Agency proposes changes in language used to justify need for rails' reciprocal switching

In an unusual regulatory setback for the nation's railroads, the U.S. Surface Transportation Board (STB), the federal agency overseeing the industry, yesterday proposed to modify language to make it easier for shippers to prove the need for "reciprocal switching," where one railroad, for a fee, switches carloads to a rival carrier to give shippers access to facilities they might not otherwise reach.

Under the proposed rule, a shipper seeking reciprocal switching for its freight must show that the arrangement would be, in the STB's words, "practicable and in the public interest," or that it is "necessary to provide competitive rail service." The current standard, adopted in 1985 by the old Interstate Commerce Commission, the STB's forerunner agency, requires shippers to prove that reciprocal switching would be necessary to "prevent an anticompetitive act." Since 1985, almost no shipper requests for reciprocal switching have been filed, and none have been granted.

The Board's proposed ruling is the most important step yet taken in a five-year battle that began in July 2011, when the National Industrial Transportation League, which represents industrial companies that are heavy rail users, filed a petition with the STB seeking changes in the agency's language governing reciprocal switching. The group's proposal would allow a captive shipper or receiver—a business that can only use one mode or even just one railroad—to gain access to a second railroad if the customer's facility is located within a 30-mile radius of an interchange where regular switching occurs. The switch would not take place if the railroad faced with the revenue loss from switching could prove that the practice was unsafe or would impair existing rail service, under the proposal.

The group has said its proposal is designed to balance the service scales for captive customers and is not part of an effort to re-regulate the railroads. In a statement today, NIT League said "our member companies across a host of industries need this type of competitive, market-based rail transportation alternative." The group added that it would comment in more detail after it analyzed the Board's decision.

The Association of American Railroads (AAR), a powerful and effective lobbying force in Washington, has argued that any change in the status quo would be a step backward down the path of deregulation, sharply criticized the Board's proposal, saying it represents a form of "forced access" that compromises the efficiency of the entire U.S. rail network. Compliance with the Board's proposal "would ultimately require more resources" on the railroads' part to move the same amount of freight, AAR President and CEO Edward R. Hamberger said in a statement.

Hamberger said federal law already requires railroads to cooperate if it takes more than one carrier to move a shipment from origin to final destination.

Brené William Primus, a long-time transportation attorney, said shippers shouldn't hold their collective breath about imminent regulatory relief. Primus noted in an e-mail today that the Board would handle each petition on a case-by-case basis, and would make "few, if any, presumptions" that might ease the shipper's burden of proof. The proposed change in the STB's language on the issue is likely to do little to mitigate the complexity and costs for shippers that want to pursue relief before the agency, Primus said.

Comments in the case, Ex Parte 711, are due by Sept. 26.