Shippers back Senate bill to update railroad regulatory body, but will Capitol Hill act?
The U.S. Surface Transportation Board had a busy 2014. In addition to its regular business, it chaired numerous panels hoping to figure out how to best attack the nation’s infrastructure shortcomings and pave the path toward a more equal balance of power between railroads and shippers.
At least that’s how the shippers saw it. Shippers groups commended the STB for confronting these issues in a public, thorough manner, but point to a lack of action behind these discussions. Some of this, they say, isn’t the fault of the board.
If the 2014 Surface Transportation Board Reauthorization Act, which was introduced in September by Sens. John Thune, R-S.D., and Jay Rockefeller, D-W.Va., of the Senate Commerce Committee, fares better than the previous iterations of the bill, shippers think the board will be able to attack these questions with more tenacity. Congress will take up the issue after a slew of new Senators are sworn in this month.
The quest for an updated STB is nothing new. Rockefeller last approached the STB reauthorization topic in 2011, after having introduced a similar reauthorization bill in December 2009. Neither bill made it past committee. The bipartisan bills would have expanded the board from three to five members and given it tools to solve so-called “captive shipper” issues, among other developments. The shipping industry stood behind both bills, and the railroads came out against them.
Like those previous iterations, the 2014 bill would bump up the number of STB commissioners and give it more investigatory powers. A letter in support of the bill by the American Chemistry Council and 36 other shippers groups summed up the content of the bill by stating: “The legislation would streamline rate-case procedures; create a meaningful alternative dispute resolution process; and require an analysis of the rules under which the agency operates. Other commonsense improvements include allowing the board members to discuss agency matters with each other, launch their own investigations, and create timelines for cases.”
The 2014 bill has bipartisan support, but the landscape of the Senate will change a bit with the next Congress, as Democrats will no longer be in the majority. Within the Senate Commerce Committee, Rockefeller, the current chairman, will retire, and his seat in the Senate will be filled by Republican Shelley Moore Capito. Three other Democratic members of the committee — Mark Pryon, Mark Begich and John Walsh — found their seats taken over by Republicans.
In early September, the committee passed the bill out of committee, which is farther than the two previous bills made it. During the meeting, Thune said the bill will simply let the board “function as the regulatory body that Congress envisioned, while not stifling the railroads with additional regulations that could stifle investment in what we all know is a very capital intensive industry.”
He noted at the time that 70 shipping groups had come out in support of the bill.
“I think much of the angst that I’ve heard from shippers over the years could be solved if we provided an avenue to resolve concerns on the front end before they become larger issues that turn into multi-year, stand-alone cost rate cases that cost both the railroads and shippers millions of dollars,” he said during the hearing.
The bill passed out of the committee by unanimous vote, but a number of senators urged caution and expressed the need for a thorough dissection of the bill’s contents. Bruce Carlton, president and chief executive officer of the National Industrial Transportation League, said this note of caution wasn’t one of anxiety and doesn’t even mean the bill will likely face an unfriendly Senate.
“I would love it to go through like ‘Greased Lightning,’ but it won’t,” he said. “They were taking a very cautious approach to what I thought was a very cautious bill. Nothing happens quickly — this is Washington. There are concerns to be aired out from all parties.”
The genesis for the current bill can be seen in a letter sent to the Senate in early July by 24 shipping groups. The groups sent the letter asking for policies to “create a more competitive and market-based system, while ensuring the STB has procedures to settle disputes efficiently.” They stressed that shippers were not talking about re-regulation and a return to the days when freight rates were under government watch. Asking only for a return to balance in railroad market power, they noted that 26 Class I railroads existed when the Staggers Rail Act was passed in 1980; there are now four U.S. railroads that hold 90 percent of the market.
“Staggers helped the industry regain profitability, but unchecked consolidation has led to dramatic increases in rates,” the shippers wrote. “In fact, according to [Association of American Railroads] data, rates spiked 94.8 percent from 2002 to 2012, which outpaces increases in inflation and truck rates by about a factor of three. Furthermore, the STB held an emergency hearing and intervention this spring to address systemic rail service problems, while rates increases continue.”
The groups proposed a number of changes to enhance the STB’s efficiency, reform its rate-challenge system, and promote more competition.
Carlton said the bill lays the foundation for a reworking of the agency, but the content of the bill isn’t groundbreaking or far-reaching. In fact, he said the bill is part of a congressionally mandated checkup that should be given to all government agencies.
“I think that’s what I saw in [the bill]. It’s a broad prescriptive,” he said. “It doesn’t answer any of the questions. It doesn’t conclude the deliberative process. It directs the board to do some things that should shine a light on issues that have been front-and-center in the freight rail industry.
“I thought it was a very thoughtful piece of legislation,” he continued. “I thought it was a very conservative piece of legislation.”
The bill’s unanimous approval by the committee is a good sign, Carleton said, and he hopes the next Congress will seriously take up the issue.
“There are some real common-sense fixes inside this, which you would hope to see in a reauthorization of an existing agency. There are things there that deal with STB realities that frankly just don’t make any sense. The three board members can’t talk to each other about pending cases. Can you imagine a federal appeals court where three justices are sitting, listening to arguments, parsing through facts, and they can’t talk about it?” he said.
During the debate in Congress, the board will continue with parsing issues, most notably finding a solution to the service challenges currently faced by shippers. Carlton said the board has done a decent job confronting these issues, but could do more to solve fundamental problems.
“They’re certainly exhibiting a deep understanding of just how important good service is for industries that are so dependent on rail to move their product in or out of their facilities,” he said.
At the American Chemistry Council, Jeffrey Sloan — who, in addition to serving on the ACC’s rail team, is a senior director in the Chlorine Chemistry division — said there’s no one item in the bill that would solve all the STB’s problems. But he said the 2014 bill collectively creates “modest but important reform that will do more to promote competition between railroads and make the Surface Transportation Board function more effectively, efficiently and equitably.”
The ACC fully supports the legislation, but Sloan noted the issues the bill confronts have been present long before Rockefeller introduced his previous STB reauthorization bills in 2009 and 2011.
“As the freight rail industry has consolidated in the last decade, you’ve seen a dramatic increase in rail rates,” he said. “That’s driven more attention to this.”
Like Carlton, Sloan didn’t see any warning signs during the Sept. 17 committee meeting when senators expressed that restraint would be needed during the debate over the bill.
“I think it shows that there is more education that needs to be done as far as why these reforms are so important to so many sectors in the economy,” he said. “I think it reflects that a lot of members of the committee hadn’t been involved years ago when these issues were last really discussed at the committee.”
The concerns by senators are not the same as those voiced by railroads. Sloan said railroad officials are happy with the status quo, and “have expressed concerns about any efforts to reform the STB.”
He added, “When you look at the actual reforms that are in this bill, I think it’s very compatible with a healthy rail system going forward and one that can continue to invest and be financially successful.”
Shippers generally agree the bill won’t make any headway until the next Congress, but Sloan pointed out that in the meantime the STB can look internally to work toward creating a better functioning agency. One of these changes, which has been debated at length, is competitive switching.
“Congress envisioned competitive switching as a way to promote greater competition in the railroad sector, but the STB’s rules are so burdensome that no shipper has ever gotten comp switching under those rules,” Sloan said. “[The STB has] opened a proceeding to look at possible reforms to those rules. We’ve been disappointed that the process has moved so slowly.”
This article was published in the January 2015 issue of American Shipper.