Imagine a business dependent on rail transportation suffering losses due to inefficient service from its railroad provider, yet powerless to change the situation. The U.S. Surface Transportation Board (STB) is working to break this deadlock. Recently, the STB extended the comment period for its "Reciprocal Switching" proposal to December 20, bringing rail service issues back into the spotlight and signaling potential major reforms for the industry.
The STB's Reciprocal Switching Proposal
The STB, an independent agency authorized by Congress to resolve rail rate and service disputes, is reconsidering rules that would allow shippers suffering from poor rail service to access alternative carriers through reciprocal switching agreements. Under this mechanism (Docket No. EP 711), if Railroad A physically connects to a shipper's facility while Railroad B does not, Railroad A would transfer the shipper's freight to Railroad B, enabling access to more rail networks. In exchange, Railroad B would pay Railroad A a transfer fee.
While the STB proposed similar rules in 2016, the current Notice of Proposed Rulemaking (NPRM) differs by establishing a simplified path for reciprocal switching when service fails to meet specific performance standards in terminal areas. The proposal aims to create clear, uniform metrics applicable to all Class I railroads.
Three Key Performance Standards
The STB introduced three critical metrics to assess rail service quality:
- Service Reliability: Measures successful deliveries within 24 hours of the Original Estimated Time of Arrival (OETA). The proposal requires 60% compliance in the first year, increasing to 70% subsequently.
- Service Consistency: Evaluates whether average transit times have increased by 20-25% compared to the prior year.
- Inadequate Local Service: Assesses successful completion of local deliveries and pickups within service windows, requiring 80% compliance over 12 weeks.
The rule would mandate Class I railroads to provide historical service data within seven days of a shipper's request, establishing standardized reporting across the industry for the first time.
The Need for Reform
STB Chairman Martin Oberman noted that while regulators have considered reciprocal switching reforms since 2010, no shipper has successfully obtained a switching order in over 40 years - with zero petitions filed since 1990. During this period, Class I railroads consolidated from over 40 to just 6 major carriers.
"The Board has decided to focus on providing relief to rail customers suffering from poor service," Oberman stated. "The proposed rule establishes specific, objective standards for when reciprocal switching should be granted. This creates predictability for shippers and clear expectations for railroads."
Industry Perspectives
At the recent RailTrends conference, transportation analyst Tony Hatch characterized the proposal as service-based rather than mileage-based - a distinction he welcomed. He described it as creating necessary regulatory oversight while aligning industry stakeholders.
Association of American Railroads President Ian Jefferies acknowledged the STB's shift from its 2016 approach, which the industry viewed as backdoor rate regulation. However, he cautioned that "the devil is in the details" regarding performance metrics and contract traffic applicability.
Analyst Outlook
The proposal represents a significant step toward quantifying rail service quality through measurable standards. Increased data transparency could empower shippers while identifying systemic inefficiencies. However, challenges remain in defining metrics precisely, ensuring data integrity, and balancing stakeholder interests - particularly regarding contract traffic inclusion.
As the comment period progresses, the final rules' impact on rail competition and service quality remains to be seen. The extended December 20 deadline allows for continued stakeholder negotiation over these potentially transformative regulations.