A staff report by the Surface Transportation Board (STB) recommending how board members should modify existing rate review methodologies got a mixed reaction from the Association of American Railroads (AAR), a trade group representing the Class I railroads, Amtrak and other carriers.
The STB staff report recommended changes to its rate review methodologies that appear more shipper-friendly at first glance. The changes are related to ongoing proceedings between the Class I railroads and shipper groups such as the National Industrial Transportation League, which praised the report’s conclusions. The recommendations are non-binding.
The AAR praised some aspects of the report, including its treatment of the stand-alone cost test, saying it was pleased that the board staff “affirmed the economic soundness” of the test, in which the STB uses calculations based on a hypothetical railroad to derive how reasonable contested rail rates are.
“We continue to be committed to participation in a constructive conversation among freight railroads, shippers and the Board regarding possible improvements to the Board’s rate reasonableness procedures,” said AAR president and chief executive Ian Jefferies.
But AAR disagreed with the report’s conclusions on revenue adequacy, which deals with the profitability of a railroad.
“We are concerned, however, that the report lacks balance and objective support for many of its conclusions, mischaracterizes the law, and that many of the proposals in the report would move the Board backward towards discredited methods of heavy-handed rate regulation,” Jefferies said. “As recently as 2015, Congress made clear that the STB’s role is to assist freight railroads in earning revenues adequate for the infrastructure and investment needed for present and future freight demand.”
Jeffries continued, “The Task Force’s proposals recommending profit regulation through rate caps and forced access as a result of achieving revenue adequacy goes in the opposite direction, and would hobble the railroads’ ability to serve current and future demand for transportation. The AAR and its member railroads will carefully consider the proposals in the report and will offer constructive suggestions for how the Board can address its legitimate goals for improving its rate case processes and procedures, including procedures for the smallest rate disputes and improving the Stand-Alone Cost test, while also complying with the law and preserving the core economic principles on which those analyses are based,” Jefferies said.
The STB staff report comes weeks ahead of a May 22 oversight hearing in which the Board will hear testimony from shippers and railroads alike on demurrage and accessorial fees, which are related to the length of time a shipper holds a railcar. The issues of rail demurrage and accessorial fees are separate from the issue of rate review methodologies, but are related because they address the rate charges between a railroad and a shipper.
While the fees are already in existence, some railroads have been changing the terms and conditions as they transition to precision scheduled railroading. The railroads say the changes in the fee structure provide incentives for shippers to turn the cars around faster.