week that were delivered to the destination within 24 hours of OETA, out of all shipments in manifest service on the carrier’s system during that week; and (2) for each of the carrier’s operating divisions and for the carrier’s overall system, the percentage of planned service windows during which the carrier successfully performed the requested local service, out of the total number of planned service windows on the relevant division or system for that week.”

“Importantly, for the first time, the proposed rule also would require all three service metrics be standardized across all Class I carriers,” said STB, adding that it also “proposes to make permanent certain data reporting requirements relevant to service reliability and inadequate local service currently being collected on a temporary basis in other dockets.”

Additionally, STB said it proposes that reciprocal switching agreements “would be for a minimum period of two years and up to a maximum of four years, depending on the evidence presented.” But it is seeking comment on whether a longer period is necessary “to ensure the rule’s effectiveness.” The reciprocal switching agreement could be terminated at the end of the prescribed period, STB pointed out, “if the incumbent rail carrier proves to the Board that it can provide service meeting the pertinent minimum standard going forward. If it fails to do so, the reciprocal switching agreement would remain in place.”

Industry Response


AAR President and CEO Ian Jefferies

Shortly after the NPRM was released, Association of American Railroads President and CEO Ian Jefferies issued the following statement: “The withdrawal of the ill-conceived 2016 forced switching proposal is a positive development, as the extensive record developed by this Board on that proposal clearly demonstrated that it was both unwise and unworkable. In its place, the Board has proposed a new, service-based approach, which AAR is reviewing to understand its scope and possible impact on rail service and network fluidity. While the STB did not perform a cost-benefit analysis, any new regulation must be backed by data, narrowly tailored to address a specific and well-defined problem, and ensure benefits exceed costs. Any switching regulation must avoid upending the fundamental economics and operations of an industry critical to the national economy—that Congress saved once by partially deregulating—and be subject to the highest level of scrutiny. AAR looks forward to engaging with the Board on this important matter.”

The American Chemistry Council (ACC) on Sept. 7 provided this statement from Senior Director of Regulatory and Scientific Affairs Jeff Sloan: “Removing regulatory barriers to competition through reciprocal switching is one of the most important changes the STB can make to improve rail service and help prevent future problems. While it’s disappointing that the Board is abandoning reciprocal switching as a mechanism to more broadly promote competition, we are hopeful that the revised proposal can offer meaningful relief to shippers when a railroad fails to meet objective service standards. We welcome the opportunity to work with the Board on finalizing this long overdue reform.”

Background


STB first proposed reciprocal switching regulations in 2016, following The National Industrial Transportation League’s (NITL) petition for rulemaking submitted in July 2011. A 2021 Executive Order on competition encouraged STB to review them.

The STB’s newly released NPRM explained the current framework for alternate access through reciprocal switching: “Alternate access generally refers to the ability of a shipper or receiver or an alternate railroad to use the facilities or services of an incumbent railroad to extend the reach of the services provided by the alternate railroad. The provisions of 49 U.S.C. §§ 11102 and 10705 make three alternate access remedies available to shippers/receivers and carriers: the prescription of terminal trackage rights, the prescription of reciprocal switching agreements, and the establishment of through routes … [R]eciprocal switching agreements provide for the transfer of a rail shipment between Class I rail carriers or their affiliated companies within the terminal area in which the shipment begins or ends its journey on the rail system. The incumbent rail carrier either (1) moves the shipment from the point of origin in the terminal area to a local yard, where an alternate carrier picks up the shipment to provide the line haul; or (2) picks up the shipment at a local yard where an alternate carrier placed the shipment after providing the line haul, for movement to the final destination in the terminal area. The alternate carrier might pay the incumbent carrier a fee for providing that service. The fee is often incorporated in some manner into the alternate carrier’s total rate to the shipper. A reciprocal switching agreement thus enables an alternate carrier to offer its own single-line rate or joint-line through rate for line-haul service, even if the alternate carrier’s lines do not physically reach the shipper’s/receiver’s facility …

“A reciprocal switching agreement can be voluntary or may be prescribed by the Board as provided in § 11102(c). Section 11102(c) authorizes the Board to require rail carriers to enter into reciprocal switching agreements when practicable and in the public interest or when necessary to establish competitive rail service … Currently, the Board has two sets of regulations under which it considers whether to prescribe a reciprocal switching agreement in non-emergency situations.

“Part 1147 of the Board’s current regulations addresses reciprocal switching related to inadequate service. Under part 1147, the Board will prescribe a reciprocal switching agreement (or terminal trackage rights under § 11102(a) or a through route under § 10705) if the Board determines that there has been a substantial, measurable deterioration or other demonstrated inadequacy in rail service by the incumbent carrier. 49 C.F.R. § 1147.1(a). Part 1144 governs reciprocal switching to address a broader set of issues, including certain types of complaints about pricing and/or service. Under part 1144, the Board will prescribe a reciprocal switching agreement or through route as necessary to remedy or prevent an act that is contrary to the competition policies in 49 U.S.C. § 10101 or is otherwise anticompetitive, provided that certain other conditions are also met. 49 C.F.R. § 1144.2(a)(1); 49 U.S.C. § 10101.”


STB Chairman Martin J. Oberman

STB’s Oberman noted in his Sept. 7 statement that “ince joining the STB nearly five years ago, it has become apparent to me that many of the ills of the national freight rail network stem from a lack of competition in the industry and the fact that many rail customers are captive to one Class I railroad.

“In my view, Congress provided the Board with authority to issue reciprocal switching orders as one way to inject competitive alternatives into the rail network.

“Nevertheless, despite the consolidation of the number of Class I carriers from approximately 40 prior to 1980 to the current six Class I’s, no rail customer has succeeded in obtaining a reciprocal switching order in the last 40 years. Indeed, because of what are perceived as insurmountable hurdles by the shipping community under the current regulatory structure, no rail customer has even sought a reciprocal switching order from the Board since before 1990.

“Since at least 2010, the Board has been considering various ideas to reform the current reciprocal switching regulations so that captive shippers, in particular, would have a practical and realistic opportunity to obtain a reciprocal switching order when warranted. Unfortunately, until now, the Board has not developed such a reform.”

Frank N. Wilner’s Perspective


Railway Age asked Frank N. Wilner, Capitol Hill Contributing Editor and author of the just published “Railroads & Economic Regulation,” for his take on the NPRM. “Remarkable is the obstinacy of the STB to conclude a rulemaking languishing since 2011—yes, a dozen years ago, through a multitude of Board member changes, and mindful of a 1977 Business Week magazine observation of STB predecessor Interstate Commerce Commission (ICC) as ‘an agency so soporific, so hideously encrusted with tradition, so hopelessly bereft of initiative that even the houseflies that wander in forget how to buzz,” Wilner said.

“In fact, it was 1998—a quarter century ago—that the Senate Commerce Committee urged the ICC to open a proceeding on rail access and competition issues. Then-Chairperson Linda J. Morgan was the first of multiple agency chairpersons to vacillate, responding that the issue is ‘more appropriately resolved by Congress.’ Thirteen years later, in 2011, STB Chairperson Daniel R. Elliott III, observing that the rail industry had ‘changed in many significant ways,’ opened a rulemaking to accomplish what Congress authorized rail regulators to do in 1980 and which the Senate Commerce Committee urged in 1998.

“With dead houseflies accumulating, the STB proposed in 2016—as suggested by the National Industrial Transportation League—that access issues be handled on a case-by-case basis, with Board member Ann D. Begeman (later chairperson) objecting it could introduce ‘more unpredictability’ in rail operations. As the rulemaking marinated into 2021, President Biden issued an Executive Order encouraging the STB to do its job, earn its keep and complete the rulemaking. Chairperson Martin J. Oberman said he welcomed the challenge.

“That challenge was met Sept. 7, 2023, with the Board dispatching the rotting carcass of the original rulemaking, Ex Parte No. 711 (Sub No. 1) to curbside trash and opening a new docket, Ex Parte No. 711 (Sub No. 2). Now proposed is to limit the access issue to service-related events—at, perhaps, the expense of competition-related events. Who, but railroads, could love this regulatory agency? Wasn’t its predecessor declared by a shipper in 1984 to be a ‘wholly owned subsidiary’ of the Association of American Railroads? As the AAR said in its prepared statement responding to the Sept. 7 STB decision, it’s ‘a positive development.’

“From inside the Board came a confidential remark, ‘There is an expedited comment period and five votes consensus. We are going to get it done very soon.’

“Not to be a nattering nabob of negativism, but some may recall ICC Chairperson Reese H. Taylor Jr., who earned a Ronald Reagan 1985 demotion as Chairperson for his failure to move the Board toward action. Taylor’s reference to two deep-sea divers—‘Mike and Ike’—who might suffer the bends were they brought to the surface too soon was more than Regan could stomach as an excuse for not hastening the Republican rail deregulation agenda after the concept had won bipartisan congressional support five years earlier.”

Further Reading


A Primer on Reciprocal Switching

Oberman: STB Remains Actively Involved in Rail Reg Mods

Does the AAR Fear Competition?

DOJ Weighs in on Reciprocal Switching

AAR to STB: Reciprocal Switching a ‘Wealth Transfer to More-Profitable Entities’

Reciprocal Switching’s Potential Impact on Passenger Rail (UPDATED)

NS, STB Talk ‘Reciprocal Switching’

Reciprocal Switch Peril Grows

Will STB Take Up Reciprocal Switching?

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

UPS to STB: Forced access forces us off the rails

The post ‘Poor Service’ Drives STB’s Proposed Reciprocal Switching Rule appeared first on Railway Age.

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