Jury Still Out on Reciprocal Switching for Railway Shippers

No favorable decision for NITL’s petitioning of the United States Surface Transportation Board (STB) to adopt new reciprocal switching rules between the country’s four Class I railroad carriers has been reached. “Shippers and railroads sometimes agree, and sometimes we don’t,” said president and CEO of the National Industrial Transportation League, Bruce Carlton, at last week’s New York Rail Trends Conference. With reciprocal switching, under certain conditions, railroad competitors share railways between shipping customers for a fee. If a shipper needed the access of a particular Class I railroad that it would otherwise not use, having no contractual agreement, the non-contractual Class I rail line can grant the ‘captive’ shipper (located in a terminal area) of its competitor, railway access, charging the competitor rail line a service fee. The NITL petition calls for specific conditions to be applied to the STB rules of mandatory reciprocal shipping. The petition states that the captive shipper would have to be within 30 miles of a working interchange of at least two Class I rail carriers and the point of origin to destination transportation rate charged by the competing rail carrier exceeds 240% of its variable service cost. Another caveat of the petition is that the decision of when to engage in reciprocal switching should rest with the railway carriers mutually involved. Said rail carriers will not engage in any competitive switching agreement that is risky, not safe for all parties involved, or that would compromise service quality of the railways to their shippers. Hearings in Washington, DC last month shed light on long-term competition issues between the railroad industry and captive shippers. The shippers site that they are being taxed and having to endure capricious service and hedged prices as a result of the monopoly of the railroads. Shipper advocates have petitioned Congress or the STB for reforms. The position of the railroads is that mandatory reciprocal switching would degrade service and shift added costs to shippers. Railroads say that shippers have competitive service alternatives as well as appeasement options with the STB. The hearings are on the heels of Senator Rockefeller’s (D – WV) proposed legislation for rail industry reform. However, NITL CEO Bruce Carlton isn’t fond of that sweeping approach as per his comments after the hearing, “This is about competition, it is not about regulation or re-regulation.” The rail industry has a 20-day window to assess the NITL petition, after which the STB has a five-month time frame to begin rulemaking proceedings.