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Major Bipartisan Rail Reform Bill Introduced in the Senate

March 24, 2015
Shippers and manufacturers in a broad range of industry segments have sought rail regulatory reform for decades, and at long last it might actually happen.

Bipartisan legislation that would expand the Surface Transportation Board and its powers to regulate the railroad industry was introduced in the Senate March 19.

The bill may actually stand a chance of progressing through the Senate and perhaps the House because it was offered by Senators John Thune (R-S.D.) and Bill Nelson (D-Fla.), who serve as the chairman and ranking member, respectively, of the Senate Commerce Committee. In addition, it is attracting widespread support from the shipping community and it is anticipated that the rail industry—which has yet to express a view—may not raise serious objections to it.

The two senators pointed to the rail service crisis this past fall and winter when increased demand and weather conditions created serious grain car backlogs, storage constraints, intermodal train delays, along with higher rail car premiums, rising transportation and commodity costs.

The bill would expand membership of the STB from three to five commissioners, and would change the law to permit them to talk to each other about rail issues without requiring a public hearing.

It also would set timelines and streamline procedures for STB rail rate reviews, needed because they are being delayed by a time-consuming and expensive “stand-alone cost test,” which is used when only one rail carrier can provide service for a customer. Using complex economic modeling, the test examines how hypothetical competition from another railroad might impact prices to see if current rates fall within the legal definition of “reasonable.”

“A case before the STB can often cost over $3 million to litigate and take over three years to resolve,” according to the senators. The new bill also gives the STB authority to initiate investigations on matters other than rate cases. It also requires the board to establish a database of complaints and quarterly reports on them to provide more public accountability for ongoing problems.

“After nearly 20 years of regulating freight railroads and adjudicating shipper disputes at the STB, it’s time for Congress to address some inefficiencies in the agency,” Thune comments. “Oversight efforts have identified causes of wasteful and unnecessary delays in adjudicating cases that harm rail shippers, freight operators, and ultimately consumers who pay higher costs.”

Shippers and manufacturers in a broad range of industry segments have sought additional rail regulatory reform for decades, and have complained about the relative toothlessness of the STB in this area.

A large number of industry groups already have agreed to support the legislation, including the American Farm Bureau Federation, National Farmers Union, Consumers United for Rail Equity, Alliance for Rail Competition, National Rural Electric Cooperative Association and Steel Manufacturers Association.

Also supporting the bill is the National Industrial Transportation League. NITL president Bruce Carlton has expressed disappointment that the measure does not address the competitive switching issue. An NITL petition to secure an STB decision on this issue has been under review at the board for more than three years without any action.

However, it was a competitive switching provision contained in previous legislation offered last year by now-retired Sen. Jay Rockefeller (D-W.V.) that attracted the strongest opposition from the Association of American Railroads.

“On behalf of NITL I have added our name to the growing list of supporters,” Carlton says. “In a perfect world we would want more. As you may have heard previously, Washington, DC, is not a perfect world, but passage of this bill would be a solid step forward for shippers nevertheless—and the AAR is not opposing it.”

American Chemistry Council president Cal Dooley comments, “This bill will promote a more competitive environment for freight rail service and improve how the STB operates. The bill reflects many of the improvements that are supported by the ACC and a large number of other groups representing a wide range of U.S. manufacturing, agricultural and energy interests.”

The National Association of Chemical Distributors also says the bill “will make long-overdue changes allowing the Board to more effectively promote access to competitive service and act as a more efficient venue to address rate and service issues between railroads and their customers.”

Although companies large enough to be expected to have some clout in dealing with the railroads are among those who are frustrated with rail monopoly pricing practices and deteriorating service, the hardest hit are smaller customers, including third-party logistics providers and their customers.

“It is bizarre that the commissioners cannot even discuss issues among themselves without a public hearing notice,” says Paul Delp, president of Lansdale Warehouse Co., Lansdale, Pa., and of the American Chain of Warehouses Inc. “Increasing the number of commissioners from three to five will remove a host of procedural and administration impediments and could make the agency much more efficient and effective.”

Delp says the 3PL warehouse industry looks forward to using a voluntary arbitration process also included in the bill to highlight unreasonable, one-sided tariff rules set by the railroads (such as bunching and “constructive placement” of rail equipment) that lead to huge demurrage charges.

“I hope this will bring about real rail freight demurrage reform,” he says. “If the railroads would embrace actual placement agreements and not try to incorporate their operational inefficiencies into their demurrage profit centers, demurrage disputes would be minimal.”

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