By Randy Gordon, President and CEO
In a second statement submitted to the Surface Transportation Board (STB) on Nov. 12, the NGFA strongly supported – but recommended several significant changes to – the agency’s proposal to develop and adopt a streamlined approach that shippers could use to demonstrate that a freight railroad has “market dominance” over a given transportation movement, which is a prerequisite before a rail customer can challenge the reasonableness of a rail rate.
The agency said the streamlined approach is designed to reduce the burden on rate case parties by establishing that a complainant can make a prima facie showing that the carrier has market dominance when the complainant can demonstrate six criteria have been met. The STB’s proposed streamlined market dominance approach would be available to complainants under any of the agency’s rate-review methodologies (not just the final-offer rate review approach reported in the previous article). Complainants who could not make the showing of market dominance would need to establish market dominance using a non-streamlined presentation. Under either approach, defendant railroads would continue to reserve the right to rebut a complainant’s evidence.
NGFA-Recommended Changes to STB Proposal: The improvements to the STB proposal recommended by the NGFA included the following:
• The NGFA urged the STB to ensure that it is calculating accurately the railroad’s actual variable costs when determining whether the transportation movement at issue has a revenue-to-variable cost (R/VC) ratio of 180 percent or greater – the statutory threshold that must be met before a rate can be challenged. The NGFA further urged the STB to continue its efforts to improve its methodology for calculating the R/VC ratio.
• The NGFA opposed the STB’s proposal that the rail movement at issue would need to exceed 500 highway miles between origin and destination before the railroad was determined to be market dominant. Instead, the NGFA noted that trucking generally becomes cost-competitive for agricultural shippers only when the movement is 200 miles or less, and even then is dependent upon whether the railroad: 1) genuinely competes for the business; 2) provides efficient, predictable service in line with the customer’s needs; and 3) prices the freight movement at a rate competitive to trucks.
• The NGFA opposed the STB’s proposal that shippers be required to use trucks for 10 percent or less of its movements subject to the rate at issue over a five-year period before a railroad is determined to be market dominant. The NGFA urged the agency to modify this stipulation in three ways: 1) use a 20 to 25 percent, instead of 10 percent, or less threshold as more realistic and representative, and clarify that it applies to the origin-destination pair of the rate being challenged; 2) use an Olympic average, dropping the high and low years, of a five-year period to determine whether the threshold has been met to allow for year-to-year fluctuations in the use of truck transportation by agricultural facilities; and 3) allow the shipper to demonstrate that truck transportation does not represent a viable or cost-effective intermodally competitive alternative for the specific rail movement whose rate is being challenged, regardless of any threshold level. The NGFA also asked the STB to clarify whether its reference to truck “movements” refers to the percentage of total volumes of a commodity transported by truck versus rail, rather than to the number of movements or other factors.
The NGFA supported the STB’s proposal that a verified statement from an appropriate company official should suffice to demonstrate that there is no intramodal competition from other railroads or barges, and that the company bringing a rate complaint does not have practical build-out alternative because of physical, regulatory, financial or other issues (or a combination of all). The NGFA also asked the agency to clarify the point in the process where it will determine that the shipper bringing the rate complaint will be deemed to have met the requirements for a prima facie showing of market dominance.