US rail trade group urges federal regulator to finalise reciprocal switching rules

Author: Adam Yanelli

2021/07/29

HOUSTON (ICIS)--The Rail Customer Coalition (RCC) urged the members of the US Surface Transportation Board (STB) in a letter this week to take action to improve rail service and reduce costs for customers.

The letter highlighted the findings of a new RCC report showing that “both freight rail rates and rail industry revenue from monopoly pricing are continuing to climb higher and higher”.

The report, produced for the RCC by Escalation Consultants, said that an analysis of rail freight rates found the largest railroads (Class 1) “have reaped an increasing share of their revenue from traffic that is required to pay rates the STB considers potentially non-competitive”.

Source: Association of American Railroads, Implicit Price Deflator for Gross Domestic Product

The RCC represents a broad range of manufacturing, agricultural, and energy industries that depend on the railroads to deliver reliable and affordable service.

Included are the Renewable Fuels Association, American Petroleum Institute, the American Chemistry Council and the American Fuel & Petrochemical Manufacturers.

It said its industries account for more than half of the total volume of cargo shipped by rail and generate more than three quarters of the revenues collected by the railroads.

The letter follows an executive order signed by President Joe Biden earlier this month that encouraged federal regulators to increase their focus on consolidation and alleged anticompetitive pricing in the railroad and ocean shipping industries.

RECIPROCAL SWITCHING RULES
Biden’s executive order called on the STB to require railroad track owners to strengthen their obligations to treat other freight companies fairly.

This was likely referring to an STB proposal from 2016 for reciprocal switching, which would allow a shipper to gain access to another railroad under certain circumstances.

Reciprocal switching refers to the 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.

The second railroad pays compensation to the railroad that has physical access, typically in the form of a per car switching charge.

As a result of the arrangement, the shipper facility gains access to an additional railroad.

“Reciprocal switching would help empower rail customers such as farmers, manufacturers and energy providers to choose a carrier that provides the best combination of rates and service,” the RCC said in the letter.

The RCC also urged the STB to finalise workable rate relief procedures for shippers that lack competitive transportation options and scrutinise potential rail mergers to ensure the public interest is protected.

The two agencies tasked with federal civil antitrust enforcement announced earlier this month that they will begin a review of merger guidelines following the executive order.

In the US, chemical railcar loadings represent about 20% of chemical transportation by tonnage, with trucks, barges and pipelines carrying the rest.