New US rule may let some shippers swap railroads

US rail regulators today issued a final rule designed to help customers switch railroads in cases of poor rail service, but it is already drawing mixed reviews.

Reciprocal switching, which allows freight shippers or receivers captive to a single railroad to access to an alternate carrier, has been allowed under US Surface Transportation Board (STB) rules. But shippers had not used existing STB rules to petition for reciprocal switching in 35 years, prompting regulators to revise rules to encourage shippers to pursue switching while helping resolve service problems.

"The rule adopted today has broken new ground in the effort to provide competitive options in an extraordinarily consolidated rail industry," said outgoing STB chairman Martin Oberman.

The five-person board unanimously approved a rule that would allow the board to order a reciprocal switching agreement if a facility's rail service falls below specified levels. Orders would be for 3-5 years.

"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," Oberman said today.

STB commissioner Robert Primus voted to approve the rule, but also said it did not go far enough.

The rule adopted today is "unlikely to accomplish what the board set out to do" since it does not cover freight moving under contract, he said.

"I am voting for the final rule because something is better than nothing," Primus said. But he said the rule also does nothing to address competition in the rail industry.

The Association of American Railroads (AAR) is reviewing the 154-page final rule, but carriers have been historically opposed to reciprocal switching proposals.

"Railroads have been clear about the risks of expanded switching and the resulting slippery slope toward unjustified market intervention," AAR said.

But the trade group was pleased that STB rejected "previous proposals that amounted to open access," which is a broad term for proposals that call for railroads to allow other carriers to operate over their tracks.

The American Short Line and Regional Railroad Association declined to comment but has indicated it does not expect the rule to have an appreciable impact on shortline traffic, service or operations.

Today's rule has drawn mixed reactions from some shipper groups.

The National Industrial Transportation League (NITL), which filed its own reciprocal switching proposal in 2011, said it was encouraged by the collection of service metrics required under the rule.

But "it is disheartened by its narrow scope as it does not appear to apply to the vast majority of freight rail traffic that moves under contracts or is subject to commodity exemptions," said NITL executive director Nancy O'Liddy, noting it was a departure from the group's original petition which sought switching as a way to facilitate railroad economic competitiveness.

The Chlorine Institute said, in its initial analysis, that it does not "see significant benefit for our shipper members since it excludes contract traffic which covers the vast majority of chlorine and other relevant chemical shipments."

By Abby Caplan