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[CNJRoss]

STB news release 4/30/24

 

STB Adopts Final Rule For Reciprocal Switching

 

The Surface Transportation Board today announced that it has adopted a final rule, by unanimous vote, to implement new regulations at 49 CFR part 1145 which sets forth a path for shippers and receivers to petition the Board for the prescription of a reciprocal switching agreement. Today’s final rule is designed to promote adequate rail service.

 

Under the final rule, customers within a terminal area that have access to only one Class I rail carrier may petition the Board 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 by the Board will be for a minimum of three years and a maximum of five years. The Board considers the new reciprocal switching rule to be a significant step in incentivizing Class I railroads to achieve and maintain higher service levels on an ongoing basis by permitting a competing line haul carrier to offer better service to win the customer’s business.

 

In a decision served on September 7, 2023, the Board issued a notice of proposed rulemaking (NPRM) that would provide for the prescription of reciprocal switching agreements with emphasis on rail service performance. The Board explained that, given the recurring service problems that plague the industry, it would focus reciprocal switching reform on service-related issues. The Board received many comments from interested parties.

 

Today, the Board adopts a version of part 1145 that reflects certain modifications to the proposal in the NPRM, as described below:

 

Final Rule Performance Standards

 

The final rule identifies three performance standards. If a rail carrier’s service to a customer falls below any of these standards, that customer may petition the Board to prescribe a reciprocal switching agreement, assuming the other parameters of the rule are met.

 

(1) Service Reliability: Original Estimated Time of Arrival (OETA). The service reliability standard measures a Class I rail carrier’s success in delivering a shipment on time. The rail carrier success will be judged based on the estimated time of arrival that the rail carrier provided when the shipper tendered the bill of lading for shipment or, in the case of an interline move, when the incumbent rail carrier receives the shipment from a delivering carrier. The OETA would be compared to when the car was delivered. The Board proposed in the NPRM a reliability standard of 60%, where a carrier would meet the standard if, over a period of 12 consecutive weeks, the carrier delivered at least 60% of the relevant shipments within 24 hours of the OETA.

 

Final Rule: The Board adopts the service reliability standard in the NPRM with the following changes: (1) the reliability standard will increase from 60% to 70%; (2) the definition of “delivery” will be clarified for purposes of interchange; (3) the reliability standard will measure early arrivals as well as late arrivals, in each case with a 24-hour grace period; (4) the reliability standard will be clarified for cross-border traffic; and (5) the reliability standard will only apply individually to each lane of traffic to/from the petitioner’s facility.

 

(2) Service Consistency: Transit Time. The service consistency standard measures a rail carrier’s success in maintaining, over time, the carrier’s efficiency in moving a shipment through the rail system, i.e., the time it takes for a shipment to travel from its origin to its destination. The Board proposed in the NPRM that, for loaded manifest cars and loaded unit trains, a rail carrier would fail the service consistency standard if the average transit time for a shipment over a 12-week period increased by either 20% or 25% as compared to the average transit time for that shipment over the same 12-week period during the previous year.

 

Final Rule: The Board adopts the service consistency standard that was proposed in the NPRM using a 20% standard. The Board also: (1) modifies the definition of delivery to better reflect custom and practice; (2) clarifies how it measures transit time performance on international lanes; (3) adds a three-year measure of 25% to guard against excessive cumulative increases in transit time; (4) creates an absolute floor for both the one-year and three-year measure of 36 hours; and (5) provides that the service reliability standard only applies to individual lanes of traffic to/from the petitioner’s facility.

 

(3) Inadequate Local Service: Industry Spot and Pull (ISP). The third performance standard—ISP—measures a rail carrier’s success in performing local deliveries (“spots”) and pick-ups (“pulls”) of loaded railcars and unloaded private or shipper-leased railcars during the planned service window.

 

Final Rule: The Board adopts the local service standard that was proposed in the NPRM using a 12-hour work window. The Board also: (1) increases the local service standard to 85%; (2) extends the period during which a 90% standard would apply to two years when a rail carrier unilaterally reduces service; (3) clarifies how success in spotting “spot on arrival” railcars will be measured; and (4) clarifies that the local service standard does not apply to unit trains or intermodal traffic.

 

Data Production and Implementation: The Board adopts the data collection it proposed in the NPRM. All six Class I rail carriers must begin reporting based on the new, standardized definitions of OETA and ISP.

 

The Board also requires Class I railroads to provide, within seven days of receiving a request from a shipper or receiver, all individualized performance records necessary for that shipper or receiver to file a petition under part 1145.

 

Class II and III Railroads: Part 1145 pertains to shippers and receivers that have practical physical access to only one Class I rail carrier or its affiliated company. The affiliated company might be a Class II or Class III railroad. Part 1145 otherwise does not apply to Class II and Class III railroads.

 

Affirmative Defenses: The Board will excuse an incumbent rail carrier’s failure to meet a performance standard if such a failure was caused by: (a) extraordinary circumstances, such as acts of God; ( a surge in the shipper’s/receiver’s traffic of more than 20% about which the shipper/receiver did not give the incumbent rail carrier advanced notice; © highly unusual shipment patterns by the shipper/receiver; (d) dispatching choices of a third-party; or (e) third-party conduct outside the incumbent carrier’s reasonable control. The Board also will consider, on a case-by-case basis, affirmative defenses not specified in part 1145. The Board spells out that an incumbent carrier’s intentional reduction or maintenance of its workforce at a level that itself results in a workforce shortage causing the carrier to fail specified service standards would not, on its own, be considered a defense.

 

Duration and Termination of Prescription: In prescribing a reciprocal switching agreement, the Board shall prescribe a minimum term of three years and may prescribe a longer term of service up to five years when circumstances warrant a longer prescription (rather than the two to four years that was proposed).

 

The incumbent rail carrier may petition the Board to terminate the prescription at the end of the prescribed term if the incumbent rail carrier is able to demonstrate that its service for similar traffic met all three performance standards for the most recent 12-week period prior to the filing of the petition to terminate (rather than the prior 24-week period that was proposed). If the petition to terminate is denied, then the Board will extend the prescription for up to the same period as the initial prescription. If the incumbent carrier does not file a petition for termination, the prescribed agreement will automatically renew at the end of its term for the same period as the initial prescription.

 

Contract Traffic: For traffic that is moved under a transportation contract pursuant to 49 U.S.C. 10709, the Board will not prescribe a reciprocal switching agreement under part 1145 based on the incumbent carriers’ performance occurring during the term of the contract. The Board determines that use of contract performance data as the basis to prescribe a reciprocal switching agreement under the rule would be inconsistent with the statutory limitations imposed by section 10709.

 

Exempt Commodities: The Board will not prescribe a reciprocal switching agreement under part 1145 for movements of exempt commodities. Rather, a shipper or receiver would need to obtain partial revocation of the exemption before filing a petition under part 1145. The Board clarifies that it will not rely on pre-revocation performance as the basis for a prescription of a reciprocal switching agreement under the rule. Recognizing the potential hardship this process might cause, the Board will prioritize petitions for partial revocation. The Board also intends to explore, at a later date, whether it should partially revoke exemptions on its own initiative to allow for reciprocal switching petitions, as is currently the case for the boxcar exemption.

 

In choosing to focus reciprocal switching reform on service issues at this time, the Board has not foreclosed further consideration of additional reforms geared toward increasing competitive options. And, even with the adoption of part 1145, shippers may still pursue access to an alternate rail carrier under parts 1144 and 1147, and advocate for continued development, including, as appropriate, development by the Board of adjudicatory policies and the appropriate application of those rules in individual cases.

 

This decision will be effective 120 days from the date of publication in the Federal Register. For details regarding today’s Board decision, please refer directly to the decision itself. Board Member Robert Primus commented with a separate expression. The Board’s decision in Reciprocal Switching for Inadequate Service, Docket No. EP 711 (Sub-No. 2), may be viewed and downloaded here. Chairman Martin J. Oberman also released a statement regarding this final rule, which is posted on the Board’s website.

 

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[CNJRoss]

STB news release 4/30/24

 

Statement From STB Chairman Martin J. Oberman Regarding Final Rule For Reciprocal Switching

 

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.

 

Today, by 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.

 

First, although limited to consideration of reciprocal switching petitions, for the first time, the Board has set easy to measure, objective service standards for carriers: maintaining 70% or better on-time performance, not increasing transit time by more than 20% year over year, or maintaining at least 85% success on “industry spot and pull” (effectively measuring first mile-last mile service).

 

Second, for the first time, the Board is mandating that these three service metrics be maintained on a standardized basis across all Class Is, permitting both rail customers and the Board to accurately measure service across the industry and quickly assess Class I carrier performance. Of equal importance, the carriers must make each shipper’s performance data readily available to the shipper on request.

 

Third, while the Board is allowing for a carrier whose service has fallen below a standard to prove that the failure was for certain reasons beyond its control, the new rule underscores that the railroad’s intentional reduction of its workforce levels and/or equipment availability (particularly locomotives) will not excuse resulting poor service when the Board is considering a reciprocal switching petition.

 

Finally, to assure commercial practicality for both the shipper and the potentially competing railroad, reciprocal switching orders will be for a minimum of three years and a maximum of five years, and can be renewed if the incumbent carrier fails to show that its service performance can meet the service standards, or simply chooses not to seek a termination of the switching order.

 

Under this rule, even when a shipper has obtained a reciprocal switching order from the Board, the incumbent carrier is more than free to continue to compete to retain that shipper’s business by improving its performance behavior and trying to keep the shipper from choosing—that is, “switching to”—the competing railroad. This competition between the incumbent and alternate carrier is central to the operation of the rule. It allows the introduction of competition to incentivize better rail service.

 

In my view, the most significant advantage to the new pragmatic approach will be the ease and speed of bringing and obtaining a switching order from the Board. Compared to existing rules and earlier reform proposals, the litigation process under the new rule will be much cheaper and faster. Rather than attempting to apply subjective and largely ill-defined criteria to a switching petition, the threshold for success under the new rule will be an easily ascertainable measure, e.g., either the carrier has provided an average of 70% or better on time performance over a 12-week period or it did not. The numbers will tell the story. The framework here—both the objective service standards and the potential carrier defenses—holds down needless litigation costs and delay.

 

For these reasons, I am confident that shippers who are suffering service below the rule’s standards and who are otherwise eligible will have relatively little trouble in obtaining switching orders under this rule.

 

The new rule has been enacted after very careful consideration and deliberation by the Board, including the review of 57 comments by stakeholders amounting to over a thousand pages. After decades with no Board-ordered reciprocal switching and steadfast opposition by the rail industry to any change, the Board has chosen an incremental, but nevertheless concrete and substantive change to the competitive landscape. The Board chose this approach rather than trying to impose a sweeping reform in one fell swoop on an industry which doesn’t always adapt well to rapid change.

 

Under this approach, the Board and stakeholders will have the opportunity to employ reciprocal switching in limited and controlled circumstances with objective measurements to evaluate its success. After making sure that this initial approach is, in fact, being utilized by eligible shippers and is working effectively to accomplish its goals, the Board can use what it has learned from this rule to explore additional opportunities to expand competitive access.

 

Some stakeholders had urged the Board to pursue a more far-reaching reform of the limitations to reciprocal switching—in particular, by making reciprocal switching applicable to traffic moving under contract. I am sympathetic to that desire. Much of traffic moves under contract, and very few contracts contain service standards. However, the Board is prohibited by statute from applying the new rule to contract traffic. Had the Board attempted to do so, it would almost certainly have resulted in a court challenge that might have undermined the entire effort.

 

What is important to understand is that even though the new rule is limited to common carrier traffic, the institution of standardized performance standards is intended to, and I am confident will, incentivize Class I railroads to meet these standards in order to avoid being subject to reciprocal switching orders. And because of the network nature of rail traffic, particularly with one train often carrying both common carrier and contract traffic, improvements in Class Is’ attention to meeting the new service standards should benefit many more shippers than just those who can petition for a reciprocal switch.

 

Since joining the Board more than five years ago, it has been apparent to me that a lack of competition in the rail industry has allowed monopolistic practices to cause not only an increase in rail prices but a severe deterioration in the quality of rail service. That deterioration in service quality has been a real depressant on the nation’s economy and threatens our ability to compete in the international market. Less rail service also hampers the effort to control greenhouse gases since rail is so much more environmentally friendly than trucking.

 

The new reciprocal switching rule provides access to competition where there was none. And most importantly, we are allowing competition between carriers to be the driving force for better service, rather than heavy handed dictates by the Board. Indeed, the approach of the new rule furthers the transportation policy mandated by Congress in the Staggers Act – “to ensure the development . . .of effective competition among rail carriers” and to “minimize the need for Federal regulatory control.”

 

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.

 

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The Board’s decision in Reciprocal Switching for Inadequate Service, Docket No. EP 711 (Sub-No. 2), may be viewed and downloaded here. The Board also issued a press release regarding this final rule, which is also posted on the Board’s website here.

 

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[CNJRoss]

Progressive Railroading, 5/1/24

 

STB issues final rule allowing reciprocal switching

 

The Surface Transportation Board yesterday announced it adopted its final rule for reciprocal switching, which will allow shippers and receivers to petition the board for an agreement when they receive inadequate rail service.

 

Under the final rule, customers within a terminal area who have access to only one Class I rail carrier may petition the board to order a reciprocal switching agreement when the customer’s rail service falls below specified levels, STB officials said in a press release. The board approved the final rule by unanimous vote.

 

STB-prescribed reciprocal switching agreements will allow shippers or receivers to gain access to an additional haul carrier, while still allowing the incumbent carrier to compete for the customer’s traffic. Reciprocal switching orders by the board will be for a minimum of three years and a maximum of five years.

 

 

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