The National Grain and Feed Association (NGFA) today (June 22) urged the federal Surface Transportation Board (STB) to review its policies that allow freight railroads to unilaterally impose excessive switching charges that can close off access to agricultural markets.
“We believe that, just as carriers do not want to be ‘reregulated,’ neither should they have a free hand in cutting off existing physical and economic access through closures or excessive switch rates,” testified NGFA President Kendell W. Keith during the first of a two-day public meeting conducted by the STB on rail competition issues. “To allow such autonomy on switch charges will have a negative impact on the competitive fabric of the nation’s economy.”
Keith noted that switch rates – the charges assessed by rail carriers to reposition shipments to the tracks of competing carriers with which they interchange – have skyrocketed, in some instances reaching $500 per car or roughly five times the variable cost to the carrier for performing the service. In its written statements to the agency prior to the public meeting, the NGFA proposed that the STB consider establishing a revenue-to-variable-cost threshold (such as 180 percent) for switch charges which, if exceeded, would shift the burden of proof to railroads to demonstrate that such charges were reasonable. The NGFA’s statements also noted that switch charges may be imposed by carriers as a way to de-market rail traffic, and as such should be considered by the STB to be an unreasonable business practice rather than a rate case if a complaint is brought by a shipper.
During his testimony, the NGFA’s president commended the STB for initiating the proceeding on rail competition and focused on the uniqueness of agricultural movements, which involve multiple origination and destination points rather than heavy volumes of single point-to-point shipments. That, he said, creates policy concern in some markets where there is a lack of adequate competition from one or more transport modes.
The NGFA’s testimony was part of its ongoing, active involvement in the STB’s proceeding (Ex Parte No. 705) that is examining competition in the railroad industry. Established in 1896, the NGFA consists of more than 1,000 grain, feed, processing and grain-related companies comprising more than 7,000 facilities that handle more than 70 percent ofU.S. grains and oilseeds. The NGFA plays a leadership role for the industry on transportation policy as the nation’s largest organization of shippers and receivers of grain, feed, feed ingredients and other grain products. The STB has regulatory oversight of the freight rail industry.
Keith testified that a major reason freight railroads confronted drastic financial conditions prior to enactment of the Staggers Rail Act of 1980 was that government regulation did not allow innovation and market forces to govern carrier behavior. Given the vastly improved economic condition of rail carriers today, in which they are generating profits needed for longer-term investments, he said it is important for the STB and Congress to recognize that a more competitive transportation environment is “good for industries and the employees they hire,” and gives “companies a competitive edge to succeed.”
The NGFA noted that since 1980, railroads’ market share of agricultural product movements has declined from 50 percent to 35 percent. “Those in the grain, feed and grain processing business don’t want this rail business volume trend to continue downward,” he said.
The NGFA testified that adequate competition to discipline the market behavior of rail carriers exists in some marketplace situations, either through competition from other railroads or from other modes (such as trucks and barges). But the NGFA strongly disputed the notion that there are cost-effective and practical remedies available to rail customers to address situations where there is a lack of overall transportation competition in given markets.
“We want to be competitive and expand (agricultural) businesses and create jobs,” Keith testified. “To do that, we need a partner in the rail industry to assist in responding to competitive market forces, both domestically and internationally. We need reasonable rates, reasonable business terms and quality service. We also need access to a reasonable and cost-effective method to address problems with rates, terms and service.”
One way to do that, the NGFA suggested, was for the STB to establish a government-based dispute-resolution system to serve a broader range of shippers and other industries that are not NGFA-member companies and hence not eligible for the NGFA’s rail arbitration service. An STB-based system also could be used to resolve certain types of rail-related disputes currently not eligible for NGFA rail arbitration, such as some unreasonable practice complaints. “Whatever dispute-settlement system is agreed to, it must be understandable and practical,” the NGFA advised. “And it needs to encourage one-on-one dialogue between carriers and their customers.”
The NGFA in previous statements submitted as part of the rail competition proceeding also recommended that the STB reconsider its previous decision on the so-called three benchmark small rail rate case by increasing to at least $3 million over five years the amount that could be recovered by a shipper that wins a rate case brought against a carrier. The current amount that can be recouped in such cases is only $1 million, which the NGFA noted creates a barrier to shippers given the cost involved in filing a case and the likelihood of prevailing. The NGFA has noted that average rail rates for agricultural shipments increased 30 percent from 2006-10, which has a disproportionate impact on low-margin commodity-based industries like the grain, oilseed and feed sectors.
The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed and feed ingredient manufacturers; biofuels companies; cash grain and feed merchants; end-users of grain and grain products, including grain and oilseed processors, flour millers, and livestock and poultry integrators; commodity futures brokers and commission merchants; and allied industries. The NGFA has strategic alliances with the North American Export Grain Association and Pet Food Institute. Affiliated with the NGFA are 26 state and regional grain and feed trade associations.