Federal Regulators Propose Rail Policy Reforms

The federal agency that oversees the freight rail industry announced two initiatives this week that it says are intended to give captive shippers—those whose plants are served by only a single railroad—further protection from “unreasonable rail rates.”

The Surface Transportation Board (STB) is proposing to reform its rules on how it resolves rate disputes to ensure that all captive shippers have a “meaningful way” to challenge rates. In addition, the board says it is still considering a proposal by a group of industrial shippers on how to increase competition in the railroad industry.

Shippers argue that consolidation in the freight rail sector from 36 large carriers 30 years ago to four dominant railroads today has eliminated access to competition on many routes, giving railroads excessive pricing power.

In the last quarter of 2011, captive chemical shippers paid rates that were, on average, 104% higher than those paid by companies with access to competing railroads, according to Escalation Consultants, a shipping consulting firm.

The American Chemistry Council (ACC), which represents the nation’s largest chemical manufacturers, says STB’s action “is a significant step in the right direction.” Nearly two-thirds of U.S. chemical plants that rely on rail service to bring in raw materials and deliver finished products have access to just one railroad.

“A more competitive freight rail system will benefit the economy and consumers by promoting improved rail service and more reasonable rates,” ACC says.

The railroad industry has vigorously opposed any attempt to change the current regulatory framework, which was put in place after Congress largely deregulated the sector in 1980.

“Freight railroads continue to believe that the marketplace and today’s rail economic regulations provide rail customers with ample protections from potential market abuses,” says the Association of American Railroads, the industry’s main lobbying group.

Existing procedures also enable railroads “to earn the revenues needed to make the roughly $20 billion in private capital investments that each year funds America’s rail network so taxpayers don’t have to,” the group adds.

STB, which is part of the Department of Transportation, says its rate reform proposal would give shippers “a less complicated and less expensive way to challenge freight rates” and obtain relief. It would also raise the interest rate that railroads must pay on reparations to shippers if the railroads are found to have charged unreasonable rates.

The board is also examining a competitive-access proposal submitted last year by the National Industrial Transportation League (NITL), which represents over 600 shippers in a variety of industries. Under NITL’s proposal, shippers located in terminal areas that lack “effective transportation alternatives” would be granted access to a competing railroad if there is a working interchange located within 30 miles.

Currently, originating carriers can lock in shipments to the final destination and prevent shippers from getting bids from competing railroads at terminals and other connecting points along the route.

An AAR spokesperson says national rail network operations and service to customers “would be negatively impacted if railroads are forced to provide access to their private networks.”

No rule or policy changes will become final for at least a year because the proposals must undergo a lengthy period of public comment and analysis.