Market Overview

Rail Authority Proposes Rules To Make Contesting Rates Easier

Rail Authority Proposes Rules To Make Contesting Rates Easier

The Surface Transportation Board (STB) is seeking feedback on two proposed rules aimed at making rail rate review procedures more efficient and accessible, especially for smaller shippers.

One proposed rule is to establish a rate review option for smaller customers, which would be known as the Final Offer Rate Review (FORR), and the other would streamline the process to determine market dominance.

STB said these two proposed rules build upon the work of the agency's Rate Reform Task Force, which had conducted informal meetings throughout the country in 2018 to see if there were ways to reduce the cost and complexity of rate cases. The two proposed rules also build upon the recommendations the task force made in an April 2019 report.

STB is proposing these two rules "as part of its effort to make its rate review procedures more accessible, efficient and transparent," it said on Sept. 12.

Comments on the two proposed rules are due by Nov. 12, 2019, and replies are due by Jan. 10, 2020. STB will also be holding a public hearing in Washington, D.C. on Dec. 12, 2019.

The board's decision to propose the FORR can be found here. The proceeding for this proposed rule is Ex Parte 755. STB said the task force recommended the "final offer" procedure for smaller cases. The procedure draws upon versions of final offer processes recommended by the U.S. Department of Agriculture and the Transportation Research Board.

The proposed FORR would use procedural limitations to constrain the cost and complexity of a rate case, especially since smaller customers were deterred from challenging a rail rate because of the costs involved in bringing the case before the board. 

The decision to propose a streamlined market dominance approach, which can be found here as part of the proceeding Ex Parte 756, is an effort to reduce the burden on rate case parties. It could be used in any rate review proceeding. The task force said this approach could serve as the prima facie criteria to reduce the cost and time of the market dominance inquiry.

To show that a railroad has market dominance in a rate review proceeding, the customer would need to demonstrate the following items: 

  • the movement has a revenue-to-variable cost ratio of 180% or greater; 
  • the movement would exceed 500 highway miles between origin and destination; 
  • there is no intramodal competition from other railroads; there is no barge competition; 
  • the complainant has used trucks for 10% or fewer of its movements subject to the rate at issue of over a five-year period; 
  • the complainant has no practical build-out alternative due to physical, regulatory, financial or order issues. Meanwhile, the railroad would also have the opportunity to rebut the claims.

Industry reaction to the proposed rules

Initial reactions to the proposed rules fell along the usual lines, with shippers viewing the changes favorably. 

"We applaud the members of the STB for their thoughtful leadership and commitment to getting our nation's freight rail policies back on track. Chemical manufacturers across the country have been negatively impacted by excessive freight rail charges and lack of competitive rail service for too long," Cal Dooley, American Chemistry Council president, said. "The board's proposed reforms are a positive step toward improving how the STB addresses freight rail problems, and we look forward to working with the commissioners and their staff on modernizing and streamlining outdated regulations."

Meanwhile, the railroads held reservations about STB's proposed rules.

"We continue to urge caution with respect to changes that violate the fundamental legal and economic principles that must bind the Board and warn against unintended consequences. The current regulatory balance has allowed railroads to invest in their networks in order to improve safety and meet the current and future needs of customers," Ian Jefferies, president of the Association of American Railroads, said. "During the December hearing, railroads will reiterate that revenue adequacy reflects the industry's financial soundness and stability under the current regulatory scheme and must not be a trigger for new government intervention and rate regulation."

Image Sourced from Pixabay

Posted-In: Freight Freightwaves Logistics Railroads Industry Supply ChainNews Markets General


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