NGFA reiterates rail competition concerns to STB

by World Grain Staff
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WASHINGTON – The National Grain and Feed Association (NGFA) noted on June 3 that in a statement submitted to the federal Surface Transportation Board (STB), it reiterated its concerns over the lack of rail competition in some markets and suggested ways to restore a degree of balance.

The NGFA’s statement was filed as part of its ongoing, active involvement in the agency’s proceeding (Ex Parte No. 705) that is examining competition in the railroad industry. The reply comments submitted by the NGFA were the last step before a June 22 STB public hearing on rail competition, at which NGFA President Kendell Keith is scheduled to present testimony on behalf of rail shippers and receivers. The NGFA plays a leadership role for the industry on transportation policy as the nation’s largest organization of shippers and receivers of grain, feed, feed ingredients and other grain products. The STB has regulatory oversight of the freight rail industry.

In its written statement to the STB, the NGFA noted that adequate competition to discipline the market behavior of rail carriers does exist in some marketplace situations, either through competition from other railroads or from other modes, such as trucks and barges. But the NGFA strongly “dispute(d) the notion that there are cost-effective and practical remedies available to rail customers” to address situations where there is a lack of overall competition in given markets.

The NGFA’s statement also cited several examples of past actions by the STB and its predecessor — the Interstate Commerce Commission — that have discouraged shippers and receivers from pursuing regulatory relief. For instance, the NGFA cited such previous examples as the agency not responding to requests for injunctions or other relief, as well as the lengthy process (sometimes exceeding five years) it takes to complete a case.

The NGFA reiterated comments contained in its initial statement to the agency on the following specific rail-competition issues raised as part of the proceeding:

Switching Charges: The NGFA reiterated its recommendation that the STB consider establishing a revenue-to-variable-cost threshold (such as 180 percent) for switch charges which, if exceeded, would shift the burden of proof to railroads to demonstrate that such charges were reasonable. The NGFA noted that “in many cases,” railroad-imposed switch charges had been elevated to $500 to $700 per car, which equates to approximately five to seven times the variable cost for providing the switching service. It also noted that switch charges may be assessed by carriers as a way to de-market rail traffic, and as such should be considered by the STB to be an unreasonable business practice rather than a rate case if a complaint is brought by a shipper.

Noting that one Class I railroad participating in the STB proceeding had opposed easing rail practices that effectively preclude shippers from accessing the lines of a competing carrier, the NGFA said carriers “should not have a free hand to cut off existing access to markets through absolute closures of intersection points or by economically pricing switch charges beyond any reasonable” level. “Because switch charges are a major conduit to maintaining a national rail freight network, railroads should not have the degree of pricing freedom on switches that they currently are given on long-haul rates,” the NGFA said. “To allow such autonomy on switch charges will have a negative impact on the competitive fabric of the nation’s economy.”

Rail Rates: The NGFA recommended that the STB reconsider its previous decision on the so-called three benchmark small rail rate cases by increasing to at least $3 million over five years the amount that would be recoverable by a shipper that wins a rate case brought against a carrier. The current amount that can be recovered in such cases is only $1 million, which the NGFA noted creates a barrier to shippers given the costs involved in filing a case and the likelihood of prevailing.

The NGFA’s statement also noted that average rail rates for agricultural shipments increased 30 percent from 2006-10, which has a disproportionate impact on low-margin commodity-based industries like the grain, oilseed and feed sectors. “…[T]he U.S. agricultural industry does not necessarily seek to be the ‘cheapest’ freight compared to other industries – if it is, it may lose service at some stage,” the NGFA said. “But if rates continue to spiral upward (even in recession periods like 2007-08), some agricultural production regions will lose business volume. If certain sections of the United States lose markets because of excessive transportation costs, then the U.S. agricultural sector as a whole will lose its competitive edge in global markets. And the nation will lose jobs and the extremely positive contribution U.S. agriculture makes to the nation’s economy.”

STB Rail Arbitration: The NGFA reiterated its previous comments encouraging the STB to establish a government-based dispute-resolution system to serve a broader range of shippers and other industries not eligible for service under the NGFA’s rail arbitration service. It also could serve to resolve certain types of disputes between railroads and their customers that currently are not eligible for NGFA rail arbitration, such as some unreasonable practice complaints. “…[C]reating better access to dispute-resolution, in the NGFA’s view, does not encourage litigation,” the statement read. “To the contrary, the NGFA’s experience has been that it actually discourages litigation and its many downsides, such as excessive costs and lengthy time periods for resolution…, by encouraging business-to-business dialogue that quickly and efficiently can eliminate challenges to remaining competitive.”
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