Railroads, chem trade groups reviewing new STB proposal on reciprocal switching

HOUSTON (ICIS)–Trade groups representing US railroads and chemical producers and distributors are pouring over a proposed new rule on reciprocal switching issued today by the US agency that oversees railroads.

The Surface Transportation Board (STB), which oversees railroads in the US, said the new rule focuses on providing customers access to reciprocal switching as a remedy for poor service.

Reciprocal switching is when 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.

The chemical industry has generally been in favour of reciprocal switching.

The Association of American Railroads (AAR), the trade group for the railroad industry, lauded the STB for withdrawing its previous proposal on reciprocal switching and said it is reviewing the new rule 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,” Ian Jefferies, AAR president and CEO, said. “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 Fuel & Petrochemical Manufacturers (AFPM), a trade group representing refiners and petrochemical producers, said it hopes the proposal will push the railroads to refocus their efforts on providing quality, efficient service to their customers.

“Reciprocal switching would present railroads with a simple decision: provide better service to customers or risk losing their business to a competitor,” Rob Benedict, AFPM vice president of petrochemicals and midstream, said. “The proposal issued by unanimous vote today is a good start with potential to make the rail system more efficient and responsive to consumers by shining a light on bad service through clear reporting of metrics, but it would limit reciprocal switching to captive shippers who experience service failures instead of making it available broadly to promote competition industry-wide.”

“After years of advocating for more competition in freight rail, we welcome this progress and look forward to providing thorough comments in the coming months,” Benedict said.

The National Association of Chemical Distributors (NACD) said it has long advocated for reforms to the rail system that would enhance service and increase competition.

“While we are in the process of closely reviewing the STB’s proposal, we are pleased that it addresses critical service issues and provides a mechanism for rail customers to access reciprocal switching if service thresholds are not met,” Jennifer Gibson, NACD senior vice president of regulatory affairs, said. “We thank the Board for this positive step toward granting a much-needed infusion of competition for shippers and receivers, and we look forward to providing comments in the coming weeks.”

Railroads are vital to the chemicals industry as chemical railcar loadings represent about 20% of chemical transportation by tonnage in the US, with trucks, barges and pipelines carrying the rest.

In Canada, chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail.