Dive Brief:
- The Surface Transportation Board issued a new reciprocal switching rule on Thursday that would entitle shippers to request relief from a nearby railroad if their existing carrier is not meeting minimum service standards.
- Under the notice of proposed rulemaking, the railroad regulator would use three metrics to prescribe reciprocal switching agreements between Class I railroads: service reliability, service consistency and whether there is inadequate local service.
- The proposed rule replaces a previous proposal issued in 2016, which generated significant support from shippers and opposition from rail carriers in public comments, according to the STB. Comments on the latest rule are due by Oct. 23, and replies must be submitted by Nov. 21.
Dive Insight:
Shippers have been pushing for a reciprocal switching rule for years, arguing such a rule could offer shippers relief when service levels deteriorate on any railroad and incentivize carriers to improve service.
A reciprocal switching agreement would allow parties to transfer a rail shipment from one Class I carrier to another. While shippers have had the ability to request a reciprocal switching order for decades, no rail customer has requested one since before 1990 due to regulatory hurdles, STB Chairman Martin Oberman said in a statement.
The new proposed rule clarifies the process by which a shipper can request a reciprocal switching agreement by providing a more granular approach. The STB, for example, seeks to clearly define where a reciprocal switch can take place — in a terminal area, defined as a facility where two or more rail carriers collect, classify, and distribute shipments for line-haul service — and proposes data benchmarks to define when railroad service levels could be deemed insufficient.
“This rule will bring predictability to shippers and will provide Class I carriers with notice of what is expected of them if they want to hold on to their customers who might otherwise be eligible to obtain a switching order,” Oberman said. “As a result, litigation costs to obtain a switch should be greatly reduced and petitions to obtain a switching order should be able to be litigated much more swiftly.”
Regulators propose 3 service metrics to assess need for reciprocal switching
| Metric | Regulatory definition | Proposed benchmark |
| Service reliability | The measure of a Class I rail carrier’s success in delivering a shipment by the original estimated time of arrival that the rail carrier provided to the shipper. | Success in service reliability means 60% of shipments should arrive within 24 hours of the original estimated time of arrival. The STB is also considering whether 60% should be the permanent service requirement, or if it should raise it to higher than 70% after the second year. |
| Service consistency | The measure of a rail carrier’s success in maintaining, over time, the carrier’s efficiency in moving a shipment through the rail system. | A petitioner would be eligible for relief if the average transit time for shipment of a loaded car, unit train or empties increased by 20% or 25%, as compared to the average transit time for the same twelve week period the previous year. |
| Indadequate local service | The measure of a rail carrier’s success in performing local deliveries (“spots”) and pick-ups (“pulls”) of loaded railcars and unloaded private or shipper-leased railcars within the applicable service window, often referred to as “industry spot and pull” or ISP. | A rail carrier would fail the standard if the carrier had an ISP success rate of less than 80% over a period of 12 consecutive weeks, in performing local deliveries and pick-ups within the applicable service window. |
SOURCE: Surface Transportation Board
Railroads have been under fire from the STB over their service levels for more than a half a decade.
Since 2016, shippers have complained to the oversight board of deteriorating performance as railroads adopted an operating model known as precision scheduled railroading. They’ve also faced delays or congestion over the years. And while many intermodal importers can switch their loads to trucks, many exporters — known as captive shippers — rely entirely on rail service to move their goods due to logistical constraints.
“Since joining the STB nearly five years ago, it has become apparent to me that many of the ills of the national freight rail network stem from a lack of competition in the industry and the fact that many rail customers are captive to one Class I railroad,” Oberman said.
Ongoing service issues since 2016 prompted the STB to increase oversight of Class I railroads’ operations, including by requiring them to submit service level data to the regulator on a weekly basis, among other steps. The proposed rule takes the service monitoring a step further: In addition to enabling reciprocal switching, the rule would make some data reporting requirements permanent, would force all Class I carriers to standardize their service metrics, and would require railroads to share relevant historical data with customers upon request.
“One of the principal goals of the rule is to incentivize carriers to maintain sufficient resources—specifically work force and locomotives—so that they can meet at least the minimal service standards set by this rule,” Oberman said. “One hope is that the proposed rule will have the desired effect and that shippers currently receiving poor service will see service improve to the point that litigation before the Board will not be necessary.”
Oberman added the STB expects to act “expeditiously” on finalizing the standards on the proposal once comments are submitted, given its expected impact on rail service levels.
