September 8, 2023 - TRA Newswire -

A new federal rule proposed by the U.S. Surface Transportation Board (STB) could mean more options for shippers in Texas and around the country that are currently only served by one railroad.

It's called Reciprocal Shipping and its been a thorny issue between rail shippers, railroads and the Surface Transportation Board since it was proposed in 2016. Shippers have been asking for relief from being "captive shippers" to the six Class 1 railroads that handle the majority of railcars in the U.S. Shippers have complained about poor service, high tariffs, missed connections, delays and service disruptions. Those shippers also want the ability to bargain with a second railroad for lower rates and more reliable service.

Railroads, on the other hand, are worried about congestion that could be created when a competitor takes too long to pick-up or drop-off cars and causes a domino effect of late trains on its network. Undercutting rates could also depress rates below a reasonable level of return. Railroads have said that the new rule would be a disincentive to invest in projects that could add capacity or even reduce congestion.

Ian Jefferies of the Association of American Railroads said “The withdrawal of the ill-conceived 2016 forced switching proposal is a positive development, as the extensive record developed by this Board on that proposal clearly demonstrated that it was both unwise and unworkable. In its place, the Board has proposed a new, service-based approach, which AAR is reviewing to understand its scope and possible impact on rail service and network fluidity.

“While the STB did not perform a cost-benefit analysis, any new regulation must be backed by data, narrowly tailored to address a specific and well-defined problem, and ensure benefits exceed costs. Any switching regulation must avoid upending the fundamental economics and operations of an industry critical to the national economy — that Congress saved once by partially deregulating – and be subject to the highest level of scrutiny. AAR looks forward to engaging with the Board on this important matter,” according to Jefferies.

Reciprocal Switching is not a new issue in Texas. A petition filed with the STB in 2018 that asked for relief in Galveston County, Texas and it was finally granted in 2020. Texas Railway Exchange LLC (TREX) filed a petition for an exemption under 49 U.S.C. 10502 from the prior approval requirements of 49 U.S.C. 10901 to construct and operate approximately one-half mile of rail line in Galveston County, Tex. (the Line), to provide Texas International Terminals Ltd. (TI Terminals) with a connection to BNSF Railway Company (BNSF).

Under the proposed rule, rail shippers would be allowed to seek a competitive bid if the current railroad serving the plant or factory couldn't deliver an average of 60% of its railcars on time over a 12-week period. The second carrier would only be allowed to bid if it could service the company within a reasonable distance from current operations.

The American Chemistry Council has been one of strongest advocates for the rulemaking change. “Removing regulatory barriers to competition through reciprocal switching is one of the most important changes the STB can make to improve rail service and help prevent future problems,” said Jeff Sloan, Senior Director of Regulatory and Scientific Affairs.

“While it’s disappointing that the Board is abandoning reciprocal switching as a mechanism to more broadly promote competition, we are hopeful that the revised proposal can offer meaningful relief to shippers when a railroad fails to meet objective service standards", according to Slaon. "We welcome the opportunity to work with the Board on finalizing this long overdue reform.” 

LyondellBasell, a chemical company with a large presence of refineries and plants in Texas, has a reciprocal switching arrangement in place and was able to use switching as a way to alleviate service disruptions.  Jeff Moreno, a lawyer for Thompson Hine that represents a coalition of shipper groups was quoted in SupplyChainDive.com as saying “the benefits of reciprocal switching are so significant that LyondellBasell made capital investments to add 2,200 storage and transit car spots across four of their facilities to allow access to competitive service options.” 

The March 30, 2022 article quoted a Union Pacific statistic that reciprocal switching it currently performs adds an additional 48 to 96 hours of delays, as cars have to traverse a terminal twice. “We would be using more resources to move the same amount of traffic instead of using our resources to better serve existing business,” said Eric Gehringer, executive vice president of operations at Union Pacific. “This proposal inherently complicates the supply chain. It would make that network less agile and less predictable.” The rule could also create new traffic patterns that would impact where railroads dedicate their resources, which could have effects on the entire network.

Comments on the STB rule are due no later than October 23rd and replies must be submitted to the STB by November 21st.

Photo credit: American Chemistry Council