Public policy coalition opposes STB reciprocal switching regulations

A group led by the Competitive Enterprise Institute sent a letter to Congress calling the Surface Transportation Board’s proposal to increase reciprocal switching an “unlawful attempt to push the U.S. railroad industry back into the economic dark ages.”    A coalition led by the Competitive Enterprise Institute (CEI), a non-profit public policy organization, has sent a letter to both sides of Congress urging lawmakers to review regulations proposed by the U.S. Surface Transportation Board (STB) surrounding reciprocal switching of railroads.
   According to the STB, reciprocal switching, also referred to as “competitive switching,” is when one railroad transports a shipment to an interchange point where it “switches” those cars onto a competing railroad’s line. The second railroad pays the first a switching fee for bringing the cars from the shipper’s facility to the interchange point (or vice versa), and this is incorporated into the second carrier’s total rate to the shipper.
   The practice allows “a competing carrier to offer its own single-line rate to compete with the incumbent carrier’s single-line rate, even if the competing carrier’s lines do not physically reach a shipper’s facility,” STB said in its initial proposal.
   The STB in July proposed regulations to increase the availability of reciprocal switching that could give the board the ability to impose a reciprocal switching arrangement in situations where one railroad might not be amenable to such an agreement.
   The proposal was met with immediate opposition from industry groups like the American Association of Railroads, which called the regulations “a step backward from the deregulatory path that has allowed railroads to make the capacity investments required to meet customer demand and further modernize a nationwide rail network that benefits shippers and consumers.”
   “The freight rail industry’s position remains unchanged: forced access is an ill-conceived approach that compromises the efficiency of the entire network by gumming up the system through added interchange movements, more time and increased operational complexity,” AAR President and CEO Edward R. Hamberger said at at the time.
   The letters to Congress from CEI and its fellow coalition mates were even less complimentary, calling the reciprocal switching regulations an “unlawful attempt to push the U.S. railroad industry back into the economic dark ages.”
   “We write today to strongly oppose efforts to re-regulate our nation’s freight rail industry currently being considered by the Surface Transportation Board,” the group wrote. “We believe that freight rail deregulation – culminating in the Staggers Rail Act of 1980 – represents one of the most significant economic policy successes in the history of the United States and that these reforms must be protected.”
   The coalition argues that although the STB claims its proposal would promote competition, the reciprocal switching regulations would amount to “nothing more than backdoor price controls – the same sort of regulation that nearly drove the industry to ruin,” taking specific issue with the board’s proposal to eliminate a stipulation that says reciprocal switching agreements can only be imposed in response to a finding of anticompetitive behavior.
   “The regulatory proceeding regarding revised reciprocal switching rules that was recently opened by the STB reverses three decades of precedent,” the group said. “Many industry observers have expressed concern that imposing forced access and reducing railroad rate freedom will come at the expense of network investment. This unprecedented action threatens railroads, shippers, and consumers with degraded service quality and higher goods prices that would naturally follow the resulting reduction in railroad investment.
   “Congress has repeatedly rejected railroad re-regulation, correctly recognizing that reducing private railroad investment is not in the public interest,” it added. “Nevertheless, the STB is illegally rewriting the law to find guilt where none exists, something we expect to read in Kafka or before courts in banana republics, not within a U.S. federal regulatory agency.”
   The letters were sent to Transportation and Infrastructure Committee Chairman Bill Shuster, R-Pa.; Railroads, Pipelines, and Hazardous Materials Subcommittee Chairman Jeff Denham, R-Calif.; and ranking members Peter DeFazio, D-Ore., and Michael Capuano, D-Mass., in the House; as well as Commerce, Science, and Transportation Committee Chairman John Thune, R-S.D.; Surface Transportation and Merchant Marine Infrastructure, Safety and Security Subcommittee Chair Deb Fischer, R-Neb.; and ranking members Bill Nelson, D-Fla., and Cory Booker, D-N.J., in the Senate.
   Signatories included the Competitive Enterprise Institute, American Commitment, American Conservative Union, Campaign for Liberty, Center for Individual Freedom, Georgia Public Policy Foundation, Grassroots Institute of Hawaii, John Locke Foundation, The Maine Heritage Policy Center, National Taxpayers Union, Rio Grande Foundation, R Street Institute, and the Taxpayers Protection Alliance.
   Meanwhile, the National Industrial Transportation League, Agricultural Retailers Association, Alliance of Automobile Manufacturers, American Chemistry Council, American Fuel and Petrochemical Manufacturers, American Petroleum Institute, the Chlorine Institute, The Fertilizer Institute, Glass Packaging Institute, and National Association of Chemical Distributors have filed joint comments in support of the STB’s reciprocal switching proposal.
   The groups argue the regulations would “promote greater competition within the rail industry by allowing rail customers to obtain competitive bids through competitive switching,” and offered recommendations for how to improve the rule they say would “streamline the competitive relief process.”
   “The rail service challenges of 2013 and 2014 highlight the need for more competitive opportunities in the rail marketplace,” Chris Jahn, president of The Fertilizer Institute, said of the proposed regulations. “While opponents of these efforts focus on rates and how this might impact their bottom lines, competition is one of the fairest and most efficient ways to promote improved service. The STB’s efforts are going to help farmers and manufacturers be more competitive in the global marketplace, and this is good news for everyone in our nation.”
   Cal Dooley, president and CEO of the American Chemistry Council, called the reciprocal switching rules “a commonsense reform that will finally put an end to an archaic system that has helped shield railroads from having to compete with one another and has allowed freight rail rates to nearly double in the past ten years.”
   “It is very clear that shippers need increased access to competitive freight rail service and a rail system that is more accountable to the U.S. marketplace,” added Agricultural Retailers Association President and CEO Daren Coppock. “The STB’s competitive switching proposal will
hopefully lead to a more dependable, efficient, and economical rail service for agricultural retailers and distributors and the rural communities they serve. ARA believes this is a step in the right direction. We appreciate the STB making an effort to overturn outdated regulatory barriers that have prevented agricultural retailers from access to competitive switching.”
   “Increasing competition in our nation’s railroads will help bring our nation’s energy resources to market more efficiently,” said Robin Rorick, midstream group director at the American Petroleum Institute. “A market-driven approach benefits consumers by providing opportunities for competition. Lowering the cost of delivering our industry’s products will further perpetuate the gains our nation has achieved in this energy renaissance which has lowered energy costs for consumers and provided great benefits to American workers.”
   AAR filed separate comments in which the association called proposed reciprocal switching rules “unlawful.”
   “They are contrary to established law dating back well before the Staggers Act and providing that a shipper must show ‘actual necessity’ to obtain an order of forced switching,” said AAR. “They are a ‘no fault’ recipe for regulatory intervention that turns the existing access regime upside down.
   “The Board’s newly proposed reciprocal switching rules would undermine demand-based pricing, entail a significant increase in regulatory control, and threaten rail carriers’ revenue adequacy by substituting artificial competition for marketplace decisions involving the routing of traffic and the setting of rates,” it added. “It is not lawful for the Board to launch a program of increased regulatory activity without first assessing whether the program can be reconciled with the deregulatory policies set out in the RTP (Rail Transportation Policy).”