By Randy Gordon, President and CEO
A new study issued June 24 recommends that the Surface Transportation Board (STB) take steps to better define the so-called “common-carrier obligation” of rail carriers to provide shippers with service upon reasonable request under reasonable conditions and at reasonable rates.
“It is clear that the (common-carrier obligation) must be preserved for economic and environmental reasons…, but there needs to be a better definition of the concept and clarification of its meaning and applicability in today’s transportation environment,” the report stated. “The question, therefore, is simply how the (common-carrier obligation) should be interpreted and to identify what changes could be made…”
In making the recommendation, the study reiterated and reinforced the call made by the National Academy of Sciences’ Transportation Research Board in a landmark 2015 study that found that 40 years after enactment of the Staggers Rail Act of 1980, railroads’ common-carrier obligation “remains poorly defined.” The new study notes that the common-carrier obligation never has been defined by Congress, the STB or its predecessor, the Interstate Commerce Commission, but merely is a term carried over from English common law.
The new 29-page study, entitled “Railroads Common-Carrier Obligation: Its Legal and Economic Context,” was authored by former Surface Transportation Board Acting Chairman and member Frank Mulvey and Michael McBride, a partner with the Washington-based law firm of Van Ness Feldman LLP. The study was funded under a contract awarded by the U.S. Department of Agriculture’s Agricultural Marketing Service, through its Office of Transportation.
The study presents the divergent, opposing views about the common-carrier obligation that exist between railroads and rail customer organizations, including NGFA, which was interviewed by the study’s authors in preparation of their report. It notes that railroads generally oppose a “blanket application” of the common-carrier obligation, in part because it requires them to transport hazardous materials, including anhydrous ammonia and chlorine. The study also notes the view of “some” railroad executives that the common-carrier obligation “frustrate(s) changes in railroad operations that improve the quality and affordability of rail service to most shippers, while leaving a relatively small number of shippers with little to no service.” The study also cites the transition to the so-called “precision scheduled railroad” operating model and its implications for the common-carrier obligation. But the study also notes that carriers rely on the common-carrier obligation when convenient for their own economic interests, such as when they received rights-of-way to land to build and operate the existing interstate rail network and when fending off a patchwork of restrictive state laws that negatively could affect interstate commerce and network fluidity.
The authors also say there is “some indication” that railroads attempt to limit their common-carrier obligation by increasing freight rates in an attempt to “demarket” traffic, a contention long asserted by NGFA, and cite the lack of a timely, streamlined and cost-effective way currently at the STB for shippers to challenge unreasonable freight rates. “Shifting the burden of proof that a proposed rate is fair from shippers to railroads would put the onus on the party with the superior data,” the study notes, adding that the “STB then could examine the opposing arguments and assess the “costs and benefits of a particular railroad’s service change.”
“There are literally hundreds of cases where (the common-carrier obligation), which is the basis for providing shippers with reasonable service, can collide with the railroads’ desire to provide efficient service that maximizes the return on investment,” the study notes. “The STB must balance the two often-conflicting objectives.”
Recommendations: The USDA-sponsored study offered the following recommendations:
- Clarify the Definition of Common-Carrier Obligation: The study calls on the STB to “examine the current understanding” of the common-carrier obligation, “perhaps after a public proceeding, and issue a clarification that would remove much, if not all, of the ambiguity.” In doing so, the study said the agency could look to revisions made by the Canadian Transportation Agency, which requires railroads to “establish plans to meet foreseeable service issues,” and that the threshold obligation a railway must meet is the “highest level of service it could reasonably be expected to provide given the circumstances.” The study said, the “Canadian authorities (do not) expect the railroad to do the impossible nor did the agency establish any metrics by which to judge compliance.” Yet, it said, the Canadian approach “is an improvement over what prevails today in the United States.” The study also calls for improved railroad communication with shippers when making service changes, saying that the degree to which they do so should be a factor when the STB considers shipper complaints against a carrier.
- Rail Rate Reform: The STB should “address the problems that shippers encounter in achieving rate relief from the STB.” The authors write that the “most promis(ing) development in this regard” is the STB’s current proposal to develop a streamlined, cost-effective rate-challenge process – dubbed the “final offer rate review” – in which the carrier and shipper each would submit what they respectively believe to be a fair rate for the traffic at issue, with the agency then choosing one of the party’s offer.
- Liability Insurance for HazMat Shipments: The study notes that current railroad insurance policy premiums do not delineate how much is attributable to transporting hazardous materials. The study recommends that insurers be required to break out those costs, with the STB or U.S. Department of Transportation recommending a distribution of cost-sharing between railroads and hazmat shippers.
- Precision Scheduled Railroading: Finally, the study states that it “would be in the public interest” to require railroads to demonstrate that efficiency gains achieved through implementation of the so-called precision scheduled railroad operating model outweigh the loss to shippers losing rail service. It also recommends that the common-carrier obligation be used as a basis for providing relief if a shipper’s traffic is “demarketed” by carriers through escalating freight rates. “In this circumstance…, the remedy would be to establish a rate sufficiently below the current increased level to allow the traffic to move, providing the rate is sufficient to generate at least an adequate return (to the railroad)….”