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STB poised to decide reciprocal switching rules as shippers, railroads remain at odds

STB poised to decide reciprocal switching rules as shippers, railroads remain at odds

High rates and issues related to services in the rail industry have been affecting masses. Now, the Federal regulators are looking forward to adopting a reciprocal switching rule. The Board Chairman Surface Transportation, Marty Oberman, suspects that this change might be an effective way to address concerns without going for large regulations.

Board members, shippers and railroads together discussed the merits of a 2016 proposal in march in a two-day federal hearing. According to the proposal, railroads must establish a system for shippers to access nearby carriers when they are deprived of any other efficient option. Shippers believe that reciprocal switching will boost the competition between companies in the united industry. As a result, carriers would be burdened to ask for lower rates and provide better services. However, the Railroads argued against the rule saying it would worsen the existing issue. They believe that the rule will give rise to more delayed shipments because the operations will face unwanted hurdles.

Oberman is open to limiting which carriers would be authorized for reciprocal switching based on considerations like geography. Nonetheless, he recognised that the law may help to boost competition and resolve shipper problems. He discussed that he has witnessed a downturn trend in the industry’s quality and quantity of service over the recent years. He added that one of the ways to combat this downfall was to enhance the geographical competition.

Shippers complain about decline in quality of service

In previous years, shippers have reported about service issues such as missing switches, significant delays, and inconsistent service. Service difficulties can cause productivity disruptions for companies who have no true economic substitute to railroad.

As per the previous STB Chairman Dan Elliott, representing the Private Railcar Food and Beverage Association, a Kraft Heinz factory in North Florida covered by only one Class I carrier had to shut down at least once for a full week owing to freight rail service issues.

“Despite requesting the railroad to enhance the quality several times, no actions were taken for betterment of the current situation. These dire consequences have worsened over the time. If we had employed the reciprocal switching method to combat this situation, we could have prevented the Kraft Heinz plant from being unoperational right now. Through reciprocal switching, using a nearby Class I railroad can solve the issue easily,” Elliot said.

These interruptions have resulted in higher fees and shipper expenses, and many companies have paid extra to transfer shipments to the trucking spot market facing rail constraints. Elliot further discussed how a company calculated that they were losing at least $200,000 per day due to unpredictable switching and postponed deliveries of rail cars.

Several shippers do have reciprocal switching privileges, mainly as part of pre-existing contracts with railways formed following a merger. A chemical company LyondellBasell avoided service disruptions at several occasions by using their reciprocal switching agreement with the U.S. rail carrier. A lawyer from Thompson Hine, Jeff Mereno, said while representing a partnership of several shipper groups, “the benefits of reciprocal switching are very obvious. The chemical company LyondellBasell was allowed access to competitive service alternatives across their four franchises while they used capital investments to add 2200 storage and transport freight spots.”

Shipping companies can also request the STB for reciprocal switching access if they can show that a railroad has been involved in anti-competitive behavior. Still, many shippers believe the expectations are unrealistic and point out that the organization has never granted such a request.

Railroads Claim That Problems Will Increase

Railroads argue that reciprocal switching would only worsen existing service problems, injecting unnecessary complexity into their operations that could lead to even more delays.

Reciprocal switching could make it harder for railroads to manage their networks and could cause new delays, railroads say. Union Pacific said the reciprocal switching it currently performs adds an additional 48 to 96 hours of delays, as cars have to traverse a terminal twice.

Railroads claim that reciprocal switching would exacerbate existing service issues. In their opinion, reciprocal switching will make it more difficult to operate their networks and generate significant delays. Union Pacific claims that the reciprocal switching will add an extra 48 to 96 hours of delay since cars must pass through each terminal twice.




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