STB takes long-awaited step in addressing rail service standards

September 7, 2023

The Surface Transportation Board has taken a major step in addressing rail service to shippers by issuing a proposed rulemaking on reciprocal switching that aims to clarify the service parameters where a switching action could take place.

The proposed rulemaking would establish standards that would reflect a minimal level of rail service below which a shipper could seek relief, according to STB’s Thursday announcement.

Reciprocal switching occurs when a shipper is granted access to the network of another Class I railroad at an interchange, with the idea that the shipment would continue on the network of the competing Class I railroad because of lackluster service on the originating Class I railroad.

The three standards that the rulemaking will address in order to define the service parameters are service reliability, service consistency and inadequate local service.

According to STB, service reliability measures a Class I railroad’s ability to deliver a shipment by the original estimated time of arrival; service consistency measures a rail carrier’s success in maintaining efficiency in moving a shipment through the rail system by looking at transit times; and inadequate local service translates into gauging a Class I railroad’s ability to perform local deliveries (“spots”) and pickups (“pulls”) of loaded rail cars and unloaded private or shipper-leased rail cars within the applicable service window. This is known as “industry spot and pull” in railroad parlance.

“Each standard would provide an independent path for a petitioner to obtain prescription of a reciprocal switching agreement. 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,” STB said.

“Importantly, for the first time, the proposed rule also would require all three service metrics be standardized across all Class I carriers. The Board 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.”

The proposed rule also calls for the Class I railroads to provide customers with historical data for these service metrics within seven days of a customer’s request for this data, and the proposed rule addresses situations in which natural disasters or the actions of third parties might affect rail service.

Thursday’s proposed rulemaking is a major step in addressing reciprocal switching, as the issue has been before the board since at least 2010, according to STB Chairman Marty Oberman, who said while STB made concerted efforts to address reciprocal switching in 2016, the board has been unable to develop any potential remedies.

But with rail service issues coming to a head in recent years, particularly after 2021, the board was compelled to respond, he said.

“Despite the consolidation of the number of Class I carriers from approximately 40 prior to 1980 to the current six Class Is, 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,” Oberman said in the Thursday news release.

“The new rule contains a distinct advantage over both the existing regulations and the proposal in the 2016 NPRM,” Oberman continued. “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.

“One of the principal goals of the rule is to incentivize carriers to maintain sufficient resources — specifically work force and locomotives — so that they can meet at least the minimal service standards set by this rule. One hope is that the proposed rule will have the desired effect and that shippers currently receiving poor service will see service improve to the point that litigation before the Board will not be necessary.”

In response to STB’s announcement, Ian Jefferies, president and CEO of the Association of American Railroads (AAR), said in a Thursday 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.”

STB noted that Thursday’s proposed rulemaking notice closes the longstanding proceeding before the board, Ex Parte 711. The board will be taking comments on this new notice of proposed rulemaking through Oct. 23, with reply comments due by Nov. 21.

Shippers generally reacted positively to STB’s decision to tackle rail service issues, although there were differences in opinion over how much more action the board should take.

This proposed rulemaking “is a great step in ensuring our shippers get good rail service at all their locations, even single served locations. The Private Railcar Food and Beverage Association looks forward to the positive impact this will have on rail service,” said Herman Haksteen, the association’s president, who added that the proposed rulemaking also includes a requirement for the railroads to permanently provide first- and last-mile data.

Said Jeff Sloan, director of regulatory and scientific affairs for the American Chemistry Council: “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.”

Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.

Click here for more FreightWaves articles by Joanna Marsh.