By Randy Gordon, President and CEO
The NGFA on Nov. 12 submitted a statement to the federal Surface Transportation Board (STB) supporting the agency’s proposal to implement a streamlined “final-offer rate review” process that would provide rail customers with a more workable approach to challenge unreasonable freight rail rates.
“NGFA-member companies believe unreasonably higher rail rates have become more prevalent and significant given the rapid consolidation of the North American freight rail marketplace and the implementation of the so-called ‘precision scheduled railroad’ operating model by six of the seven Class I railroads, which reinforces the importance and timeliness” of the STB’s proposal, the NGFA wrote. “As NGFA’s rail arbitration system has shown, merely having realistic access to an effective forum for resolving disputes in a timely, fair and cost-effective manner can help discipline business conduct without cases ever being filed.”
The NGFA noted that in 2014 it had developed and submitted to the STB its own version of a new, simplified rate-challenge methodology intended to be workable for agricultural rail users. Subsequently, a 2015 report by the National Academy of Sciences’ Transportation Research Board also found the STB’s rate-challenge processes to be complex, time-consuming and costly, with no agricultural shipper having filed a rate challenge in nearly 40 years. “The NGFA continues to strongly support efforts by the (STB) to improve its rules for reviewing the reasonableness of railroad rates and to make them more workable, accessible and useful for agricultural shippers,” the NGFA wrote.
STB’s Final-Offer Rate Review Concept: The STB’s proposed “final-offer” concept, which had been recommended in a May report issued by its Rate Reform Task Force, is modeled after Canada’s final-offer rail arbitration procedures. As proposed by the STB, the process would apply to challenges of freight rates in smaller cases, with rate relief for the challenged transportation movement capped at $4 million over a two-year period (unless the parties agreed otherwise). Under the final-offer concept, the STB would decide a case by selecting either the rail customer plaintiff or defendant railroad’s rate that they respectively believe represents a fair rate. The STB would not intervene to suggest or determine a rate different than the ones offered by rail customer and the defendant railroad. The rail customer challenging the rate and the defendant railroad would be allowed to use any methodology they wished to justify their final-offer rate, and provide an explanation of the methodology. The proposed fee for filing a formal complaint to challenge a rate under this “final-offer” procedure would be $150.
Such cases would be resolved under an expedited procedural schedule that adheres to firm deadlines, with the STB proposing to render a decision within 135 days. As required by law, the rail customer would be required to demonstrate that the rail carrier had “market dominance” – the existence of a lack of effective modal competition – over the transportation movement to which the challenged rate applies. However, the STB separately proposed to develop a “streamlined” market dominance approach to each of its rate-challenge processes (see next article), on which the NGFA also submitted comments on Nov. 12.
NGFA Recommendations for Improvements to STB Final-Offer Proposal: The NGFA recommended that the STB make the following improvements to its proposal before issuing a final rule:
• Eliminate the Cap on Rate Relief: While the STB’s proposed $4 million ceiling on rate relief would be sufficient for many grain and processed commodity shippers, the NGFA recommended that the agency eliminate the cap and instead provide a longer procedural schedule for cases in which the potential rate relief is relatively high and the relevant circumstances involved are more complex.
• Developing Guidance on Final-Offer Process: The NGFA supported the STB’s proposal to develop and provide guidance to rail customers, particularly smaller shippers, on how to utilize the proposed final-offer procedures, including more detail on the potential criteria and statutory standards the agency will use when determining the outcomes of rate cases.
• Legal Justification for the STB’s Proposal: In response to “saber rattling” by the Association of American Railroads and several of its Class I railroad members to take legal action to prevent the STB from pursuing the proposal, the NGFA provided ample legal justification to support the agency’s approach.
• Expand Application of the Final-Offer Process to Class II and III Railroads: The NGFA recommended that the STB not limit rail customers’ ability to utilize the final-offer procedures to challenge only unreasonable rates charged by Class I railroads. “The basic fairness of the proposed standards and the simplicity and flexibility of the proposed processes are conducive to applying (them) to Class II and III railroads,” the NGFA said, noting the substantial geographic reach of several such shortlines.
The NGFA concluded by thanking the STB for the priority attention it is devoting to reforming its rate-challenge process, and urging that it issue a final rule “expeditiously.”