Market Matters Blog           05/06 07:43

   STB Adopts Final Rail Reciprocal Switching Rule in Unanimous Vote

   The Surface Transportation Board recently announced it has, by unanimous 
vote, implemented the final rule for reciprocal switching. 

Mary Kennedy
DTN Basis Analyst

   The Surface Transportation Board (STB, Board) announced in a press release 
on its website April 30 it has adopted a final rule version of 49 CFR (Code of 
Federal Regulations) part 1145, that reflects certain modifications to the 
proposal in the 2023 Notice of Proposed Rulemaking (NPRM) Reciprocal Switching 
for Inadequate Service.

   By unanimous vote, the STB implemented new regulations at 49 CFR part 1145 
which sets forth a path for shippers and receivers to petition for the 
prescription of a reciprocal switching agreement. The final rule is designed to 
promote adequate rail service.

   Under the final rule, customers within a terminal area with access to only 
one Class I rail carrier may petition the STB to order a reciprocal switching 
agreement when the customer's rail service falls below specified levels. 
Board-prescribed reciprocal switching agreements will allow shippers or 
receivers to gain access to an additional line haul carrier, while still 
allowing the incumbent carrier to compete for the customer's traffic. 
Reciprocal switching orders will be for a minimum of three years and a maximum 
of five years, according to the announcement.

   This contentious issue has been ongoing since July 27, 2016, when the STB 
issued an NPRM in Reciprocal Switching under which the agency would exercise 
its statutory authority to require rail carriers to enter into reciprocal 
switching agreements.

   On Sept. 7, 2023, the STB issued an NPRM that would provide for the 
prescription of reciprocal switching agreements with emphasis on rail service 
performance. The STB explained, "given the recurring service problems that 
plague the industry, it would focus reciprocal switching reform on 
service-related issues." The STB received many comments from interested parties.

   "Nearly 40 years ago, the ICC, by rule and by subsequent decisions, 
established what was perceived as a high bar for the issuance of a reciprocal 
switching order. Indeed, no reciprocal switching orders have been issued since 
before 1985, and none have even been sought since 1989. The rail network of 
1985 is a far cry from that of today, and significant change is overdue," said 
STB Chairman Martin J. Oberman.

   "By a unanimous vote, the Board took a crucial step to lifting these 
decades-old barriers to reciprocal switching for captive shippers. The rule 
adopted today has broken new ground in the effort to provide competitive 
options in an extraordinarily consolidated rail industry. Given the repeated 
episodes of severe service deterioration in recent years, and the continuing 
impediments to robust and consistent rail service despite the recent 
improvements accomplished by Class I carriers, the Board has chosen to focus on 
making reciprocal switching available to shippers who have suffered service 
problems over an extended period of time," added Oberman.

   "I hope that the Class I carriers will heed the call of this rule and not 
only improve their service levels but maintain them consistently over time. If 
they do, they will be fulfilling their critical obligations to both their 
customers and the public, while at the same time minimizing the need for the 
Board to enact even more far-reaching regulatory requirements," concluded 
Oberman.

   The Association of American Railroads commented in the final decision 
document, "Sweeping switching requirements would undermine the use of 
differential pricing, which AAR characterizes as critical to the health of the 
rail network. Additional disadvantages include inefficient routing, increased 
congestion, environmental costs that are associated with increased use of fuel 
and emissions, train delays, higher risk of service failure due to increased 
'touches,' depressed incentives for future investment with resulting reductions 
in the quality of service, operational inefficiencies, safety risks, and 
threats to carriers' ability to recover the costs of their entire networks and 
to maintain financial viability."

   While naming a litany of alleged disadvantages in the final decision 
document, AAR asserted that provision for the prescription of reciprocal 
switching agreements would provide no public benefit. AAR suggested the only 
benefit would be any benefit that accrued to the successful petitioner and that 
this benefit would impose burdens on others, for example, by causing 
disruptions or inefficiencies in rail service on a system-wide basis.

   National Grain and Feed Association (NGFA) President and CEO Mike Seyfert in 
a news release said, "NGFA is committed to continuing to work with the STB and 
railroads as much as possible to improve the performance and efficiency of the 
rail network. Throughout the rulemaking process, NGFA agreed with the Board 
that Class I railroads must have greater incentives to improve rail service to 
their customers and to make continued investments in crews and equipment. 
Data-sharing measures supported by NGFA included in the final reciprocal 
switching rule will serve to both inform and incentivize railroad performance."

   The American Chemistry Council (ACC) said in a press release on its website 
that the STB missed an opportunity to address freight rail problems when it 
adopted the final rule on reciprocal switching. "It's good to see that there is 
unanimous agreement at the STB that the status quo is not acceptable and 
freight rail reform is needed. Unfortunately, the Board's reciprocal switching 
rule is too narrow to help most shippers and does not address the heart of the 
matter; removing barriers to competition for all freight rail customers. It 
simply does not go far enough and do enough to incentivize the railroads to 
provide reliable and competitive service," said Chris Jahn, ACC President and 
CEO.

   Board Member Robert Primus said in a separate expression, "I am voting for 
the final rule because something is better than nothing. But there is far less 
'something' in it than I had hoped there would be.

   "I also do not share the optimism reflected in the decision's expectation 
that part 1145 will be a significant step in incentivizing Class I railroads 
through competition to achieve and maintain higher service levels on an ongoing 
basis. This is a missed opportunity. Almost 13 years after the National 
Industrial Transportation League filed its petition for rulemaking with regard 
to reciprocal switching, the Board is adopting rules that do nothing with 
respect to the statute's competitive rail service prong and may not do very 
much under the public interest prong. We should do more, we should do better, 
and we should do it without letting another decade pass."

   The STB's decision will be effective 120 days from the date of publication 
in the Federal Register.

   Link to Federal Register 49 CFR Part 1145: 
https://public-inspection.federalregister.gov/2023-19543.pdf

   The entire rule can be found here on April 30, 2024, docket number EP_711_2: 
https://www.stb.gov/proceedings-actions/decisions/

   Statement From STB Chairman Martin J. Oberman Regarding Final Rule For 
Reciprocal Switching: 
https://www.stb.gov/news-communications/latest-news/pr-24-21/

   Mary Kennedy can be reached at Mary.Kennedy.dtn.com

   Follow her on social platform X @MaryCKenn




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