Market Matters Blog

STB Reviews Rail Transportation of Grain, Rate Regulations

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Canadian Pacific train heading through the Twin Cities corridor. (DTN file photo by Mary Kennedy)

OMAHA (DTN) -- Grain shippers, ag organizations and railroad companies all had the opportunity to express their opinions about improving procedures to set fair shipping rates during a hearing held by the Surface Transportation Board June 10 in Washington, D.C.

Through these meetings the STB intends to explore the issue of "making the rate-case process more accessible" to all grain shippers who use rail as their mode of transportation. The Staggers Rail Act of 1980 provides rail shippers the ability to challenge unreasonable rates.

"Yet, despite concerns about high rates from shippers of grain over the years, no such shipper has filed a rate complaint with the agency since 1981," said the STB. Shippers say some of the reasons could be the current formula is arbitrary, too costly and onerous, which discourages them from taking part in the current process.

In her opening remarks at the hearing, acting STB Chairman Deb Miller said that she has heard from grain shippers who "don't feel they have received all benefits of Staggers Act."

Vice Chairman Ann D. Begeman added, "We are not here to debate rates, but rather to fulfill the statutory mandate to ensure a process for every shipper to have access to that rate judged fairly and timely."

The National Grain and Feed Association (NGFA) urged the STB to "issue a proposed rulemaking to establish a new process that agricultural commodity shippers could use to challenge freight rates they believe are unreasonable or unlawful under the Staggers Rail Act of 1980." (See the proposal at http://goo.gl/…)

In a June 11 press release, the day after the hearing, the NGFA said that, "As part of the STB's proceeding (Ex Parte 665, Sub-No. 1), NGFA in 2014 developed and proposed a new rate-reasonableness methodology -- dubbed the "agricultural commodity maximum rate methodology" -- as one approach that the STB could use to change its existing procedures to resolve rail rate challenges involving agricultural products."

The NGFA noted that its proposed new approach would "meet the tests of being more accessible and inexpensive to administer, including for shippers with smaller claims; provide a meaningful constraint on the ability of carriers through their rate-pricing practices to make certain facilities uncompetitive in shipping by rail, and provide for more expedited and timely decisions."

According to the NGFA press release, NGFA Board member Bruce Sutherland, vice president of Michigan Agricultural Commodities (MAC), presented "real-world" examples to the STB of current rate-pricing practices by a major Class I rail carrier that will significantly alter geographical rate spreads in the Eastern Corn Belt. Sutherland explained to the STB at the hearing that this could lead to "dramatically increased freight rates and reducing the prices elevators are able to pay to producer-customers in some parts of the region, while reducing traffic on regional short lines and making some facilities uncompetitive to serve customers by rail."

Tim Luken, manager of Oahe Grain, an elevator located on a short line railroad in Onida, South Dakota that is serviced by the Canadian Pacific, told DTN via email, "Back in 2007, it cost $2,644 per car on the short line for the 25-car rate to Chicago and beyond. Today it costs $3,881 per car to Chicago and beyond; a 46.8% increase in eight years."

Representatives from the Class 1 railroads were also present at the hearing to testify on the current rules in place. BNSF stated in its presentation that, "Formulaic, outcome-oriented regulations are not productive and would have unintended consequences." (http://goo.gl/…)

Union Pacific pointed out that, "Previous studies have concluded that many agricultural shippers have a range of transportation alternatives, that grain transportation markets are largely competitive, and that different modes of transportation often compete head-to-head to move grain." (http://goo.gl/…)

CSX Transportation told the STB that, "Agriculture is an important business to CSX; competition on origin and destination grain sourcing is vibrant. CSX is working to improve efficiencies for both CSX and our customers through mutually beneficial programs." (http://goo.gl/…)

Stu Letcher, executive vice president of the North Dakota Grain Dealers Association, told DTN in an email, "The current system for challenging rates is overly burdensome according to testimony from participants on both sides of the issue. We understand the need for and support a financially stable rail industry, but we feel a more transparent and efficient process for grain rate reviews would not put that stability in jeopardy."

The STB will conduct a separate, but related, public hearing on July 22-23, which will examine what it means for a railroad to be revenue adequate and how that should affect regulation of the railroads' rates and other related issues. The STB said that once a railroad becomes revenue adequate over a period of time, "shippers should be able to challenge such railroad's rates on grounds that the carrier is financially healthy and thus does not need to charge such high rates."

UPDATING CURRENT METHODS

The Transportation Research Board (TRB) recently conducted a study examining the future role of the STB in overseeing and regulating the service levels and rate offerings of railroads, particularly as they become revenue adequate. The TRB said, "The study committee finds that while the U.S. freight railroad industry has become modernized and financially stable since the Staggers Rail Act of 1980, some of the industry's remaining economic regulations have not kept pace and should be replaced with practices better-suited for today's modern freight rail system." The report was released to the public June 10. (It can be found, in its entirety, on the Web site of the National Academies Press http://goo.gl/…)

In a press release on their website, Association of American Railroads (AAR) President and CEO Edward R. Hamberger provided the following response to the report released by the TRB: "The TRB report is a solution in search of a problem," said Hamberger. "The United States already enjoys the most efficient, safest freight rail network in the world. In fact, freight rail customers today pay rates that are on average 43% less than they paid in 1980. The report is a theoretical exercise that would upend the real-world concrete successes achieved since the Staggers Act passed in 1980."

The STB will begin reviewing all comments and presentations before making any decisions and stated, "Following the hearing, the record will remain open until June 24, 2015, during which time parties may submit written rebuttal testimony."

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow Mary on Twitter @MaryCKenn

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