NGFA President and CEO Randy Gordon Cites Lack of Competition, Operating Model at Senate Rail Hearing

Washington, DC — National Grain and Feed Association (NGFA) President and CEO Randy Gordon (pictured at right) offered suggestions for improving the rail regulatory framework to address limited rail-to-rail competition in testimony before the Senate Committee on Commerce, Science and Transportation on Oct. 21.

NGFA thanked Chairman Roger Wicker, R-Miss., and Ranking Member Maria Cantwell, D-Wash., for examining the current state of the rail network, including impacts of COVID-19 and legislative considerations for surface transportation reauthorization.

In his testimony, Gordon commended the actions of the rail industry in continuing to provide service and communicating with its agricultural customers during the pandemic. “Our member companies generally have been pleased with both aspects – service and communications – from their rail carriers during this period,” Gordon said.

However, Gordon said two major issues that existed before the pandemic continue to contribute to what many NGFA-member companies consider to be a “tipping point” concerning the extent to which rail service is reliable and cost-effective for agriculture.

He specifically cited the lack of rail-to-rail competition, with Class I railroad duopolies now operating in the East and West that haul 80 percent of grain and oilseed traffic, with many grain facilities captive to a single carrier; and railroads’ adoption of an operating model in which carriers drive their operating ratios to potentially unsustainably low levels to reward shareholders at the expense of customers.

“In looking to the near-term future this fall and winter, there is nervous apprehension within our industry about whether railroads will be able to keep pace with what we all hope will be a very robust demand for rail service given strong grain and soybean sales and a rebounding economy, complicated by the vagaries of winter weather,” Gordon said.

But a longer-term concern, he said, is “the potential effect on service of the implementation of the so-called ‘precision scheduled railroad’ (PSR) operating model by six of the seven Class I carriers.”

The adoption of the PSR operating model “has resulted in increasingly arbitrary, abrupt and disruptive changes to operating plans, service schedules and the type of rail service offered,” Gordon said. “Further, by reducing crews and customer service personnel, and idling locomotives – both more quickly and sharply than before – PSR has raised questions about whether railroads have enough surge capacity to respond quickly to increased demand for service,” he said.

NGFA commended the Surface Transportation Board (STB) for “being extremely active and making considerable strides under Chairman Ann Begeman’s leadership” in implementing the STB Reauthorization Act of 2015 and attempting to create a more workable regulatory framework within the agency for addressing and resolving disputes between railroads and their customers.

NGFA offered two specific policy matters for the committee to explore with the STB with respect to its future rail regulatory framework.

• Clarify Common-Carrier Obligation of Railroads: NGFA said there is a pressing need to clarify what the railroads’ common-carrier service obligation means in the 21st century, which is characterized by reduced rail competition and PSR-related operational changes that raise questions about whether carriers are indeed providing “transportation service upon reasonable request.” The rail common carrier obligation – required under federal law – has never been defined by Congress, the STB or its predecessor, the Interstate Commerce Commission, NGFA noted.

• Reprioritizing the Importance of Rail-to-Rail Competition in U.S. Rail Transportation Policy: NGFA also said Congress should consider giving a higher priority to the importance of rail-to-rail competition within the Staggers Rail Act’s Rail Transportation Policy. Forty years after enactment of the Staggers Act, NGFA said believes it is important “to enshrine the importance of promoting rail-to-rail competition as part of the Rail Transportation Policy to encourage competitive switching and other pro-competitive policies.”

Finally, NGFA recognized the reluctance of most rail customers to formally challenge the behavior of their rail carriers at the STB, a court or in private-sector arbitration, even when justified, because they have no alternative competitive transportation mode, want to maintain a good working relationship with their carrier, and have a fear of potential retaliation from the railroad.

“This again underscores the need for more competition as part of an effectively functioning regulatory framework,” Gordon said.

Read NGFA’s full testimony here.

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