The state of rail service and the ability to get rate relief were top of mind for rail shippers at last month’s North American Rail Shippers Association meeting in Chicago.
Many of the shippers at the annual event were eager to discuss the state of their rail service and strategies for improving the service they are receiving and ultimately how they can get better service for the end users of their products. Almost all the shippers FTR spoke with admitted putting more railcars into service as a coping strategy for the weak service performance. The weaker train speeds in the intermodal space alone require shippers to obtain and utilize 6% more equipment based on a recent study that examined how many more railcars are needed for each mile per hour of velocity degradation the carriers experience. And all commodity groups have experienced the service issues, meaning more than just intermodal shippers are putting additional railcars into the network. Train speeds have stabilized in recent weeks, but remain well below the 10-year historical average. Since it takes 6-9 months to train new conductors and engineers to be productive and safe moving shippers’ freight, it is likely to be 2019 before any real improvement occurs.
Staff members from the Surface Transportation Board (STB) were available to discuss service and other issues with attendees of the event. STB is the main economic regulator and has the authority to settle rate and service disputes between carriers and their customers. While eastern railroad CSX is no longer required to participate in weekly calls about its service performance, that does not mean the agency is not closely watching it and the other railroads’ response to the service issues.
Another issue the agency is focused on involves way it can make its rate case and service dispute resolution procedures more user friendly. In the wake of several chemical rate cases being decided in favor of carriers earlier this decade despite revenue to variable cost ratios significantly above the 180% statutory threshold, shippers and the agency have sought to revise its guidelines. Shippers bringing a rate case before the agency must prove that the rail carrier is the only effective way to move product to market and that the rate is at least 180% of the carrier’s variable cost of serving the shipper.
The agency is having informal meetings with stakeholders in Washington, DC, about the rate case process as it seeks to make rate relief more accessible to shippers, particularly those smaller shippers that cannot afford the multi-million dollar sums that it is estimated to take to successfully bring a case at the board. Part of the problem stems from the fact that the existing rate relief guidelines for large rates (those without a limit on reparations, if successful) were crafted in 1985 and focused on the movement of unit train coal shipments from a few origins to a handful of destinations. A key factor that hurt shippers in this decade’s chemical cases was the fact that as manifest shippers, they had to re-create a large portion of the existing carrier’s network to move the traffic. Shippers with insight on how the board could change its process to address this and other issues they see in the STB’s rate case process were encouraged by staff to set up an informal meeting with the commissioners and staff in the coming weeks.
Carriers will also likely take part in separate meetings about the despite process, and it is unclear how the agency will proceed once it completes these listening sessions and is fully staffed later this year.