Grain News

NGFA Urges STB to Revise Competitive Rail Switching Rules

Date Posted: April 4, 2014

The NGFA recently presented testimony on behalf of itself and eight other national agricultural producer and agribusiness organizations urging the federal Surface Transportation Board (STB) to develop and propose revised competitive switching rules between Class I railroads that would be more conducive and accessible to captive agricultural rail shippers and receivers.

During a March 25-26 public meeting, the agricultural organizations reiterated their conceptual support for a petition filed by the National Industrial Transportation League (NITL) to revise the STB’s existing competitive switching rules.

But the groups reiterated their contention that the NITL proposal falls far short of what would be needed to provide meaningful relief to captive agricultural shippers.

Joining in support of the NGFA-drafted 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.

“Rail carriers should not have a free hand to deny captive agricultural shippers access to markets through absolute closures of intersection points or by establishing switch charges beyond any justifiably reasonable economic level,” said Sharon Clark, senior vice president of transportation and regulatory affairs for Perdue Agribusiness, Salisbury, Md., who testified on behalf of the NGFA and the other agricultural groups.

“Access to rail transportation via efficient and cost-effective switching between carriers is of extreme importance to agricultural users because of the nature of our industry and its rail transportation patterns.”

Such shipments are characterized by diverse geographic locations, fluctuating seasonal and weather-related conditions, changing domestic and export market demand, and multiple origin-and-destination pairs that differ dramatically from the comparatively static origin-destination pairs characterizing many non-agricultural movements.

The NGFA and the other national agricultural organizations urged the STB to amend the NITL proposal with respect to agricultural shippers in the following ways:

Reduce the NITL-proposed 240 percent revenue-to-variable-cost 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. The NGFA and other agricultural groups noted that the changes are necessitated by an NGFA-funded 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 – that found that only about 6 percent of these agricultural-product carloads theoretically could qualify for the conclusive presumption of market dominance if set at 240 percent or more of variable cost, as proposed in the NITL petition.

Use a more liberal, case-by-case determination to determine whether an agricultural shipper’s facility is presumed to be within a “reasonable distance” of a working interchange requiring a competitive switch arrangement, rather than the NITL proposal’s 30-mile distance limit.

Establish an appropriate cost-based “access fee” – the amount to be charged for performing the switching service – which was not included in NITL’s original proposal. “For instance, many current railroad-imposed switch charges can be higher than $500 per car, which in some cases can be approximately five times the variable cost for performing the switch service,” Clark testified. “Cost-based access fees would limit the current ability of railroads to exclude captive agricultural rail users from existing markets by setting switch charges at levels that limit access to markets or effectively make certain markets too expensive to reach.

Base competitive switching fees on unit sizes, such as carloads, unit trains, shuttle trains and other shipments. Current reciprocal switching rates on Class I railroads are the same, regardless of unit size, a one-size-fits-all approach that the agricultural groups said would not work for a competitive switching model.

“Having rules in place to enhance competitive switching of movements is integral to maintaining a national rail freight network and to preserving the competitive fabric of U.S. agriculture and the nation’s economy,” the NGFA and other national agricultural groups concluded.

For more information, call 202-289-0873.

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