Freight Rails, Shippers Argue Before STB Over NITL Proposal to Boost Competition
This story appears in the April 7 print edition of Transport Topics.
The first public debate on a 3-year-old National Industrial Transportation League proposal to increase railroad competition was laced with clashing financial estimates, predictions of the industry’s demise and forecasts of winners and losers among rail shippers.
NITL’s proposal would allow shippers in “captive” rail markets — those served by a single railroad — to reduce their rates by allowing access to a second carrier within 30 miles of a working interchange.
But after two days of testimony by 29 industry stakeholders before the Surface Transportation Board, it was evident that shippers and railroads are sorely divided over the plan.
The railroads are opposing NITL’s plan for competitive switching.
“Our work is focused on achieving high levels of service reliability and predictability, which are critical elements in meeting our customers’ needs,” Cressie Brown, vice president of service design for CSX Transportation, testified at the March 25-26 hearing. The NITL proposal “would undermine much of what we have accomplished in the areas of reliability, efficiency and customer service,” she said.
The company is a unit of CSX Corp. Other railroads to have officials testify were Burlington Northern Santa Fe, Kansas City Southern Railway Co., Union Pacific Corp. and Norfolk Southern Corp.
The proposal was first submitted to the board in 2011, but the STB is under no statutory deadline to act, a board spokesman said.
Shippers most likely to benefit include those in the coal and chemical industries, according to testimony.
“Clearly by the lengthy record that has been developed, it has garnered a lot of interest, and I think with it, a lot of questions,” STB Vice Chairman Ann Begeman said of the proposal. “In the real world right now, we have some pockets in this nation that are suffering from severe service problems.”
The STB is charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers. Although it is administratively affiliated with the U.S. Department of Transportation, it has independent decision-making power.
The DOT has not taken a position on the proposal, said Christopher Perry, a DOT attorney. However, Perry told STB that the agency estimates the plan could reduce the top four railroads’ revenue by 2.1% and the number of carloads it handles by 1.3%.
But NITL told STB that its proposal would make the railroads more competitive and reduce rates for some shippers without significantly reducing revenues of the four largest railroads or disturbing their service or operations.
The American Association of Railroads has called the NITL proposal “a solution looking for a problem.”
Samuel Sipe Jr., a Washington attorney with Steptoe & Johnson LLP, which is representing AAR, called the proposal “vague and incomplete.” He also said it “portends nothing but risk and uncertainty.”
Sipe told the board: “There is a risk of serious service degradation, risk of reduced investment and uncertainties as to whether the efficiency gains that have benefited both shippers and railroads in the post-Staggers era will be substantial.”
He was referring to the Staggers Rail Act of 1980 that deregulated the American railroad industry and replaced its long-standing regulatory structure.
Sipe also said it would produce winners and losers among shippers doing business with the railroads.
Michael Baranowski, senior managing director for Washington, D.C.-based FTI Consulting, said it would affect 7.5 million carloads of the top four Class I carriers.
Although NITL said it hoped the switching proposal would encourage railroads to voluntarily reduce their rates in captive markets, Baranowski said there is no way to establish how the railroads would price their service if STB approves it.
William Rennicke, a partner in Oliver Wyman’s Manufacturing, Transportation & Energy Group, said the proposal would cause “wide-ranging destruction” of rail service and that rail operations would be badly affected.
Rennicke estimated that if the proposal is approved, the top four Class I rail revenues would decline $7.9 billion, and their capital investment budgets would shed 13%.
NITL has said rail revenues would only decline by $1.4 billion and affect 1.4 million carloads.
But NITL President Bruce Carlton maintains that the proposal would generate rail competition and be fair to shippers and carriers.
“The proposal is in the public interest, and it will facilitate competition,” Karyn Booth, a transportation attorney with Thompson Hine and representing NITL, told STB.
