Market Overview

Forest Products And Scrap Recycling Rail Shippers Seek Oversight

Forest Products And Scrap Recycling Rail Shippers Seek Oversight

The service problems associated with precision scheduled railroading (PSR) have motivated forest products and scrap recycling shippers to press the Surface Transportation Board to renew a longstanding request for regulatory oversight.

The American Forest and Paper Association (AF&PA) the Institute of Scrap Recycling Industries (ISRI) and other bulk shippers are among the shippers' groups that have been meeting with STB board members to discuss their argument on why the Board should lift certain commodities from being exempt from jurisdiction from the Board. 

By lifting the exemption, shippers will have greater access to the STB's regulatory authority when it comes to disputes over rail rates or rail service, the shippers said.

The exempt commodities seeking the Board's oversight include: crushed or broken stone; hydraulic cement; coke produced from coal, primary iron or steel products; iron or steel scrap, wastes or tailings; and forest and paper products. 

"We face the same unreasonable demurrage practices, poor service, car supply issues and rising rates as the commodities that are under the STB's purview. Revoking the exemptions for our industry will modernize the STB's regulatory regime to reflect the current workings of the highly concentrated rail marketplace by removing an outdated barrier to effective STB oversight," said Julie Landry, AF&PA's director of government affairs. 

"It [STB oversight] would also create a more level playing field for forest products industry shippers as they would be treated the same as other industries that have direct STB oversight to address concerns over railroad market power," Landry said.

Certain commodities have been exempt from the STB's oversight for decades. The Interstate Commerce Commission (ICC), which was the predecessor to the STB, used the commodity exemption as a way to ease the financial burdens of the rail industry by lessening their regulatory burdens. During the late 1980s and the early 1990s, the railroad industry had many more Class I railroads, but the industry was also facing financial hurdles. 

But since then, the Class I railroads consolidated into six main railroads and the rail industry boasts billions in profits. Even with the hefty capital expenditures they need to make, they are much more financially solvent than 30 years ago, shippers said.

"Rail markets have significantly changed since these exemptions were granted in the late 1980s, and the concentration of Class I rail service providers leaves more than two-thirds of our facilities captive to just one railroad," Landry said. "This captivity and lack of oversight for our rail shipments from the STB disincentivizes railroads from providing adequate service and negotiating reasonable rates with our members."

Meanwhile, some commodities' industries have also changed. For instance, much of U.S. steel production used to occur at mills in Ohio and near Pittsburgh, Pennsylvania. But now, domestic steel production has dispersed across the U.S., with a concentration in the Southeast because most steel is made from 100 percent consolidated material. 

As a result, ferrous scrap and the products for steel travel longer distances and are more suitable for rail. The steel mills now are also designed to have the material brought in by rail. Trucks can do short distances, but it takes four to five trucks to replace one gondola, according to Billy Johnson, a lobbyist for ISRI. If trucks replace the rail operations at a good-sized mill, the mill could see over 100 trucks coming through its facility, Johnson said.

"We're between a rock and a hard place. We need the rails," Johnson said. The commodity is exemption is "outmoded and outdated," he said.

The recent service issues associated with PSR, including demurrage and accessorial charges and the bunching of railcars, drove the shippers to renew the proceeding on Ex Parte 704, which pertains to the commodity exemption. The proceeding started in 2016 but has stalled since then because of Board turnover and an insufficient number of Board members to render any decisions. 

"We want the rails to be profitable and efficient, but service is deteriorating," Johnson said.

But now that the Board has three voting Board members, the bulk commodities are hoping that the Board will take action on the issue as it goes through its list of items needing review, including the proceeding on demurrage and accessorial charges and whether to follow up on any recommendations that STB staff made on rail rate reform. Shippers met with the STB between March and June to discuss their issues, and the Board is taking comments until July 2.

"We hope they will do something. I think they were very receptive to our comments. The Board seems to work as a tight, good team. They have a lot of respect for each other. The leadership that [STB Board Chairman] Ann [Begeman] has shown in demurrage is incredible," Johnson said.

The Board hasn't indicated what it will do next in this proceeding. "The Board will consider these discussions as it determines how and if to proceed," the Board said.

Image sourced from Pixabay

Posted-In: Freight Freightwaves Logistics shipping Supply ChainNews Markets General


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