In comments submitted this week to the Surface Transportation Board (STB), an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers, the Washington, D.C.-based American Chemistry Council (ACC) issued its support, in regards to the STB’s proposed reciprocal switching reforms, which ACC and other shipper groups maintain enhances competition.
As reported by LM, in January, the STB issued what it called a unanimous and significant deregulatory and pro-competitive action, in a Notice of Proposed Rulemaking (NPRM).
That action, it explained, is in the form of a repeal of 49 CFR part 1144 that governs reciprocal switching, which the STB said governs the prescription of reciprocal switching through routes and through rates. STB officials explained that this NPRM would, “remove regulatory barriers that limit options for American businesses critical to our economy, including both shippers, such as manufacturers, utilities, and agricultural companies, and railroads seeking to innovate and compete,” adding that, “n removing these regulations, the Board would employ reasoned case-by-case approaches.”
The STB added that while Congress granted it authority over competitive access more than 40 years ago under the Staggers Rail Act, the existing regulations—adopted in 1985—have effectively constrained that authority and have never been used to grant relief.
“The STB’s regulatory rollback supports President Trump’s push to bring manufacturing back home, strengthen our energy and agriculture sectors, and keep American made goods moving,” said Chris Jahn, ACC President and CEO. “America needs more rail competition, not more monopoly power. While the proposed UP–NS rail merger raises serious monopolistic concerns, the STB’s pro-competitive proposal moves the country in the right direction. ACC is ready to work with the Board to build a freight rail system that delivers for the U.S. economy.”
In its filing with the STB, ACC noted the following:
- current rules are obsolete and no longer reflect today’s rail market;
- freight rail consolidation—from 31 major carriers to just six—has created significant monopoly-like conditions for many rail dependent industries;
- removing these barriers will restore the STB’s ability to grant competitive access on a case-by-case basis using the authority that Congress granted the agency; and
- the change is necessary to support U.S. manufacturing, agriculture, energy production, and supply chain resilience
Reciprocal switching has long been a prevalent topic in industry circles. As previously reported by LM, STB’s previously proposed reciprocal switching legislation offered up in 2016 would allow a rail shipper to gain access to another railroad if the shipper makes certain showings. As has been defined by the STB, reciprocal switching is a situation in which a railroad that has physical access to a specific shipper facility switches rail traffic to the facility for another railroad that does not have physical access. And the second railroad compensates that railroad that has physical access in the form of a per car switching charge, with the shipper facility gaining access to an additional railroad.
When the final reciprocal switching rule was adopted, STB officials said that under this final rule, railroad shipper customers within a terminal area that have 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. It added that 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. It also stated that reciprocal switching orders by the Board will be for a minimum of three years and a maximum of five years, also noting that it considers the 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.
This rule was challenged in court by Class I railroad carriers, CSX and Union Pacific, and Canadian National subsidiaries Grand Trunk Corporation and Illinois Central Railroad Company on various grounds, including: exceeding the STB’s authority under the Staggers Rail Act of 1980, governing reciprocal switching; and overstepping the STB’s ancillary powers, calling them arbitrary and capricious.
“As presented to us, the rail carriers do not challenge the application of the Final Rule in any particular instance,” the judges said in the decision. “Indeed, as far as we are aware, the Board has not yet prescribed a reciprocal switching agreement under the procedures adopted in the Rule. The carriers instead seem to challenge the Final Rule more on its face, inviting us to conclude that the Board’s promulgation of the Rule itself exceeds the authority Congress conferred in the Staggers Rail Act to order reciprocal switching.”
And they added that this dispute stems from Class I railroad service-related “widespread concerns,” especially coming out of the pandemic, which led to an April 2022 STB hearing. Which then led to the STB requiring Class I railroad carriers to submit service recovery plans explaining the specific actions each carrier planned to take to improve its service, as well as the STB issuing a Notice of Proposed Rulemaking for comments on a new set of regulations focused on improving service by increasing competition.
