NACD: STB reform is still on track

Joe Kamalick

08-May-2015

Much-needed changes are on the horizon for freight rail regulation, as two senators take up the fight

US senators John Thune (R-SD) and Bill Nelson (D-FL) have introduced long-awaited legislation to reform freight rail regulation in the US, chiefly by targeting inefficiencies at the Surface Transportation Board (STB).

Already the target of considerable criticism from US chemicals manufacturers, distributors, and other high-volume freight rail shippers, the STB – often known as “the SurfBoard” – was created by Congress in 1996 as a successor to the Interstate Commerce Commission, with the objective of regulating and overseeing a wide range of railroad operations.

As he introduced his reform legislation, S.808, the Surface Transportation Board Reauthorization Act, Thune noted that since its creation nearly 20 years ago, “the STB has not been reauthorized or substantively reformed”.

As NACD chairman Mat Brainerd and immediate past chairman Roger Harris can attest, the SurfBoard is in dire need of reform.

 

Senator John Thune: reform is central to US economy as a whole

Copyright: Rex Features

Chief among the complaints against the STB is wide dislike among shippers of how the board handles freight rail rate disputes.

If a rail shipper wants to challenge a freight rate being demanded by one of the four major US Class I railroads, an appeal to the STB can cost as much as $3m and take three years to resolve.

The costs and time investment are so high that most shippers, especially many among chemical distributors and other lower-volume freight rail users, choose not to file a claim and consequently remain subject to the pricing whims of rail operators.

Along with Nelson, Thune recognized this issue in introducing his bill.

“After nearly 20 years of regulating freight railroads and adjudicating shipper disputes at the STB,” he said, “it is time for Congress to address some inefficiencies in the agency.”

Testimony at hearings that Thune held earlier this year and in multiple hearings in 2014 for similar legislation “have identified causes of wasteful and unnecessary delays in adjudicating cases that harm rail shippers, freight operators and ultimately consumers who pay higher costs”.

The reforms envisioned in S.808, said Thune, “will help make the STB a more efficient, effective and accountable agency for the benefit of shippers and railroads alike”.

The bill introduced by Thune, who is chairman of the Senate Commerce, Science and Transportation Committee, and Nelson, ranking Democrat on that panel, primarily addresses three areas of the STB and its operations.

A chief complaint among shippers is the STB’s use of a rate review process called the “stand-alone cost” test.

STAND-ALONE COST TEST
When a shipper is served by a railroad that has market dominance in the shipper’s region – a situation known as being a “captive shipper” – the rail customer is pretty much at the pricing mercy of the rail operator.

But getting a rate resolution review from the STB can be complicated in the extreme.

Under its rate resolution process, the board uses the stand-alone cost test to determine what the shipper seeking the rate review might be able to pay if there was in fact another railroad available in the shipper’s region.

When the board determines what a competing rail carrier might charge, it then determines whether the freight rates being imposed on the captive shipper are reasonable.

However, Thune and Nelson say the stand-alone cost test “relies on complex economic modeling, is often burdensome and inefficient”.

This lengthy and complex cost analysis is a large part of the reason why rate dispute appeals can take years and millions of dollars to resolve, Thune said.

To address that problem, Thune said that S.808 sets time limits for STB rate reviews and, perhaps more importantly, allows shippers and rail carriers to avoid the burdensome STB review process entirely by going into arbitration.

Thune said that S.808 “expands successful voluntary arbitration procedures between rail carriers and their customers to resolve rate cases faster and at less cost.” The bill sets timelines for stand-alone cost test evaluations to avoid overly lengthy delays, he added.

The legislation would also require STB to look into possible alternative and more efficient means to estimate the reasonableness of a rail carrier’s freight rates, perhaps to do away with the arcane stand-alone cost process entirely.

A second major concern, according to Thune, is a lack of sufficiently broad authority at the STB “to proactively resolve problems before they escalate into expensive disputes”.

Thune cited a report issued in January this year by the US Department of Agriculture (USDA) which analyzed a major rail freight congestion issue in the winter of 2014.

USDA, he said, “reported that surging demand and winter weather conditions created major issues with grain car backlogs, storage constraints, and rail car premiums, and these issues raised transportation and commodity costs”.

“The STB, however, did not have authority to proactively investigate rail delay issues and does not have a systemized, publicly available database of complaints,” Thune said.

To remedy that, S.808 provides the STB with authority to initiate investigations on matters other than rate cases.

In addition, STB for the first time would be required to establish a database of complaints and issue quarterly reports on those complaints in order to “provide more public accountability about ongoing problems.”

That, said Thune, would enhance transparency about the board’s operations and would benefit shippers, businesses and consumers nationwide.

EXPANDING THE BOARD
In the third area of reform, Thune wants to expand the number of STB board members from its current complement of three to five.

This would help resolve a quirk in the STB’s original congressional charter.

As written, the 1996 STB authorization bill stipulates that a majority of the board’s members may not meet and hold discussions without first issuing a public hearing notice.

That requirement has created a sort of Catch-22 dilemma for the board, because if any one board member wants to have a private chat with another member, those two officials immediately constitute a majority of the three-member board and consequently cannot hold discussions around the office water cooler without first issuing a hearing notice.

To fix this “two is a crowd” problem, S.808 would add two more members to the STB.

Thune says this simple step would greatly increase the efficiency of board operations and day-to-day deliberations.

However, this provision would require that such a private chat between two members of the board be conducted “with proper disclosure [and] so long as it complies with certain scope and participation limitations.”

Thune said that reform of the STB is central not only to rail operations and shippers’ interests but to the US economy as a whole. “

As 2013 and 2014’s freight rail delays and service challenges highlighted, rail service is absolutely critical to our nation’s economy,” he said in an earlier rail issues hearing.

“From automobiles, to coal, to ethanol, to agriculture, rail service moves goods from farm and factory to consumer marketplaces across the country and across the globe,” Thune said.

“The US Department of Transportation (DOT) notes that freight rail moves roughly 40 tons per person each year [and] as a nation, we rely on cost efficient, timely service to move food, consumer products, and energy resources on a daily basis.”

“The private infrastructure that makes up our nation’s freight rail system is costly, as old tracks and equipment require ongoing maintenance and investment,” he added.

“Our nation’s railroads continue to invest in new track, sidings, locomotives, and car resources with the goal of serving their customers. Class I railroads and shortlines alike face increasing demands for prompt, reliable, and safe service.”

“In 2014 freight traffic increased nearly 5% over 2013 levels, and we should seek solutions that foster an even stronger freight rail network to meet this increasing demand,” he said.

That includes, he added, “that we ensure that the STB… can provide effective and efficient oversight of the rail industry”.

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?