Shippers Say Rails Are Abusing Commodity Regulatory Exemptions, Want STB Review
On February 24, 2011, the Surface Transportation Board held a public hearing to review the effectiveness of certain commodity, boxcar, and trailer-on-flatcar/container-on-flatcar (TOFC/COFC) exemptions from STB regulation. STB sought comments on whether the rationale behind any of the exemptions should be revisited and whether the exemptions should be subject to periodic review.
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(The STB exempts by regulation, specific commodities shipped by rail from certain rate, licensing, and operations requirements under 49 USC 10502 that would otherwise apply. Agricultural commodities such as fruits and vegetables were the first commodities to be exempted in the late 1970s, followed by apparel, lumber, cement, motor vehicles, and hundreds of other commodities. Shippers can petition STB for an exemption revocation; however, STB notes few shippers have done so thus far.1)
Shippers Say They Are Disadvantaged, Certain Exemptions Should be Revoked
Shippers stated there is a great need for STB to review certain commodity exemptions. They argued that a fundamental flaw in the current regulatory system is its failure to protect all shippers from potential market abuses by railroads. Shippers acknowledged that deregulation of the railroad industry has benefited rail carriers and shippers alike and efforts to completely reregulate would prove detrimental to both parties. Nevertheless, they state the current system is inequitable and doesn't protect all shippers from potential market abuses. They argued that certain commodity exemptions should be removed to redress disadvantaged shippers, few of which have been able to petition for exemption revocations because the petition process is expensive and burdensome.
Shippers Can Face Single Railroad Service, High Rates, & Unreliable Service
According to shippers, railroad competition has changed substantially since the first commodity exemptions were implemented, and because transportation options are critical to their success, advocated for the revocation of certain commodity exemptions. They argued that due to the exemptions and an uncompetitive railroad market, active shippers of exempted commodities face unrestrained shipping costs and unreliable service and are put at a competitive disadvantage. Due to railroad pricing, timing, and boxcar quality and supply, shippers state they are unable to reduce their rail operation costs. They claimed annual rate increases were the norm and that railroads dictate new intentions without requesting customer feedback, such as reducing switching days, causing mis-switches and transit delays, without facing consequences for such service interruptions.
Freight/Railroads Say Few Petitions Were Made, No Need to Revisit Exemptions
Freight railroad and railroad associations stated that the railroad exemptions are effective and that rising prices are not appropriate justifications for revoking boxcar, TOFC/COFC exemptions in the rail industry. Freight/railroads argued that exemptions should be considered on a market-by-market basis and not be revoked on the industry as a whole. Freight/railroads opposed the periodic review of such exemptions and argued that there is already sufficient opportunity for parties to seek review or petition to revoke specific exemptions. They noted that the low number of revocation petitions filed by parties demonstrates that railroad exemptions are not being abused.
Dispute Resolution Process in Freight Contracts, Revocations Unnecessary
Freight railroads stated that they currently include specific terms and conditions for service commitments and dispute resolution mechanisms within their contracts. They argue that because a lot of money is at stake in the fast-paced industries they serve, the railroads offer a range of remedies to be negotiated in contracts. They additionally note that STB's Office of Consumer Support is a resource for the rail shipping community to resolve disputes when contractual remedies are not provided.
DOT Says Keep Case-by-Case Basis, No Evidence Exemptions Caused Growth
The Department of Transportation representative stated that the current regulatory scheme has allowed railroads to respond to market forces in the form of new transportation services and improvements in intermodal services, but there is insufficient evidence if the commodity and railroad exemptions in the regulations can take credit for this increase in traffic. DOT suggests that more evidence be gathered, and that, in the meantime, STB should continue to evaluate exemptions on a case-by-case basis.
1The Railroad Revitalization and Regulatory Reform Act of 1976, the Staggers Rail Act of 1980, and the Motor Carrier Act of 1980, etc., largely deregulated the rail industry, in order to exempt railroads from certain interstate transportation regulations.
Hearing schedule and list of associations represented at the hearing is available here.
Webcast of the hearing is available here.