Rail freight is more than just the roar of steel giants—it's the lifeblood of economic activity. Connecting agricultural harvests to urban markets, it serves as the indispensable bridge between production and consumption. But when this vital artery becomes congested, businesses find themselves struggling to survive.
The Surface Transportation Board (STB), the federal agency responsible for railroad economic regulation, has now sounded the call for reform. Recognizing rail transportation's critical role in economic development, the STB is actively seeking solutions to break down barriers and improve service quality.
STB Takes Action: Reciprocal Switching to Reshape Rail Transport
Recently, the STB extended the comment deadline for its proposed reciprocal switching rulemaking (Docket No. EP 711) to December 20, signaling its strong commitment to reform. This Washington-based independent agency, charged with resolving rail rate and service disputes and reviewing merger proposals, aims to maintain fair competition and protect shippers' rights.
The proposed reciprocal switching rule represents a significant effort to break railroad monopolies, increase efficiency, and reduce costs for businesses. Essentially, it would provide relief to shippers suffering from poor service by allowing them to access alternative rail carriers.
Building on 2016 Foundations
The concept isn't entirely new. In 2016, the STB proposed similar regulations that would have allowed shippers meeting certain conditions to access competing railroads. While that proposal wasn't adopted, it established important groundwork for the current initiative.
The core principle remains: when one railroad can physically access a shipper's facility but another cannot, the first railroad would transfer shipments to the second for a fee. This gives shippers more options and bargaining power.
New Proposal: Simplified and More Effective
The current proposal differs significantly from previous attempts. It establishes a streamlined process where reciprocal switching agreements could be triggered when a railroad fails to meet three key performance metrics for terminal-area shippers. These standards would create a "minimum rail service level," below which shippers could seek relief.
The three performance standards would apply uniformly to all Class I railroads and their subsidiaries, ensuring fairness and preventing loopholes.
The Three Key Performance Metrics
These metrics serve as precise measures of rail service quality:
- Service Reliability: Measures whether railroads deliver shipments within 24 hours of the original estimated time of arrival (OETA). The STB proposes a 60% success rate in the first year, increasing to 70% thereafter.
- Service Consistency: Evaluates a railroad's ability to maintain transit times. For carload, unit train, and empty car shipments, shippers could qualify for relief if average transit times increase by 20-25% compared to the previous year.
- Inadequate Local Service: Assesses "industry spot and pull" (ISP) performance for local deliveries and pickups. Railroads failing to meet an 80% success rate over 12 weeks would fall short of standards.
Increased Transparency
The proposal also requires Class I railroads to provide historical service metric data within seven days of a customer request. For the first time, all Class I railroads would use uniform service measurement standards, making comparisons easier for shippers.
Industry Response: Challenges and Opportunities
STB Chairman Martin Oberman noted that while the number of Class I railroads has shrunk from over 40 before 1980 to just six today, no shipper has successfully obtained a reciprocal switching order in the past 40 years.
"The Board has decided to focus its reciprocal switching efforts on providing relief to rail customers suffering from poor service," Oberman said. "The proposed rule establishes specific, objective, and measurable standards for when reciprocal switching agreements should be required."
At a recent RailTrends conference, industry analyst Tony Hatch observed that unlike previous proposals focused on distance, this one is service-based—a crucial distinction. Meanwhile, Association of American Railroads President Ian Jefferies acknowledged the STB's shift from what he called "backdoor rate regulation" to a service-based approach.
As the comment period continues, all stakeholders have an opportunity to shape the future of rail freight transportation. The proposed reforms could significantly impact how businesses access rail service and compete in the marketplace.