Let's switch

A new rule would make it easier for rail shippers to prove a need for "reciprocal switching." Let's hope it leads to more competitive rail service for those who have gone without it for so long.

By Clifford F. Lynch

Given the amount of ink (or its digital equivalent) devoted to the topic, you could be forgiven for assuming that the challenges of retail deliveries are pretty much the end-all and be-all where logistics trends and developments are concerned. In recent months, we've been deluged with articles and white papers on such subjects as drones, Amazon, Wal-Mart, same-day deliveries, free shipping, and crowdsourcing.

While this segment of our economy is unquestionably important, there is life beyond it. But in these retail-centric times, major developments in other areas often go overlooked. For instance, unless you're a rail shipper and/or a regular follower of the rail trade press, you may have missed a recent decision by the Surface Transportation Board (STB) that could be a very big deal for a lot of rail shippers.

To understand the implications of the decision, it helps to know a little about the U.S. rail industry. With 140,000 miles of track and 2015 revenues of over $80 billion, the rail portion of the U.S. transportation network is critical to the flow of commerce. It is also the subject of considerable controversy, particularly among so-called "captive shippers"—those served by only one rail carrier. Since the industry was deregulated in 1980, the number of U.S. Class I railroads has dwindled to five, which now control 90 percent of the country's rail traffic. That's left many shippers with just one rail carrier option. With no competition, the shippers maintain, there is little incentive for carriers to keep rates and services at acceptable levels.

On July 27, the STB took a major step toward correcting that. In a notice of proposed rulemaking, the agency proposed to modify language to make it easier for shippers to prove the need for "reciprocal switching," where one railroad, for a fee, switches carloads to a rival carrier to give shippers access to facilities they could not otherwise reach. Under the proposed rule, a shipper seeking reciprocal switching for its freight would have to show that the arrangement would be, in the STB's words, "practicable and in the public interest" or that it is "necessary to provide competitive rail service." The current standard requires shippers to prove that reciprocal switching would be necessary to "prevent an anticompetitive act"—a difficult task. Since 1985, almost no shipper requests for reciprocal switching have been filed, and none have been granted.

The new rules were a long time coming, resulting from a petition filed by the National Industrial Transportation League and signed by 700 shippers in 2011. Rail carriers have been expecting them for well over a year and were ready with their objections.

The same day the STB published its notice, the Association of American Railroads (AAR) issued a statement calling the new rules, or "forced access" as the group termed it, a step backward from the deregulatory path created by the Staggers Act of 1980. The group further stated that railroads would ultimately need more resources to move the same amount of freight. The rail supplier contingent weighed in as well, noting that the move would reduce capital spending by the railroads, which, obviously, would not be good for suppliers.

I am sure the rail industry has legitimate concerns, but its pronouncements seem to be masking what I suspect is the underlying issue—that no carrier is interested in throwing the switches for new competitors.

As for the likelihood of the STB's proposal being adopted, there is a possible snag that often arises in election years. The STB is short two members, who are not likely to be appointed until the new administration is in place. Right now, Democrats control the STB. My hope is that whomever is nominated for the empty seats will not see a railroad switch as a partisan political tool, but rather, will see the wisdom of providing competitive rail service for those who have gone without it for so long.