Grain News


NGFA Spearheads Statement to STB Urging Replacement of Rail Competitive Switching Rules

Date Posted: March 15, 2013

Washington—In a comprehensive 62-page statement co-signed by eight other national agricultural organizations, the National Grain and Feed Association (NGFA) urged that the federal Surface Transportation Board (STB) replace its current competitive switching rules.

However, the NGFA-authored statement concluded that a proposal submitted by the National Industrial Transportation League (NITL) designed to do just that would fall far short of providing relief to agricultural shippers.

At best, the NGFA said, the NITL proposal, designed to make competitive switching more available to shippers would, at best, potentially apply to less than 6 percent of the estimated volume of rail shipments of grains, oilseeds, processed commodities, biofuels and other agricultural commodities.

The NGFA-drafted statement was submitted in response to the STB’s proceeding (EP 711) seeking information and data concerning ramifications of NITL’s proposal that would replace the agency’s current rules governing competitive (reciprocal) switching between Class I railroads.

Joining the NGFA in signing the statement were the: Agricultural Retailers Association, National Association of Wheat Growers, National Barley Growers Association, National Chicken Council, National Corn Growers Association, National Council of Farmer Cooperatives, National Oilseed Processors Association and USA Rice Federation.

The U.S. Department of Agriculture also submitted a separate statement that closely aligned with the agricultural shippers’.

The NGFA consists of more than 1,050 member companies that operate more than 7,000 facilities that handle in excess of 70 percent of U.S. grain and oilseed production.

“…Rail carriers should not have a free hand to cut off existing access to markets through absolute closures of intersection points or by establishing switch charges beyond a reasonable level,” the NGFA and other groups wrote.

“Because switching movements are a major conduit to maintaining a national rail freight network, railroads should not have the degree of pricing freedom on switch movements that they currently are given on long-haul rates. To allow such autonomy on switching will have a negative impact on the competitive fabric of the nation’s economy.”

Under the NITL proposal, to qualify for competitive switching, rail shippers would be required to meet the following four criteria:

1. Be served by only one Class I railroad;

2. Not have access to effective inter- or intramodal competition for the affected shipment;

3. A working interchange “is or can be” present between the landlord Class I railroad and another carrier within a “reasonable distance” of the shipper’s facility(ies); and

4. The switching is feasible, safe and does not impede the railroad’s ability to serve its own shippers.

Under the NITL proposal, shippers would be presumed to qualify for competitive switching if:

• the revenue-to-variable cost (R/VC) ratio of the rate charged by the “landlord” Class I railroad from origin to destination is equal to or greater than 240 percent (or more than 75 percent of the shipper’s traffic was handled by the “landlord” railroad in the previous year); and

• a “workable interchange” exists where a shipper’s facilities are located within the geographic boundaries of a Class I terminal, and cars regularly are switched between that carrier and the proposed alternative carrier or the interchange is located within 30 miles of the shipper’s facility(ies), and is a location where the landlord and proposed alternative carrier regularly interchange traffic.

But the NGFA’s analysis of 2011 waybill data – involving more 44,000 individual records comprising more than 3 million rail shipments of agricultural products totaling more than $9.2 billion in freight revenue – found that more than 94 percent of such shipments would not meet the proposal’s conclusive presumptions.

Further, the NGFA-authored statement said, significantly more than 96 percent of 16 types of agricultural shipments (including corn, wheat, soybeans, soybean meal and oil, corn syrup, wheat flour, distillers co-products, and ethanol and other biofuels) would not qualify if the STB imposed an even more restrictive revenue threshold (known as the revenue shortfall allocation method) that the agency suggested as a possible refinement of the NITL proposal.

Because the NITL proposal, as submitted, would have “limited benefits” for agricultural commodity shipments, the NGFA and the other agricultural organizations said any new rules would need to be “significantly modified” before they would have any appreciable value to shipments of agricultural commodities transported by NGFA members.

At a minimum, the statement said, such changes should include:

• Reducing the NITL-proposed 240 percent R/VC threshold to 180 percent, which is the statutory level at which carriers are deemed to have quantitative market dominance over transportation rates and the STB gains jurisdiction to examine the reasonableness of rail rates.

• Using a “more liberal, case-by-case determination” to determine whether a shipper’s facility is presumed to be within a “reasonable distance” of a working interchange.

Establishing an appropriate “access fee” – the amount to be charged for performing the switching service – which was not included in NITL’s proposal.

“Unless the access fee is established at a level that makes it economically feasible to use the alternative railroad, rules that create a right to competitive switching will have little practical use to rail shippers,” the NGFA said.

In previous statements submitted to the agency, the NGFA had noted that switch charges often ranged from five to seven times the approximate cost of providing the service, with evidence existing that some carriers had used the practice to “de-market rail traffic.”

But even with these and other changes, the NGFA-authored statement said there were no guarantees that rail carriers would respond by offering competitive rates and service.

In fact, the NGFA’s analysis of 2011 waybill data found that in some instances, freight rail rates actually were higher where competitive switching currently exists than rates charged for similar movements from captive locations.

The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed and feed ingredient manufacturers; biofuels companies; cash grain and feed merchants; end users of grain and grain products, including processors, flour millers, and livestock and poultry integrators; commodity futures brokers and commission merchants; and allied industries.

It also consists of 26 affiliated state and regional grain and feed associations.

For further information, contact:

Heather McElrath, NGFA Director of Communications, 202-289-0873, ext. 11; hmcelrath@ngfa.org

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