STB sets dates for upcoming hearing on reciprocal switching

Late last month, the 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, provided information regarding its public hearing on proposed reciprocal switching obligations, which is scheduled for March 15-16, and will be held at its Washington, D.C.-based office.

As previously reported, the STB’s 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 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.

STB officials said that this hearing will focus on the proposed reciprocal switching regulations in Reciprocal Switching Docket No. EP 711 (Sub-No. 1) et al (NPRM), which introduced new regulations under which it would exercise its statutory authority to require rail carriers to establish switching arrangements in certain circumstances. They added that the NPRM saw varied responses from industry stakeholders, noting that the STB has reviewed the existing record in this proceeding.

STB explained that under reciprocal switching, an incumbent carrier transports a shipper’s traffic to an interchange point, where it switches the rail cars over to the competing carrier. And it observed that the competing carrier pays the incumbent carrier a switching fee for bringing or taking the cars from the shipper’s facility to the interchange point, or the opposite way.

“The switching fee is incorporated in some manner into the competing carrier’s total rate to the shipper,” said the STB. “Reciprocal switching thus enables a competing carrier to offer its own single-line to compete with the incumbent carrier’s single-line rate, even if the competing carrier’s lines do not physically reach a shipper’s facility.”

The topic of reciprocal switching received a fair amount of attention in an Executive Order (EO) issued by the White House last July focused on promoting competition within the American economy.

The EO encouraged the STB to require railroad track owners to provide rights of way to passenger rail and to also strengthen their obligations to treat other freight companies fairly.”

It added that going back to 1980, there were 33 Class I railroads, whereas now there are seven, with four major rail companies that it said now dominate their respective geographic regions.

“Freight railroads that own the tracks can privilege their own freight traffic—making it harder for passengers to have on-time services—and can overcharge other companies’ freight cars,” it said.

That sentiment is closely aligned with the STB’s proposed reciprocal switching legislation offered up in 2016, which would allow a rail shipper to gain access to another railroad if the shipper makes certain showings.

Ian Jefferies, President and CEO of the Association of American Railroads, said at the 2021 RailTrends conference, which was hosted by Progressive Railroading and independent railroad analyst Anthony Hatch, that STB Chairman Martin Oberman is very interested in exploring reciprocal switching under the guise of competition.

“It is something that has been hanging around the Board for quite some time, the last STB action was in a 2016 NPRM (Notice of Proposed Rulemaking),” he said. “To say the record is stale is an understatement, given that a lot of the data used to support that proposal is from 2011. Think where industry and economy were then or even two years ago and where we are now. This should be the beginning of the process and discussion and we are happy to have this debate. We think the facts are on our side—why on earth would a regulator be considering any sort of proposal that would knowingly undermine fluidity in the railroad network no matter how you stretch it.”

Instead, he observed, the industry and the STB should be focused on ways to maximize goods movement and also fluidity—not taking steps to clog the network up and force traffic off of one railroad onto another.  

“It just does not make sense; we will make those arguments and bring those strong arguments and strong data,” he said. “At the end of day, I am confident we will end up in a good spot.  

This is an enormous issue and I am pleased the STB did not just take the 2016 rule and try to proceed with that and they are instead reconvening hearings and both sides will make their best arguments and bring their best witnesses and we will have that debate.”

What’s more Jefferies pointed out that only one of thew five STB Board members had a seat in 2016 and dissented on the proposal for competitive switching, noting it is time to step back and see where things are, with the AAR looking forward to forcefully engaging on that topic.

And, at the same conference, STB’s Oberman said that over the last few months, the STB has had many discussions about EP 711 with industry stakeholders expressing, for the most part, diametrically opposed views on the subject.  

“It has become clear to me that this issue is too important and has significant improvement for improving the competitive playing field to just have these seemingly endless back and forth discussions between the STB, railroads, and their customers,” he said. “These issues ought to be aired publicly, the kinds of vigorous discussion such a hearing will bring. Since joining the STB, I have focused much of my attention on fomenting as much competition into the delivery of rail services as possible. Because, in our American system, almost always, more competition in business means better products, better prices, and a more thriving economy. I believe that the potential is there for a more accessible reciprocal switching mechanism to provide that answer to competition. Any railroad that is really providing that kind of service at fair prices should welcome such an environment.”

What’s more, Oberman offered up sentiment made by the late E. Hunter Harrison, whom led CSX, CN, and CP, at different points of his career, and engineered the concept of precision scheduled railroading.

Harrison, noted Oberman, viewed reciprocal switching as one of those regulations that are in place, but people don’t really take advantage of it because there is no need to if the individual carriers do their job.

“My view is, for years, that a lot of railroaders have been scared of the term open access and I don’t know why,” said Oberman citing Harrison. “What that says to me is all they are going to do is open up more competition and, with a very limited number of players in North America, it is important to keep that competitive balance. If an individual carrier…provides the right type of service for the customer at an appropriate fair price, we have nothing to worry about. If we do not provide the service, we should not be resistant to someone else coming in and providing that service.”

Oberman concluded his comments on reciprocal switching by noting that if reciprocal switching was good enough for Harrison—and it is good enough to be accepted as a condition in many parts of the U.S. networks that were subject to the mergers of the 1990s—then it ought to be good enough for the industry today.