Freight Rail Interests Press Officials Not To Overregulate

As major mergers and the infrastructure bill loom, freight rail interests are calling upon federal regulators not to burden their industry with additional mandates that they say could stymie investments for innovation.

Last week, the Association of American Railroads (AAR) urged the Surface Transportation Board not to allow container movements to be subject to regulation that would change how much demurrage a freight railroad could charge for the delayed pickup of containers.

The board had asked the Class I railroads in July to explain what they were doing to address the congestion occurring at intermodal terminals. STB also asked the railroads to describe how and when they assess demurrage when containers aren't being picked up.

Separately, STB also has been charged by the Biden administration via an executive order to promote competition within the freight rail industry.

In a letter to the board last Tuesday, AAR reiterated points already expressed by several Class I railroads, saying the storage fees serve as an incentive for customers to pick up their containers.

"Even partial revocation in this instance would not mitigate the problem and would have unintended consequences. Capacity at rail terminals is finite. To maintain terminal and network fluidity, railroads use storage fees to incentivize the prompt removal of containers," noted Timothy J. Strafford, legal counsel for AAR.

"Allowing railyards to overflow with containers has adverse impacts on the entire supply chain, as well as other rail customers. Regulation of demurrage and storage charges, even if permitted by the exemption revocation standard, would only incentivize those unregulated portions of the supply chain to shift the burdens of higher volumes onto railroads. This, in turn, would have the unintended consequence of forcing railroads to meter or halt the inflow of containers to terminals, until the backlog of containers on the ground clears."

He continued, "That is not to say that the Class I freight railroads have no role to play in working through the challenges currently facing the global supply chain. AAR's freight members have made clear in their own responses how they are collaborating with all stakeholders to keep intermodal terminals and the entire national rail network fluid. The Board should refrain from any regulatory action that would undermine those efforts."

Using examples from past proceedings, Strafford also said the storage charges assessed today's circumstances are not a reflection of the market power that would trigger the board's regulatory authority.

The supply chain congestion occurring for international intermodal is "caused by factors beyond the Board's regulatory regime," such as labor shortages and equipment shortages among the railroads' logistics partners, he said.

Meanwhile, GoRail, a grassroots coalition consisting of public and private entities, asked STB Chairman Marty Oberman, U.S. Transportation Secretary Pete Buttigieg and Federal Railroad Deputy Administrator Amit Bose not to regulate the freight railroads in such a way that would hinder industry growth.

"As you implement legislation and craft regulations, please ensure freight railroads are able to continue their record of robust investments, eliminate incentives that subsidize less efficient modes over railroads and avoid double standards that hold railroads back from continued innovation," GoRail said in last week's letter to the officials. The letter included 31 signatures, including representatives from the Long Beach Area Chamber of Commerce, the National Center for Intermodal Transportation, and over 17 local and state elected officials throughout the U.S., among others.

In sending last week's letter, GoRail also resubmitted another letter from October 2020 asking the STB to continue allowing the railroads to earn enough revenue to make privately funded infrastructure investments. That letter was signed by more than 1,000 local leaders and eight former U.S. Secretaries of Transportation, GoRail said.

CN And Canadian Pacific Update STB On How They Handle Intermodal Congestion

As freight rail advocates seek to define the boundaries of regulation, CN and Canadian Pacific said they're doing their part at their respective terminals to manage the congestion seen by the wider supply chain.

Other Class I railroads also responded to STB's inquiry about their role in managing the congestion of international intermodal containers at rail terminals.

Among the many steps that CN (NYSE:CNI) has taken are metering inbound volumes in order to protect the fluidity of a terminal, which was facilitated by establishing quarterly capacity commitments for ocean carriers; providing rebates for those picking up containers during off-peak hours, and long weekends at CN terminals in Chicago, Detroit and Memphis, Tennessee; and investing in terminal enhancements such as more cranes and 24/7 service at Chicago, Detroit, and Memphis.

"CN is doing our part to help all of those supply chain stakeholders; CN succeeds when our customers and partners thrive," CN President and CEO JJ Ruest said to the board in an Aug. 9 response. "It is important for the BCOs [beneficial cargo owners], third-party logistics providers, and ocean carriers to play their part as well. Third-party logistics providers, in particular, must play an important part within the supply chain by acting to minimize and avoid supply chain constraints and helping importers with alternative solutions. It is difficult for a railroad to devise solutions for congestion after it arises where the railroad has zero visibility to the forecast, pipeline, and actual importer on record."

Although CP's (NYSE:CP) two Chicago terminals and its Detroit and Minneapolis intermodal terminals have been fluid, CP thinks "the issue is not more containers flowing into CP's intermodal terminals by trail, but those containers are staying in the terminals longer before being pick up by customers," an Aug. 6 letter signed by CP President and CEO Keith Creel noted.

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