Observers anticipate a contentious Surface Transportation Board hearing next Tuesday and Wednesday on reciprocal switching. Supporters and opponents are gearing up, with the stakes high for both the railroads and shippers.
What is reciprocal switching?
Reciprocal switching occurs when a shipper has access to one freight railroad but seeks access to a nearby competing freight railroad to cultivate a competitive pricing environment. A shipper gains that access at an interchange between the two railroads. Some U.S. railroads actually already have reciprocal switching agreements with shippers, as a concession born from railroad mergers, but the practice isn’t widely available.
Why do shippers support it?
Shippers say reciprocal switching would promote rail-to-rail competition, “giving shippers options they don’t have today,” one source told FreightWaves. It could especially benefit captive shippers, or those that have access to only one railroad. Granting reciprocal switching could encourage the railroads to provide better service, lower rates or both, shippers say.
Shippers note reciprocal switching already exists in Canada, where it’s known as interswitching, and contend that the Canadian freight railroads haven’t had any problems with the practice.
Shippers also argue that reciprocal switching could result in network efficiency because traffic could potentially be rerouted to more direct routes.
Why don’t the railroads support it?
The railroads contend that reciprocal switching could exacerbate existing service issues or create new ones by adding another layer of operational complexity. By focusing too much on accommodating this shipping option, it could also divert the industry’s attention from enacting measures that would make the rail industry competitive with other transportation modes, such as trucks.
Others doubt whether the measure would actually fulfill shippers’ concerns about not having enough shipping options.
Will the board take action soon?
Sources told FreightWaves that the board appears poised to take action on the issue sooner rather than later, potentially as early as this year. The STB rebuffed efforts to extend the timeline for the proceeding, which could indicate that the agency wants to keep momentum going.
There is also a lot of political will behind the issue. The White House is eager to increase competition or give rail shippers more options, as seen by last July’s executive order by President Joe Biden encouraging competition.
What has changed since the issue first came up a decade ago?
One key question is how STB will look at the issue in light of existing operational challenges, including whether reciprocal switching will have any impact on rail service, which some say has deteriorated in recent years. And there are operational challenges: The COVID-19 pandemic not only brought about congestion at coastal and inland ports, but also contributed to inadequate staffing at the railroads due to pandemic-related absences. Meanwhile, some shippers contend that rail service didn’t improve after the Class I railroads implemented precision scheduled railroading prior to the pandemic.
However, skeptics argue that much of the U.S. rail infrastructure might not support reciprocal switching, especially since the railroads are deploying longer trains and interchanges might not have the capacity to handle the practice. The safety requirements involved in switching may also prove too onerous and time-consuming.
Another uncertainty is how individual board members will respond to comments expressed at the hearing. All five members are relatively new to the issue. They all joined the STB after the National Industrial Transportation League brought the issue before the board 10 years ago.
“The proceeding has been quiet for five years. Starting it up again is a big deal,” a source said.
While two Democratic board members, Chairman Marty Oberman and Robert Primus, appear to be “positively disposed to the shippers’ point of view,” according to one source, it’s unclear how the other members are thinking about the issue.
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