The debate about reciprocal switching has been going on for years. That’s a practice that would allow shippers to use a different Class I railroad to carry their goods, even if the rail line their cargo is on is owned by a different Class I railroad. Reciprocal switching access is important in keeping competition between rail lines. Owning the tracks to a siding would seem to guarantee that the owner rail line would get all the business unless reciprocal switching contracts could be agreed.
For years it’s been difficult to get these contracts. Chemical processors have been one of the most difficult areas, because they may have only one rail siding at their plant. They have wanted to be able to negotiate with another rail line for freight rates. But examples abound, usually because of poor service on the Class I rail that owns the sidings.
The Surface Transportation Board (STB) in the US has decided to walk around the problem by opening a new set of regulations defining more precisely what level of service a Class I rail must provide, and to track what level is actually being provided. If adequate service is not being provided, a shipper could ask for relief to use another rail line.
The STB proposal defines three measures, and requires their performance reporting by the Class I rails, in a standardized fashion;
- Service Reliability, ability to deliver a shipment by the original estimated time of arrival
- Service Consistency, maintaining a shipment’s movements through the system by looking at transit times
- Local Service, the ability to perform local deliveries and pickups, known as spots and pulls, within the service window.
Failure to perform on any one of these would be a good reason for a shipper to petition for a reciprocal switching agreement. Some clauses require the rails to submit historical data and provide the data whenever a request is made.
The STB says the rule will incentivize the rails to maintain sufficient capability to meet the minimal service requirements.
Recall that rails have a common carrier obligation to carry the freight that is offered to them. They have it because in most cases they were given the land on which rail lines were built, often in the golden age of railroading around the turn of the 20th century. At that time there were many independent rail lines, and there was a lot of competition for cargo. Now, however, in the US there are only 7 Class I railroads, and each features a certain geographic area. So opportunities for competition on shipping are limited today.
So the ability to have reciprocal switching contracts is very important for avoiding monopoly service and giving shippers options to get better prices.
Joanna Marsh Thursday, September 07, 2023
STB takes long-awaited step in addressing rail service standards
Supply Chain and Logistics 