NGFA urged the STB to review its policies that allow freight railroads to unilaterally impose excessive switching charges that can close off access to agricultural markets.
“We believe that, just as carriers do not want to be ‘reregulated,’ neither should they have a free hand in cutting off existing physical and economic access through closures or excessive switch rates,” testified NGFA President Kendell W. Keith during the first of a two-day public meeting conducted by the STB on rail competition issues. “To allow such autonomy on switch charges will have a negative impact on the competitive fabric of the nation’s economy.”
Keith noted that switch rates — the charges assessed by rail carriers to reposition shipments to the tracks of competing carriers with which they interchange — have skyrocketed, in some instances reaching $500 per car or roughly five times the variable cost to the carrier for performing the service. In its written statements to the agency prior to the public meeting, the NGFA proposed 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’s statements also noted that switch charges may be imposed 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.
Keith testified that a major reason freight railroads confronted drastic financial conditions prior to enactment of the Staggers Rail Act of 1980 was that government regulation did not allow innovation and market forces to govern carrier behavior. Given the vastly improved economic condition of rail carriers today, in which they are generating profits needed for longer-term investments, he said it is important for the STB and Congress to recognize that a more competitive transportation environment is “good for industries and the employees they hire,” and gives “companies a competitive edge to succeed.”
NAWG President Wayne Hurst said railroad mergers over the last 30 years have caused a reducing in rail-to-rail competition. In the wheat industry, there are substantial pockets of captivity in at least 14 states stretching from Texas to the Pacific Northwest. In these areas the rates are higher and the service levels are not the same as service that is provided in areas where there is rail-to-rail competition.
“Railroads are vital to agricultural production and the value chain. They are extremely important to us, and in my experience, the people who run them are good, smart, hard working Americans, much like the American farmer,” Hurst said. “But those facts do not take away from the reality that there are billions of dollars to be made each year in the railroad business, and the pressure to maximize that profit is real.”
Hurst also told STB Members that wheat growers using the nation’s railroads continue to face high rates and spotty service, particularly in areas without competition.