News / US shippers back rail access shake-up as merger fears grow

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Proposed new rules on expanded access for rail shippers to competitive choices have met with strong support from customers, who widely decry poor service levels and high costs.

Some comments even urge blocking the merger plans of Union Pacific (UP) and Norfolk Southern (NS), warning that the creation of a transcontinental railway would deal a serious blow to competition and exacerbate service problems.

In January the Surface Transportation Board (STB) published a proposal to facilitate rules that govern the ability of shippers to obtain rail service beyond the carrier closest to their facilities through reciprocal switching, a transfer of their shipment to another railway at the nearest intersection of the two respective networks. Rail users have responded with alacrity to the invitation for public comment, which also received submissions from the federal Department of Agriculture and from Class I railway Burlington Northern Santa Fe (BNSF).

At the core of the proposed rule change is the plan to repeal Federal Rule 49 CFR Part 1144 on ‘Intramodal Rail Competition’, which governs how the STB deals with appeals for competitive access to a second rail carrier from shippers whose location is served by another railway. This allows reciprocal switching only if the ‘captive’ shipper can demonstrate anti-competitive conduct by the first carrier and show that the available service falls below specified levels.

In its announcement of the planned rule change the STB stated that this would “streamline the path for shippers to obtain competitive access before the STB, bringing the agency’s approach more closely in line with statutory intent”.

Commentators applauded the intended repeal of Part 1144 as an overdue and necessary step in the right direction. The American Chemistry Council (ACC) branded Part 1144 “an outdated and unwarranted barrier to competition”.

In a joint comment the Freight Rail Customer Alliance (FRCA) and the National Coal Transportation Association (NCTA) commented that “the requirement in the regulations to demonstrate anticompetitive conduct before being able to obtain reciprocal switching and through route prescription to attain the benefits of competition has proved insurmountable in practice, so much so as to have a profound chilling effect on efforts to pursue what could prove to be a very valuable form of competition”.

“In the 40 years since the adoption of the Part 1144 regulations, ICC/STB has never granted a rail customer request for reciprocal switching under this framework. In fact, no requests for reciprocal switching have even been filed since 1996, despite growing shipper concerns about the dramatic losses of rail-to-rail competition following decades of consolidation in the freight rail industry. Part 1144 Restrictions on Rail Competition Can No Longer Be Justified,” the ACC wrote.

Many commentators decried the current restrictions as part of a broader problem that has shielded the railways from competition and entrenched a systemic decline in service.

The FRCA and NCTA commented that the railways’ “excessive exploitation of their market power” has led to stagnating and falling volumes over the past two decades. They concluded that the repeal of Part 1144 “has the potential to result in meaningful competition, lower rates, and improved service, none of which can be said of the status quo”.

The US Department of Agriculture called the removal of Part 1144 “the right first step in making statutory relief available and finding solutions that better serve the public interest”.

In its comments BNSF stated that it “does not oppose the repeal of competitive access rules” before homing in on its primary concern, namely that the STB has to “consider all relevant competitive forces when considering future requests for competitive access. BNSF further notes that this proposal comes at a pivotal moment for competition in the railroad industry, as Union Pacific Railroad Company (UP) and Norfolk Southern Railway Company (NS) seek to consolidate an unprecedented amount of market power through their proposed merger.”

The ACC struck the same note in its extensive comments, stressing that the proposed rule change in itself “does not ensue that shippers will gain greater access to competitive rail service”.

“The Board’s action should not be viewed as a comprehensive solution to the loss of competition in the freight rail industry. For these reasons, ACC strongly cautions against any suggestion that the Proposed Rule mitigates potential competitive harms associated with the proposed Union Pacific/Norfolk Southern merger,” it emphasised.

Its submission further notes that the number of Class I rail carriers has shrunk from 31 in 1981 to six today, which control over 90% of rail freight, a “dramatic consolidation” that has driven decades of rate increases.

“Railroads are collecting more of their revenues from non-competitive pricing. Over the last 20 years, the total revenue that railroads earned from competitive traffic increased 49% while the revenue earned from non-competitive traffic increased 265%,” the ACC stated.

On 4 March some 380 representatives of rail carriers and industry suppliers and contractors went to Capitol Hill in Washington to meet with lawmakers and discuss federal legislation on the annual ‘Raillroad  Day’. According to the press release from the American Short Line and Regional Railroad Association, reciprocal switching was not on the agenda.