NITL files petition with Surface Transportation Board, calling for new reciprocal switching rules

The National Industrial Transportation League (NITL) filed a petition with the United States Surface Transportation Board (STB), requesting that the STB adopt new rules regarding reciprocal switching between Class I railroad carriers.

By definition, reciprocal switching is “an interchange of inbound and outbound carload freight among railroads in which the cars are switched by one railroad to or from the siding of another under a regular switching charge that is usually absorbed by the carrier receiving the line-haul.”

The NITL proposal would require a Class I rail carrier to enter into a competitive switching arrangement whenever a shipper—or group of shippers—demonstrates that certain objective operating conditions exist. NITL officials said the League is asking the STB to eliminate existing competitive access rules and precedents as they apply to reciprocal switching and replace them with the following conditions:
-the shipper’s or receiver’s facilities for which switching is sought are served by only one Class I rail carrier;
-there is no effective inter- or intramodal competition for the rail movements;
-there is (or can be) a “working interchange” between a Class I rail carrier and another Class I within a “reasonable distance” of the shipper’s facilities; and
-the proposal states that a competitive switching agreement shall not be imposed if either rail carrier can establish that the arrangement is not feasible, or unsafe or, that it would unduly hamper the ability of either carrier to serve its shippers.

“We think this is a game changer,” said NITL President and CEO Bruce Carlton on a conference call. “This proposal is fair, equitable, and balanced…and treats the equities of shippers and Class I railroads equally. We think it is going to undo what we believe has been a highly restrictive and unfair set of rules brought forth by the ICC and STB for the last quarter century.”

Carlton said that for several decades, shippers and receivers of rail freight have been disadvantaged by ICC and STB reciprocal switching rules.  And he pointed to the STB hearing in late June in late regarding competition on railroad competitiveness, which featured various shippers talking about a lack of competitive access on the rails and experiencing a lack of real head-to-head competition for their business on the rails.

This current situation, as it pertains to the STB’s involvement, said Carlton, is more of a barrier than a conduit to come in and request and argue for real relief and real competition. Carlton said that the NITL’s request is essentially asking the STB to set aside that body of rules and decisions that have created this situation and instead start over with a fresh, clean slate with this new proposal, which he described as fair and substantive—and not a call for open or forced access.

NITL General Counsel and partner at Washington, DC-based law firm Thompson Hine LLP Karyn Booth said the STB is looking for solutions to specifically facilitate competition, a call which she said the NITL is taking very seriously.

“This proposal would give a captive shipper served by a single Class I railroad with the ability to go to the STB and seek reciprocal switching and gain competitive access [if the conditions of the proposal are met,” said Booth.

She added that this proposal mandates that a competitive switching agreement cannot be imposed if either rail carrier can establish that the arrangement is not feasible or unsafe or unduly hamper the ability of either carrier to serve its existing shippers. This filing is something that, if approved, can be simply applied, as the problem with today’s rules is that the burdens of proof are so high and substantial that no shipper could ever meet them, as they are very complex and involved in lengthy litigation and it is very expensive to bring a case before the STB.

Railroads and other concerns have until July 27 to file comments on this proposal with the STB and the STB has 120 days to determine if it will go forward with a rulemaking proceeding.

Wolfe Trahan analyst Ed Wolfe wrote in a research note that while the STB must decide within 5 months if it will proceed with a rulemaking, it will be at least 2 years before final rule changes are in place, with timeline potentially extended with anticipated court challenges. He also noted that If the STB mandates reciprocal switching, this should increase competition, adding that his firm believe long-term U.S. rail pricing and returns would be negatively impacted to some extent.