Rule2024-09483
Reciprocal Switching for Inadequate Service
Primary source
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Published
May 7, 2024
Effective
September 4, 2024
Issuing agencies
Surface Transportation Board
Abstract
The Board adopts new regulations that provide for the prescription of reciprocal switching agreements as a means to promote adequate rail service through access to an additional line haul carrier. Under the new regulations, eligibility for prescription of a reciprocal switching agreement will be determined in part using objective performance standards that address reliability in time of arrival, consistency in transit time, and reliability in providing first-mile and last-mile service. The Board will also consider, in determining whether to prescribe a reciprocal switching agreement, certain affirmative defenses and the practicability of a reciprocal switching agreement. To help implement the new regulations, the Board will require all Class I railroads to submit certain service data on an ongoing and standardized basis, which will be generalized and publicly accessible. Railroads will also be required to provide individualized, machine-readable service data to a customer upon a written request from that customer.
Full Text
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[Federal Register Volume 89, Number 89 (Tuesday, May 7, 2024)]
[Rules and Regulations]
[Pages 38646-38710]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09483]
[[Page 38645]]
Vol. 89
Tuesday,
No. 89
May 7, 2024
Part VI
Surface Transportation Board
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49 CFR Part 1145
Reciprocal Switching for Inadequate Service; Final Rule
Federal Register / Vol. 89, No. 89 / Tuesday, May 7, 2024 / Rules and
Regulations
[[Page 38646]]
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SURFACE TRANSPORTATION BOARD
49 CFR Part 1145
[Docket No. EP 711 (Sub-No. 2)]
Reciprocal Switching for Inadequate Service
AGENCY: Surface Transportation Board (the Board or STB).
ACTION: Final rule.
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SUMMARY: The Board adopts new regulations that provide for the
prescription of reciprocal switching agreements as a means to promote
adequate rail service through access to an additional line haul
carrier. Under the new regulations, eligibility for prescription of a
reciprocal switching agreement will be determined in part using
objective performance standards that address reliability in time of
arrival, consistency in transit time, and reliability in providing
first-mile and last-mile service. The Board will also consider, in
determining whether to prescribe a reciprocal switching agreement,
certain affirmative defenses and the practicability of a reciprocal
switching agreement. To help implement the new regulations, the Board
will require all Class I railroads to submit certain service data on an
ongoing and standardized basis, which will be generalized and publicly
accessible. Railroads will also be required to provide individualized,
machine-readable service data to a customer upon a written request from
that customer.
DATES: The rule will be effective on September 4, 2024.
FOR FURTHER INFORMATION CONTACT: Valerie Quinn at (202) 740-5567. If
you require accommodation under the Americans with Disabilities Act,
please call (202) 245-0245.
SUPPLEMENTARY INFORMATION:
Table of Contents
Introduction
Legal framework
Analytical Justification
Performance Standards
Data Production to the Board and Implementation
Data Production to an Eligible Customer
Terminal Areas
Practicability
Service Obligation
Procedures
Affirmative Defenses
Compensation
Duration and Termination
Contract Traffic
Exempt Traffic
Class II Carriers, Class III Carriers, and Affiliates
Labor
Environmental Matters
Environmental Review
Regulatory Flexibility Analysis
Paperwork Reduction Act
Congressional Review Act
Table of Commenters
Final Rule
Introduction
In a decision served on September 7, 2023, the Board issued a new
notice of proposed rulemaking that would provide for the prescription
of reciprocal switching agreements with emphasis on how to address
inadequate rail service. Reciprocal Switching for Inadequate Serv.
(NPRM), 88 FR 63897 (proposed Sept. 18, 2023).\1\ The Board explained
that, given the major service problems that occurred subsequent to the
2016 proposal in Docket No. EP 711 (Sub-No. 1) and the history of
recurring service problems that continue to plague the industry, it is
appropriate, at this time, to focus reciprocal switching reform on
service-related issues. NPRM, 88 FR at 63899.
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\1\ The Board also closed a sub-docket involving an earlier
notice of proposed rulemaking from 2016. Reciprocal Switching, 88 FR
63917 (published Sept. 18, 2023) (closure of Docket No. EP 711 (Sub-
No. 1)).
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As discussed in the NPRM, reciprocal switching agreements provide
for the transfer of a rail shipment between Class I rail carriers or
their affiliated companies within the terminal area in which the
shipment begins or ends its journey on the rail system. Id. at 63898.
In a typical case, the incumbent rail carrier either (1) moves the
shipment from the point of origin in the terminal area to a local yard,
where an alternate carrier picks up the shipment to provide the line
haul; or (2) picks up the shipment at a local yard where an alternate
carrier placed the shipment after providing the line haul, for movement
to the final destination in the terminal area. Id. The alternate
carrier might pay the incumbent carrier a fee for providing that
service. Id. The fee is often incorporated in some manner into the
alternate carrier's total rate to the shipper. Id. A reciprocal
switching agreement thus enables an alternate carrier to offer its own
single-line rate or joint-line through rate for line-haul service, even
if the alternate carrier's lines do not physically reach the shipper/
receiver's facility. Id.
The regulations as proposed in the NPRM would provide for the
prescription of a reciprocal switching agreement when service to a
terminal-area shipper or receiver failed to meet one or more objective
performance standards and when other conditions to a prescription were
met. Id. The proposed standards addressed: (1) a rail carrier's
failures to meet its original estimated time of arrival (OETA), i.e.,
to provide sufficiently reliable line-haul service; (2) a deterioration
in the time it takes a rail carrier to deliver a shipment (transit
time); and (3) a rail carrier's failures to provide local pick-ups or
deliveries of cars (also known as first-mile/last-mile service (FMLM)),
as measured by the carrier's success in meeting an ``industry spot and
pull'' (ISP) standard. Id. at 63901. The proposed regulations also
addressed regulatory procedures, affirmative defenses, and
practicability. Id. at 63908-10. In addition to proposing to provide
for the prescription of a reciprocal switching agreement when the
foregoing conditions were met, the Board sought comment on what
methodology the Board should use in setting the fee for switching under
a prescribed agreement, in the event that the affected carriers did not
reach agreement on compensation within a reasonable time. Id. at 63909-
10.
The proposed regulations would impose certain data requirements to
aid in implementation of those regulations. In part, the proposed
regulations would require a Class I carrier to provide to a customer,
upon written request, that customer's own individualized service data.
In addition, to ensure that the Board would have an informed view of
service issues across the network, the proposed regulations would (1)
make permanent the filing of certain data that is similar to the data
the Board had collected on a temporary basis in Urgent Issues in
Freight Rail Service--Railroad Reporting, Docket No. EP 770 (Sub-No.
1); and (2) require consistency in reporting that data. NPRM, 88 FR at
63910-11.
The Board solicited comments on the NPRM by October 23, 2023, and
replies by November 21, 2023. NPRM, 88 FR at 63897. In response to
requests for extensions, these dates were extended to November 7, 2023,
and December 20, 2023, respectively. Reciprocal Switching for
Inadequate Serv., EP 711 (Sub-No. 2)(STB served Sept. 29, 2023, and
Nov. 20, 2023).
The Board received many comments and replies from interested
parties, including public officials, railroads, shippers, trade
organizations, and others.\2\ As discussed below, overall, shippers and
their supporting trade organizations strongly favor the Board's
proposal, although many seek minor modifications or, in some instances,
[[Page 38647]]
significant expansions to the scope of the proposed rule. The railroads
and their trade organizations generally object to the Board's legal
foundation for the proposed regulations and otherwise suggest
significant changes to those regulations.
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\2\ A Table of Commenters with abbreviations the Board uses in
the text and citations is provided below.
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After reviewing the record, the Board is adopting a version of part
1145 that reflects certain modifications to the proposal in the NPRM.
With respect to the performance standards in part 1145, some of the key
modifications are as follows. First, based on numerous shipper comments
and the data the Board had been collecting since 2022 in Docket No. EP
770 (Sub-No. 1), the Board is increasing the OETA standard for
delivering within 24 hours of the OETA from 60% to 70% and the standard
for performing ISP from 80% to 85%. Second, the Board is adopting a
proposal whereby railcars that are delivered more than 24 hours before
the OETA will count in assessing the rail carrier's performance. Third,
the Board is establishing an absolute floor for the service consistency
standard and will modify that standard to provide that certain
deteriorations in transit time over a three-year period would also
count as a failure. Fourth, the Board is withdrawing its proposal to
combine lanes; the service reliability standard and the service
consistency standard will be applied only to each individual lane of
traffic to/from the petitioner's facility. Finally, in response to
public comments, the Board makes other modifications to each
performance standard. As discussed in the NPRM, the performance
standards apply only to petitions under part 1145; the standards do not
by themselves establish whether a carrier's operations are otherwise
appropriate. The Board does not view it as appropriate to apply or draw
from the standards when regulating or enforcing the common carrier
obligation. See NPRM, 88 FR at 63902. Likewise, the performance
standards do not define what constitutes adequate rail service. This
also means that whether a carrier meets or fails to meet the standards
in part 1145 is not determinative of whether a service-related
prescription might be justified under part 1144 or part 1147 of the
Board's regulations.
The Board is also clarifying issues concerning Class II and Class
III rail carriers. Part 1145 pertains to shippers and receivers that
have practical physical access to only one Class I rail carrier or its
affiliated company. The affiliated company might be a Class II or Class
III railroad. Part 1145 otherwise does not apply to Class II and Class
III railroads.
As discussed in the NPRM, the Board will initiate an ongoing
collection of data similar to a subset of the data that it had
collected on a temporary basis in Docket No. EP 770 (Sub-No. 1). That
data must now be submitted using a standardized template to be
developed by the agency. The Board will continue to require Class I
railroads to provide data to a customer within seven days of receiving
a request, but the Board is providing more clarity and specificity in
regard to that requirement, as the original proposal could have impeded
carriers' ability to provide timely responses. Based on comments, the
Board also clarifies and modifies in certain respects the proposed
provisions on affirmative defenses. The Board is also increasing the
minimum duration of a prescribed reciprocal switching agreement from
two years to three years and the maximum duration of a prescribed
reciprocal switching agreement from four years to five years.
With respect to traffic that is or was moved under a transportation
contract under 49 U.S.C. 10709, the Board explains that it will not
prescribe a reciprocal switching agreement under part 1145 based on
performance that occurs during the term of the contract. Concerning
exempt commodities, the Board will not consider pre-revocation
performance as the basis for a prescription under part 1145 but intends
to prioritize petitions for partial revocation filed in furtherance of
part 1145 cases in order to resolve expeditiously those petitions for
partial revocation. The Board also intends to explore at a later date
whether it should partially revoke exemptions on its own initiative to
allow for reciprocal switching petitions, as is currently the case for
the boxcar exemption. See 49 CFR 1039.14(b)(3) (expressly allowing for
regulation of reciprocal switching for rail transportation of
commodities in boxcars).
These issues, as well as numerous others, are discussed below.
After considering the record, the Board hereby adopts the proposed
regulations, with modifications as indicated below, as part 1145 of its
regulations.
Various entities have asked that the Board take additional steps in
this proceeding such as adopting a fourth performance standard that
would measure whether the incumbent carrier reasonably met the
customer's local operational and service requirements, (PCA Comments
12; see also PRFBA Comments 9 n.4; EMA Comments 8-9 n.4; NSSGA Comments
9 n.3; Olin Comments 6), or adopting a performance standard that would
apply specifically to grain shippers, (USDA Comments 5-6). USDA and
others ask the Board to grant terminal trackage rights based on a
carrier's failure to meet the ISP standard, (USDA Comments 8; NGFA
Comments 7; NSSGA Comments 9; ACD Comments 5; NMA Comments 6), or to
open a new docket concerning terminal trackage rights, (Coal. Ass'ns
Comments 8).
Others seek more sweeping reform, including: expanding part 1145 to
all bottleneck segments (Coal. Ass'ns Comments 8); overturning the
``anti-competitive conduct'' test in Midtec Paper Corp. v. Chicago &
North Western Transportation Co. (Midtec), 3 I.C.C.2d 171 (1986) (Coal.
Ass'ns Comments 8; DOT/FRA Comments 3; ILWA Comments 1; FRCA/NCTA
Comments 2; Celanese Comments 2; PCA Comments 4-7; Olin Comments 6-8;
NMA Comments 4); adopting rules in Petition for Rulemaking to Adopt
Rules Governing Private Railcar Use by Railroads, Docket No. EP 768,
(NGFA Comments 9); and further delineating the scope of the common
carrier obligation, (TTD Comments 3). The Coalition Associations, with
support from ACD, also assert that, if the Board concludes it cannot
consider the performance of contract traffic, the agency should reopen
Reciprocal Switching, Docket No. EP 711 (Sub-No. 1), to adopt that
proposal with several proposed modifications. (Coal. Ass'ns Reply 47-
52; ACD Reply 3.)
The Board appreciates the Coalition Associations' efforts as well
as the numerous additional suggestions from others about possible Board
actions outside of this docket. However, the Board would like to gauge
the effectiveness of this new rule before considering other ways to
pursue the objectives of section 11102(c). As noted in the NPRM, in
choosing to focus reciprocal switching reform on service issues at this
time, the Board does not intend to suggest that consideration of
additional reforms geared toward increasing competitive options is
foreclosed. Id. at 63900. And, even with the adoption of part 1145,
shippers may still pursue access to an alternate rail carrier under
parts 1144 and 1147, and advocate for continued development, including,
as appropriate, development by the Board of adjudicatory policies and
the appropriate application of those rules in individual cases. Id.
The Board expects part 1145 to be a significant step in
incentivizing Class I railroads through competition to achieve and
maintain higher service levels on an ongoing basis. The objective and
transparent standards, defenses, and definitions in this rule should
also provide greater certainty
[[Page 38648]]
than the status quo. The Board also expects the new data collection to
help ensure that it has an informed view of service issues across the
network.
Legal Framework
Design of Part 1145
As discussed in the NPRM, part 1145 implements the Board's
authority under 49 U.S.C. 11102(c) to prescribe reciprocal switching
agreements when ``practicable and in the public interest.'' NPRM, 88 FR
at 63899. There is a clear public interest in adequate rail service--a
matter of fundamental concern under the Interstate Commerce Act. See
United States v. Lowden, 308 U.S. 225, 230 (1939); 49 U.S.C. 10101 (in
various policies referencing an ``efficient'' and ``sound'' rail system
that can ``meet the needs of the public''); see also House Report No.
96-1430: Staggers Rail Act of 1980, Report of the Committee on
Conference on S. 1946 at 80 (Sept. 29, 1980). Inadequate rail service
can substantially impair rail customers' ability to operate their
businesses, resulting in substantial harm to the United States economy
as a whole. NPRM, 88 FR at 63899-900 (citing 49 U.S.C. 10101). The
Board's decision to adopt part 1145 grows out of the Board's
recognition that inadequate rail service can critically and adversely
affect the national economy, yet the Board's existing regulations do
not necessarily provide a sufficient response. NPRM, 88 FR at 63900 &
n.7. Part 1145 addresses these concerns by providing a reasonably
predictable and efficient path toward a prescription under section
11102(c) while, at the same time, providing for regulatory intervention
only when there are sufficient, service-related signs of a public
interest in intervention and when there would be no undue impairment to
rail carriers' operations or ability to service other customers.
Part 1145 is designed specifically to promote the provision of
adequate rail service to terminal-area customers that have practical
physical access to only one Class I rail carrier or affiliate. NPRM, 88
FR at 63899. Under part 1145, upon petition by a shipper or receiver,
the Board will prescribe a time-limited reciprocal switching agreement
when (1) the prescription is in a terminal area and the petitioner has
practical physical access to only one Class I rail carrier or
affiliate, see 49 CFR 1145.1 (definition of ``reciprocal switching
agreement''), 1145.6(a)(1); (2) the incumbent rail carrier failed to
meet one or more performance standards, see 49 CFR 1145.2,
1145.6(a)(2); (3) that failure was not excused by an affirmative
defense, see 49 CFR 1145.3, 1145.6(a)(3); (4) transfers under the
reciprocal switching agreement would be operationally feasible and
would not unduly impair service to other customers, see 49 CFR
1145.6(b); and (5) resulting line-haul arrangements would be
operationally feasible and would not unduly impair a participating rail
carrier's ability to serve its other customers, see id.
The performance standards in part 1145, which can be easily
understood by shippers and carriers, address three fundamental aspects
of adequate rail service: reliable timing in the arrival of line-haul
shipments, consistent shipment times, and on-time local pick-ups and
deliveries. The standards are set at levels such that performance below
the standards would not meet many shippers' (and carriers') service
expectations. See Performance Standards. Upon a petitioner's
demonstration of such a failure and in the absence of an incumbent or
alternate carrier's demonstration of an affirmative defense,
infeasibility, or undue impairment as provided for in part 1145, see 49
CFR 1145.3, 1145.6(b), the Board would prescribe a reciprocal switching
agreement, which would give the petitioner the opportunity to obtain
line-haul service from an alternate carrier that may be able to provide
better service. The prescription of a reciprocal switching agreement
does not necessarily mean that the incumbent carrier would lose line-
haul service because the incumbent carrier would continue to have the
opportunity to compete to serve the petitioner. NPRM, 88 FR at 63901.
The initial term of any prescribed agreement is for a limited duration
of three to five years. 49 CFR 1145.6(c).
Part 1145 will promote the provision of adequate rail service, not
only to a successful petitioner, but on a broader network basis. By
providing a clearer set of conditions and procedures for the Board to
prescribe reciprocal switching agreements, part 1145 will create an
incentive for rail carriers to provide adequate service to terminal-
area customers that lack another rail option. Part 1145 will also
reduce regulatory risk and burdens under section 11102(c) by (1)
enhancing the predictability of regulatory outcomes, (2) enabling
potential petitioners to evaluate the costs and potential benefits of
seeking a prescription, and (3) helping to contain the time and cost of
petitioning for a prescription. NPRM, 88 FR at 63901. At the same
time--because part 1145 provides for an appropriately defined and
scoped switching agreement prescription only after careful
consideration of affirmative defenses, infeasibility, and undue
impairment--part 1145 will not result in the prescription of a
reciprocal switching agreement when there is an insufficient basis or
when the prescription would be unwise as a matter of policy. See Midtec
Paper Corp. v. United States, 857 F.2d 1487, 1499 (D.C. Cir. 1988).
Comments
Class I rail carriers claim that adoption of part 1145 would exceed
the scope of the Board's legal authority. These carriers assert that,
as a condition to prescribing a reciprocal switching agreement, the
Board must undertake a case-by-case analysis that would be far more
elaborate than what is called for under part 1145. According to
carriers, the Board must find that: (1) the incumbent carrier
consistently provides inadequate service to the petitioner; (2) the
incumbent carrier failed to cure the inadequacy after being given
notice and a reasonable opportunity to cure; (3) the inadequacy
continues to exist at the time of the Board's prescription; (4) service
to the petitioner is worse than service to other customers; (5) the
petitioner has a compelling need for alternate rail service, as
indicated by demonstrated harm to the petitioner's planning and
business needs; (6) alternate service would not impose greater harm on
other stakeholders; (7) the alternate service would be safe and
practicable; and (8) the alternate service would actually remedy the
inadequate service. (See AAR Comments 2, 5, 8, 13, 17-18, 20-22, 62;
see also CN Comments 16, 21; CN Reply 3-4; NSR Comments 8-10; CSXT
Comments 10-12; CSXT Reply 4-5.)
In attempting to find a legal foundation for their approach, rail
carriers look past the text of section 11102(c) to three cases in which
the Board's predecessor, the Interstate Commerce Commission (ICC or
Commission), applied the public interest standard: Jamestown Chamber of
Commerce v. Jamestown, Westfield, & Northwestern Railroad, 195 I.C.C.
289 (1933); Central States Enterprises, Inc. v. Seaboard Coast Line
Railroad, NOR 38891 (ICC served May 15, 1984), aff'd sub nom., Central
States Enterprises v. ICC, 780 F.2d 664 (7th Cir. 1985); and Delaware &
Hudson Railway v. Consolidated Rail Corp., 367 I.C.C. 718 (1983).
According to carriers, these cases indicate that, to find that a
reciprocal switching agreement would be in the public interest, the
Board must find that the petitioner has a ``compelling need'' for the
agreement. (See, e.g., AAR Comments 12-14.) AAR also relies on a
statement in the legislative history suggesting that the
[[Page 38649]]
``practicable and in the public interest'' standard in section 11102(c)
is ``the same standard the Commission has applied for many years in
considering whether to order the joint use of terminal facilities.''
(See AAR Comments 14 (citing H.R. Rep. No. 1430 at 116 (1980)).)
Shippers respond that carriers' ``compelling need'' test misstates
the law. According to NSSGA, the outcome in Jamestown (in which the ICC
denied a request to prescribe terminal trackage rights) rested in part
on the fact that the incumbent carrier there provided exceptionally
good service. (NSSGA Reply 1-2.) Similarly, WCTL argues that Jamestown
was premised in part on the fact that the proposed service arrangement
was sought to aid a financially weak rail carrier. (WCTL Reply 10.) PCA
asserts that any ``compelling need'' test would improperly impose an
extra-statutory limitation on the Board's authority to prescribe
reciprocal switching agreements. (PCA Reply 2, 5 (describing Jamestown
as inapposite and stating that an ``actual necessity/compelling
reason'' standard is found nowhere in the governing statute).) The
Coalition Associations assert that the carriers' proposed ``compelling
need'' test is overly narrow. They argue that the in-depth inquiry that
carriers propose under the ``compelling need'' test would, as a
practical matter, limit the availability of prescribed reciprocal
switching agreements. According to the Coalition Associations, there is
sufficient need for part 1145 given the public interest in creating an
incentive to provide adequate rail service. (Coal. Ass'ns Reply 15-18.)
The Coalition Associations add that the Board's authority to enact part
1145 flows not only from the ``practicable and in the public interest''
standard but also from the ``competitive rail service'' standard in
section 11102(c). (Id. at 15-16.)
Class I carriers assert, not only that the Board must undertake a
detailed case-by-case investigation as described above, but that, as a
condition to prescribing a reciprocal switching agreement, the Board
must find that the petitioner lacks an adequate intermodal
transportation option (i.e., a transportation option via a mode other
than rail). Carriers reason that, when there is an intermodal option,
there is unlikely to be a compelling need for an alternate rail option.
(See AAR Comments 78-79; see also BNSF Comments 14-15.) The Coalition
Associations respond that intermodal options are not a realistic
incentive to provide adequate rail service, reasoning that a customer
might have structured its facilities and business model around rail
transportation. (See Coal. Ass'ns Reply 22-23; see also AF&PA/ISRI
Reply 7-8.)
On a separate tack, AAR asserts that part 1145 would
inappropriately amount to direct regulation of the quality of rail
service. AAR bases its assertion on the rule's use of defined
performance standards. According to AAR, direct regulation of quality
of service would contradict congressional policy to minimize the need
for federal regulatory control over the rail transportation system.
(AAR Comments 14-15.)
Finally, CPKC argues that the Board is precluded by the doctrine of
legislative ratification from undertaking the approach taken in part
1145. Citing a statement in Midtec Paper Corp. v. United States, 857
F.2d at 1507, that Congress did not intend the agency to undertake a
radical restructuring of the rail sector through its switching
authority, CPKC asserts that Congress ratified what CPKC calls the
``limited scope of the statute'' by not passing any of eighteen bills
that, according to CPKC, would have relaxed the approach in Midtec.
CPKC concludes on that basis that the Board may prescribe a reciprocal
switching agreement only as a direct remedy to an inadequacy that is
demonstrated on a case-by-case basis considering all relevant factors.
(CPKC Reply 5 n.2.)
The Board's Assessment
Part 1145 reasonably implements the Board's authority to prescribe
reciprocal switching agreements when practicable and in the public
interest. Class I rail carriers' arguments to the contrary rest on a
misinterpretation of the public interest standard in section 11102(c)--
a misinterpretation that would effectively replace the statutory
standard with a ``compelling need'' standard that, as interpreted by
the carriers, would leave the Board little room to fashion its
implementation of the public interest standard and the underlying
congressional objectives according to the circumstances at hand. The
carriers' generalized concerns about the prescription of reciprocal
switching agreements are also misguided. Finally, because part 1145 is
amply justified under the ``practicable and in the public interest''
standard, it is unnecessary to consider here whether part 1145 is also
justified under the ``competitive rail service'' standard in section
11102(c), as some commenters have argued.
Governing Principles
The public interest standard in section 11102(c) gives the Board
broad discretion to determine when to prescribe reciprocal switching
agreements. In other contexts in which Congress has used the public
interest standard, the United States Supreme Court has described the
standard as ``expansive.'' Nat'l Broad. Co. v. United States, 319 U.S.
190, 219 (1943). The public interest standard serves as a ``supple
instrument'' for the exercise of discretion by the expert body that
Congress charged with carrying out legislative policy. FCC v.
Pottsville Broad. Co., 309 U.S. 134, 137-38 (1940); see also McManus v.
Civil Aeronautics Bd., 286 F.2d 414, 419-20 (1960) (citing Sunshine
Anthracite Coal Co. v. Adkins, 310 U.S. 381, 396 (1940)). The public
interest standard allows the agency to respond to changes in the
industry and to the interplay of complex factors, consistent with
policy objectives that Congress established by statute. Gen. Tel. Co.
of Cal. v. FCC, 413 F.2d 390, 398 (D.C. Cir. 1969); Huawei Techs. USA,
Inc. v. FCC, 2 F.4th 421, 439 (5th Cir. 2021). In addition, both before
and after the Staggers Act, there has been a recognition that the
public interest in adequate transportation could be served through the
introduction of another rail carrier. See, e.g., Pa. Co. v. United
States, 236 U.S. 351 (1915) (pre-Staggers); 49 U.S.C. 11102(c); Del. &
Hudson, 367 I.C.C. at 723 (post-Staggers).
In implementing the public interest standard in section 11102(c),
the Board's discretion is to be guided by the policy objectives that
Congress established through section 10101 (previously section 10101a)
of the Act (the Rail Transportation Policy or RTP)). Midtec Paper Corp.
v. United States, 857 F.2d at 1499-500; see also N.Y. Cent. Sec. Corp.,
287 U.S. 24-25 (1932) (establishing that an agency's implementation of
broad statutory authority is to be guided by policies set forth by
Congress). Depending on the facts at hand, relevant considerations may
include the potential to secure lower rates and/or better service, the
expansion of shipping options, and possible detriments to affected
carriers. See, e.g., Del. & Hudson, 367 I.C.C. at 723-24, 726. As
needed, in considering whether a proposed action would advance the
statutory objectives in section 10101, the Board weighs and balances
the various elements of the RTP to ``arrive at a reasonable
accommodation of the conflicting policies'' in the Act. Ass'n of Am.
R.Rs. v. STB, 306 F.3d 1108, 1111 (D.C. Cir. 2002); Midtec Paper Corp.
v. United States, 857 F.2d at 1497, 1500; see also Vill. of Palestine
v. ICC, 936 F.2d 1335
[[Page 38650]]
(D.C. Cir. 1991) (agency looks to relevant and pertinent rail
transportation policies).
Implementation of the Public Interest Standard Through Part 1145
Part 1145 advances the statutory goal of developing and continuing
a sound rail transportation system. 49 U.S.C. 10101(4). Part 1145 does
so by striking an appropriate balance between, on one hand, the
shipping public's interest in securing better rail service and, on the
other hand, the interest of rail carriers. See 49 U.S.C. 10101(1), (3),
(4) and (5); NPRM, 88 FR at 63901. Part 1145 strikes this balance by
providing for the introduction of an alternate rail carrier via an
appropriately defined and scoped switching agreement prescription only
when there are sufficient indications, based on the incumbent carrier's
performance, that the introduction of a competing carrier would create
the possibility of an improved service environment and when the
affected carriers have not demonstrated that the proposed prescription
would unduly impair their operations or ability to serve their other
customers. As the ICC indicated in Delaware & Hudson, the introduction
of an alternate rail carrier provides the potential to achieve better
service. Del. & Hudson, 367 I.C.C. at 723; see also NPRM, 88 FR at
63901 (noting that part 1145 would ``advance the policies in Sec.
10101 of having a rail system that meets the public need, of ensuring
effective competition among rail carriers, of minimizing the need for
regulatory control, and of reaching regulatory decisions on a fair and
expeditious basis'').
The design of part 1145 takes into account carriers' need to earn
adequate revenues. See 49 U.S.C. 10101(3). Its built-in limitations
ensure that a prescription will not be issued if carriers demonstrate
that a particular proposed prescription would unduly impair the
carrier's ability to serve its existing customers. Other relevant
considerations include that the rule does not apply to traffic moving
under contract and that the initial duration of a prescription under
part 1145 is limited to three to five years. While it is possible that
a particular prescription could result in some reduction in an
incumbent carrier's revenues (because a shipper chooses to use the
alternate carrier after considering the service offerings of both the
incumbent and the alternative carrier) such a potential concern is
outweighed by the public interest in securing reliable and consistent
rail service through an expeditious regulatory process for prescribing
a reciprocal switching agreement when, as provided for in part 1145, no
undue impairment would result. Part 1145 also balances consideration of
the impact on non-petitioning shippers, as the Board will consider
carrier arguments, if raised, about the impact on other shippers in
determining whether a petition should be granted. Even with the
potential concerns that any particular prescribed switch might raise,
Congress expressly provided that the Board should have the authority to
determine when such switches are ``practicable and in the public
interest'' and part 1145 reasonably includes analysis of those
statutory factors.
Part 1145 also gives reasonable effect to the statutory objectives
of minimizing the need for federal regulation and of providing for
efficient and fair regulatory proceedings. See 49 U.S.C. 10101(2),
(15). First, part 1145 allows rail carriers to retain sufficient
operational flexibility. While part 1145 could lead to some alterations
in a carrier's operations, those alterations would be based largely on
how the carrier chooses to respond to the potential of an alternate
carrier, as part 1145 does not establish a service level for purposes
of assessing common carrier or other statutory violations and remedies.
See NPRM, 88 FR at 63902. Second, with respect to efficient and fair
proceedings, part 1145 advances that interest through a targeted,
service-based approach to regulatory intervention based on readily
obtainable and understood information. The performance standards
themselves are largely based on data that carriers and shippers use in
the ordinary course of business and the assessment of performance is
straightforward to calculate. Part 1145 provides specific affirmative
defenses, which help to narrow the scope of a proceeding, and also
allows for case-by-case consideration of other relevant issues when
warranted. This ease of administration is an important policy goal,
particularly where there have been concerns expressed about the
efficiency of the Board's existing processes. See, e.g., NPRM, 88 FR at
63900 n.7.
In addition, as a condition to regulatory intervention under part
1145, there must be sufficient indications, in the form of the
incumbent carrier's failure to meet a service-based performance
standard and the absence of an affirmative defense or demonstration of
undue impairment, that the introduction of an alternate rail carrier
via an appropriately defined and scoped switching agreement
prescription could be valuable in bringing about better rail service.
See 49 CFR 1145.6. Part 1145 will lead to regulatory intervention only
when, on balance, such intervention is specifically warranted and
therefore does not implicate the D.C. Circuit's opinion in Midtec Paper
Corp. v. United States about a radical restructuring of the rail
sector. See Midtec Paper Corp. v. United States, 857 F.2d at 1507. And
even when that regulatory intervention occurs, given part 1145's
express recognition of the incumbent rail carrier's ability to continue
to compete for a successful petitioner's traffic even when a switch is
prescribed, the rule furthers section 10101(4)'s goal of relying
appropriately on competition among rail carriers. A shipper that
obtains a prescribed switch after careful Board analysis will have the
ability to elect the service provider that best addresses its needs.
See NPRM, 88 FR at 63901; see also Del. & Hudson, 167 I.C.C. at 723
(``Additional rail competition is a clear public benefit . . . , one
which is endorsed by rail transportation policy announced in the
Staggers Act.'').
The Carriers' Proposed Approach Is Not Required by Law
The elaborate, case-by-case approach that rail carriers advocate is
not required by law and, at the same time, would undermine the policy
goals that the Board seeks to advance here. In the carriers' view, as a
condition to prescribing a reciprocal switching agreement, the Board
would need (1) to compare the quality of service to the petitioner
versus the quality of service to other customers, (2) to assess whether
any differences in the quality of service were reasonable, (3) to
identify the petitioner's business needs, (4) to identify the level of
transportation service that would reasonably meet those needs, and (5)
to determine which rail carrier could provide better service. (See,
e.g., AAR Comments 19-23.) If this approach were required by law, as
alleged by carriers, then the Board would lose the discretion that is
inherent in section 11102(c)--the discretion to respond to different
types of needs and to changing needs by prioritizing different
objectives in section 10101 as appropriate to meet those needs. See
Midtec Paper Corp. v. United States, 857 F.2d at 1497, 1500 (stating
that the question is whether the agency arrived at a reasonable
accommodation of the conflicting policies in its governing statute).
The most glaring deficiency in carriers' argument is that nothing
in the text of section 11102(c) suggests that the Board's discretion is
limited to where the Board undertakes carriers' elaborate
[[Page 38651]]
approach. Likewise, none of the cases that the carriers cite suggest
that the carriers' approach is required by law. In Jamestown, the
petitioners sought the prescription of terminal trackage rights under
what is now section 11102(a). The requested prescription would have
required the incumbent rail carrier to construct terminal-area
facilities to enable the petitioners to directly reach another rail
carrier (as it stood, the petitioners drayed their shipments to the
other carrier). Jamestown, 195 I.C.C. at 289-91. In denying the
prescription, the ICC noted that the prescription would have caused
distortions by requiring the incumbent carrier to invest in facilities
for the benefit of its weaker competitor. Id. at 291. The ICC concluded
therefore that, while the prescription would have provided a
convenience to the petitioners, more was needed to meet the public
interest standard. To outweigh the harm that the prescription would
cause, the petitioners would had to have shown more than a mere
convenience:
Where something substantial is to be taken away from a carrier
for the sole benefit of [the petitioners], and with no corresponding
benefit to the carrier, as in this case, we are inclined to the view
that some actual necessity or compelling reason must be shown before
we can find such action in the public interest.
Id.
The circumstances that led the ICC to look for a compelling need in
Jamestown have no meaningful parallel to circumstances that could arise
under part 1145. A prescription under part 1145 would not require the
incumbent carrier to make investments for the benefit of a competitor,
involves a limited form of intervention, and would be granted only if
the carriers did not adequately demonstrate infeasibility or undue
impairment to their operations or ability to serve other customers,
among other limitations and protections under this rule. Of critical
note, the NPRM made clear that a carrier's loss of a customer's
business as a result of a prescription based on a failed performance
standard is not a loss that needs to be redressed, (see NPRM, 88 FR at
63909), and part 1145 includes protections to avoid any associated
undue impairment to the carrier's ability to service other customers,
thus minimizing any potential concerns. Indeed, an incumbent carrier's
financial losses in such a case would largely reflect its own service
failure--it failed to meet one of three performance standards, and the
carrier cannot offer an affirmative defense to excuse the service
failure--and the shipper's election of the alternate carrier once given
the option to choose rail providers. For these reasons, in the present
context, there is no need for the Board to find, as a condition to a
prescription, a heightened need that would outweigh harm to the
incumbent carrier. As indicated by the ICC in Delaware & Hudson, the
interest of the shipping public in securing better service is not a
mere convenience. Del. & Hudson, 367 I.C.C. at 723 (stating that there
is a light burden under the statute for a petitioner that seeks the
potential to secure better rail service through the introduction of an
additional rail carrier).
Like carriers' reliance on Jamestown, carriers' reliance on Central
States is misplaced. There, the petitioner sought the prescription of
either trackage rights or a reciprocal switching agreement so that the
petitioner could have a shipment moved from the terminus of one
carrier's tracks to a destination on another carrier's tracks 1.4 miles
away. The ICC found that the proposed arrangement was intended to
achieve business purposes unrelated to the adequacy of rail service
and, moreover, would have threatened the affected carrier's already
weak financial standing. The ICC denied the petition, reasoning that,
in light of that harm, the public interest required more than a showing
that the prescription would provide a convenience to the petitioner.
Cent. States, 780 F.2d at 670-71, 679.
As with Jamestown, the circumstances that led the ICC to look for a
compelling need in Central States have no meaningful parallel under
part 1145. The harm that would have arisen in Central States--
substantial harm to the affected carrier's already weak financial
standing--is unlikely to arise under part 1145 because today each of
the Class I carriers' financial standing is significantly stronger, see
R.R. Revenue Adequacy--2022 Determination, Docket No. EP 552 (Sub-No.
27) (STB served Sept. 5, 2023); because a prescription under part 1145
would, at most, result in the incumbent carrier's loss of the
petitioner's business for the limited duration of the prescription; and
because of the numerous other protections and limitations in this rule.
See, e.g., 49 CFR 1145.6. For example, if the incumbent carrier were to
demonstrate that a prescription under part 1145 would unduly impair
operations or its ability to serve other customers, then the Board
would not grant the prescription as provided for in 49 CFR 1145.6(b).
Accordingly, the introduction of an alternate carrier through a
prescription under part 1145 would only occur when there are potential
public benefits and, given the Board's consideration of relevant
issues, the risk of cognizable negative impacts is greatly minimized.
The ICC's decision in Delaware & Hudson, while cited by carriers,
directly contradicts carriers' narrow approach to implementing the
public interest standard in section 11102(c). There the ICC cited
Jamestown for the proposition that the agency must find ``some actual
necessity or compelling reason'' to prescribe a reciprocal switching
agreement. At the same time, the ICC indicated the potential benefits
of competition are not merely something convenient or desirable to a
petitioner, as those benefits are normally presumed to be in the public
interest. Del. & Hudson, 367 I.C.C. at 723. The ICC prescribed a
reciprocal switching agreement in Delaware & Hudson based on these
benefits plus the expansion of shipping options to customers in the
terminal area and the lack of substantial harm to the complaining
carrier. Id. at 723-24, 726.
In contrast, the ICC did not make the findings that AAR asserts are
necessary pre-conditions to prescription of a reciprocal switching
agreement. The ICC did not examine whether customers had a compelling
need for the prescription as evidenced by regulatory determinations
that customers had experienced consistently inadequate service or that
the inadequacy persisted. The ICC did not examine whether customers'
businesses had been harmed by existing service and whether any such
harm was proportionally greater than harm to other customers. Finally,
the ICC did not examine whether an inadequacy in service would be cured
by alternate rail service. If anything, part 1145 is more conservative
than the ICC's approach in Delaware & Hudson given that, under part
1145, prescription of a reciprocal switching agreement is available
only if the incumbent carrier failed a performance standard and the
other conditions to a prescription under part 1145 were met.\3\
---------------------------------------------------------------------------
\3\ The approach and goals in part 1147 of the Board's
regulations differ from those in part 1145 as well as from those in
part 1144 of the Board's regulations. Part 1147 (``Temporary Relief
Under 49 U.S.C. 10705 and 11102 for Service Inadequacies'') was
issued in conjunction with the Board's issuance of regulations on
emergency service orders in 1998. Part 1147 was designed to create a
regulatory option to address a service-based issue that was longer-
term than an emergency service order (and distinct from the
permanent prescription of access to an alternate carrier as provided
for in part 1144). Part 1147 was designed specifically to replace an
incumbent carrier for the duration of a service inadequacy. See
Expedited Relief for Serv. Inadequacies, 3 S.T.B. 968 (1998), 63 FR
71396, 71396-97 (published Dec. 28, 1998). Therefore, part 1147
calls for the Board to (1) examine whether there has been a
substantial, measurable deterioration or other demonstrated
inadequacy in the incumbent carrier's service, and (2) consider
whether another rail carrier is committed to providing alternate
service. See 49 CFR 1147.1(a), (b)(iii).
While part 1147 is thus similar in some respects to the approach
that AAR advocates here, part 1147 does not require several findings
that AAR claims are required by statute. As examples, part 1147 does
not require a finding of disproportionate harm to the petitioner or
a finding that service to the petitioner is worse than service to
other customers. But more importantly, as discussed above, none of
part 1147, part 1144, and part 1145 seeks to define the absolute
limits of the Board's discretion in implementing section 11102(c).
The approach under each regulation is designed to address a specific
concern; each approach reflects a particular prioritization or
balancing of legislative objectives as reasonably appropriate to
addressing the specific concern at hand. See Midtec Paper Corp. v.
United States, 857 F.2d at 1497, 1500. The range of approaches
across the Board's regulations and the case law underscores AAR's
error in asserting that, by law, the Board's discretion to advance
the public interest through section 11102(c) is limited to the
overly restrictive approach that AAR advocates.
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[[Page 38652]]
All that remains of carriers' legal argument is an unremarkable
statement in the legislative history that the ``practicable and in the
public interest'' standard in section 11102(c) is ``the same standard
the Commission has applied for many years in considering whether to
order the joint use of terminal facilities.'' See H.R. Rep. No. 1430 at
116; see also 125 Cong. Rec. 15309, 15319 (1979). Without support,
carriers contend that this general statement implies a host of
restrictions on the Board's statutory authority. Properly understood,
however, the statement merely points out a parallel between section
11102(a) on terminal trackage rights and section 11102(c) on reciprocal
switching: both provisions use the ``practicable and in the public
interest'' standard. Nothing in Congress's mere observation of that
parallel suggests that henceforth, in implementing the public interest
standard, the agency was to be bound by policy decisions or approaches
that the agency had adopted in the past.
Rail carriers' interpretation of the ``same standard'' language
fails on another level. Carriers imply that Congress meant to equate
the public interest standard with the ``compelling need'' that the ICC
looked for in Jamestown, even though neither the statutory text nor the
legislative history includes any reference to a compelling need or to
Jamestown. In fact, the ICC's inquiry in Jamestown grew out of the
peculiar facts of that case; in other pre-Staggers cases in which the
ICC applied the public interest standard, the ICC said nothing about a
compelling need. See, e.g., Seaboard Air Line R.R.--Terminal Facilities
of Fla. E. Coast Ry., 327 I.C.C. 1, 7-8 (1965) (finding that the
proposed service arrangement was in the public interest based on
anticipated operating efficiencies, without reference to whether there
was a compelling need for the arrangement).
Finally, even if a compelling need were required under the public
interest standard in section 11102(c), a prescription under part 1145
would meet that standard. Part 1145 promotes adequate rail service both
by introducing an alternate rail carrier via an appropriately defined
and scoped reciprocal switching agreement when there have been
sufficient indications of service issues (without the establishment of
an affirmative defense or undue impairment) and by more broadly
creating an incentive for rail carriers to provide adequate service.
This approach--both for individual cases and at a broader systemic
level--will help to mitigate the substantial harm that inadequate rail
service imposes on the national economy. NPRM, 88 FR at 63900. At the
same time and as noted throughout this decision, the Final Rule
contains numerous protections against undue impairment, infeasibility,
and operational impairment, including about carriers' investments and
the ability to raise capital to the extent that results in undue
impairment or an inability to serve other shippers. See Analytical
Justification. Part 1145 further promotes adequate rail service by
providing a clearer path to a prescription under section 11102(c),
whereas carriers' approach would impose undue barriers.
Intermodal Competition
Carriers erroneously assert that, as a condition to prescribing a
reciprocal switching agreement, the Board must find that the petitioner
lacks an adequate option via another mode of transportation. (See,
e.g., AAR Comments 78-79; BNSF Comments 14-15.) Neither the text of
section 11102(c) nor the legislative history suggests that the Board's
discretion to prescribe a reciprocal switching agreement is limited to
where there is an absence of intermodal competition.\4\ See Del. &
Hudson Ry. v. Consol. Rail Corp., 366 I.C.C. 845, 854 (1982), affirmed,
367 I.C.C. at 727 (finding that the agency's authority to prescribe a
reciprocal switching agreement is not limited to where there is an
absence of intermodal competition). The presence or absence of
intermodal competition might be relevant for purposes of part 1144,
given that part 1144 seeks to remedy or prevent an act that is contrary
to the competition policies of section 10101 or is otherwise
anticompetitive. In that context, a finding of intermodal competition
might inform whether the incumbent carrier could have abused market
power for purposes of part 1144. See Midtec Paper Corp. v. United
States, 857 F.2d at 1513. As is well established, though, part 1144
does not reflect the full breadth of the Board's discretion under
section 11102(c). The statute itself does not require a finding of
conduct that is anticompetitive or contrary to the competition policies
of section 10101, much less a finding that the incumbent carrier holds
or abused market power. See also 49 CFR part 1147 (providing for a
prescription without regard to whether the incumbent carrier holds or
abused market power).
---------------------------------------------------------------------------
\4\ The absence of a requirement in section 11102(c) to consider
intermodal competition stands in contrast to other sections where
Congress has expressly required the Board to consider intermodal
competition. See, e.g., 49 U.S.C. 10707 (requiring the Board to
consider competition from other rail carriers and other modes of
transportation when making market dominance determinations).
---------------------------------------------------------------------------
Here, there is no need either to find that the petitioner lacks an
intermodal option or that the incumbent carrier holds or abused market
power in serving the petitioner. To require those findings would be
inconsistent with the specific concerns that the Board seeks to address
through part 1145. The types of service-related problems that part 1145
seeks to address--insufficient reliability and excessive transit
times--might reflect an abuse of market power vis-[agrave]-vis the
petitioner but might also reflect broader management or operating
decisions that are not well directed toward the development of a sound
rail system. Part 1145 creates an incentive to avoid service issues, to
the benefit of the rail system at large, by providing for the
introduction of an alternate carrier in individual cases as would
enable the shipper to choose a more efficient and responsive rail
carrier.\5\
---------------------------------------------------------------------------
\5\ It is beyond the scope of this proceeding to address
whether, for the duration of a reciprocal switching agreement under
part 1145, a carrier that served the petitioner necessarily would
lack market dominance within the meaning of section 10707 and
therefore would not be subject to rate review with respect to that
carrier's line-haul rate to the petitioner. (See, e.g., BNSF Reply
16; Coal. Ass'ns Comments 60; Coal. Ass'ns Reply 22-23.) The
question of market dominance could be presented for consideration on
a case-by-case basis, under the standards in section 10707, in the
context of any challenge to the relevant line-haul rate.
---------------------------------------------------------------------------
The Ratification Doctrine Does Not Preclude Adoption of Part 1145
CPKC's ratification argument--that, by not acting on legislative
proposals after Midtec Paper Corp. v. United States, Congress mandated
a narrow
[[Page 38653]]
interpretation of section 11102, (see CPKC Reply 5 n.2)--is unfounded.
First, CPKC mischaracterizes the D.C. Circuit's decision in Midtec
Paper Corp. v. United States. When the court suggested that Congress
did not envision a radical restructuring of the rail sector, see 857
F.2d at 1507, the court did not suggest that the agency's discretion
under the statute was limited to application of the standards in part
1144. To the contrary, the court noted that, through part 1144, the
agency had narrowed its discretion. Id. at 1500; see also Balt. Gas &
Elec., 817 F.2d at 115 (leaving open the question whether a broader
approach to implementing the agency's reciprocal switching authority
would meet the objectives of the Staggers Act). CPKC's vague assertion
that Midtec Paper Corp. v. United States confirmed ``the limited scope
of the statute'' ignores the court's actual language.
Second, as relevant to part 1145, no reasonable inference can be
drawn from legislative inaction on bills that were introduced after
Midtec Paper Corp. v. United States. To find that Congress ratified or
acquiesced to the interpretation of a statute, there must be
overwhelming evidence that Congress considered and rejected the precise
issue at hand. See Rapanos v. United States, 547 U.S. 715, 750 (2016).
CPKC has failed to meet that burden, offering nothing to suggest that
Congress has ever considered much less rejected an approach similar to
the approach in part 1145. The inability to draw any relevant inference
from legislative inaction after Midtec Paper Corp. v. United States is
underscored by the lack of connection between part 1145 and the concern
that the D.C. Circuit identified in Midtec Paper Corp. v. United
States. Under part 1145, a prescription is not warranted merely by the
fact that the petitioner has direct physical access to only one Class I
carrier. A time-limited prescription would not be issued under part
1145 unless the shipper is only served by one Class I carrier, only in
a terminal area, and only after the carrier failed to meet one of three
performance standards, no affirmative defenses were established, and
infeasibility or undue impairment were not demonstrated. The fact that
part 1145 does not implicate the D.C. Circuit's concern about a radical
restructuring further undermines CPKC's dubious theory that, by not
acting after Midtec Paper Corp. v. United States, Congress precluded
the approach in part 1145.
Finally, it would be unreasonable to conclude that--through
inaction, with no indication of legislative intent--Congress reversed
its affirmative decision to grant the agency broad authority to
prescribe reciprocal switching agreements. If anything, Congress'
reenactment of the public interest standard in section 11102(c)
confirms the agency's broad authority in this context. See Reciprocal
Switching (2016 NPRM), Docket No. EP 711 (Sub-No. 1) slip op. at 11-13
(STB served July 27, 2016), 81 FR 51149 (published Aug. 3, 2016).
Analytical Justification
Class I rail carriers suggest that the Board has failed to
adequately support promulgation of part 1145. First, the carriers
suggest that the Board must go farther than it does in analyzing the
effects that the rule might bring about. Second, the carriers suggest
that the levels of the performance standards in part 1145 are not
adequately supported by record evidence. The following discussion
addresses each argument in turn, explaining why each lacks merit.
Scope of Analysis
Comments
AAR asserts that, under principles of reasoned decision making, the
Board must assess the cumulative advantages and disadvantages of
promulgating part 1145 and must find that the advantages outweigh the
disadvantages, even if the Board would later consider advantages and
disadvantages in applying the rule on a case-by-case basis. (See AAR
Comments 113-15 (citing Michigan v. EPA, 576 U.S. 743, 753 (2015)).)
AAR then directs a broad challenge at any rule that provides for
the prescription of reciprocal switching agreements, without regard to
the specific provisions of that rule. (See AAR Comments 113-15.)
According to AAR, the promulgation of any such rule would create
numerous disadvantages. First, in AAR's view, any expansion of ``forced
switching'' would directly impair investment by increasing operational
burdens, reducing resiliency, increasing costs, and reducing profits.
(Id. at 115-21.) Second, in AAR's view, so-called ``sweeping''
switching requirements would distort the market for transportation
service, in contradiction of congressional policy to achieve sound
economics in transportation. AAR states that, where switching is
economically efficient, it is likely to occur voluntarily. (Id. at 116-
19, 123; id., V.S. Orszag & Eilat at 14 (market distortions could
result from regulatory intervention where there has been no
demonstration of a deviation from efficient market outcomes); see also
AAR Comments 9, 24-25 (asserting that, under part 1145, shippers could
seek prescription of a reciprocal switching agreement, not because they
needed alternate service, but as a means to extract rate concessions at
others' expense).)
Third, in AAR's view, sweeping switching requirements would
undermine the use of differential pricing, which AAR characterizes as
critical to the health of the rail network. (Id. at 122 (citing Pet.
For Rulemaking to Adopt Revised Competitive Switching Rules (2012
Rulemaking), EP 711, slip op. at 7 (STB served July 25, 2012)).)
Additional disadvantages alleged by AAR include inefficient routing,
increased congestion, environmental costs that are associated with
increased use of fuel and emissions, train delays, higher risk of
service failure due to increased ``touches,'' depressed incentives for
future investment with resulting reductions in the quality of service,
operational inefficiencies, safety risks, and threats to carriers'
ability to recover the costs of their entire networks and to maintain
financial viability. (AAR Comments 113.)
While naming a litany of alleged disadvantages, AAR asserts that
provision for the prescription of reciprocal switching agreements would
provide no public benefit. AAR suggests that the only benefit would be
any benefit that accrued to the successful petitioner and that this
benefit would impose burdens on others--for example, by causing
disruptions or inefficiencies in rail service on a system-wide basis.
(Id. at 119.)
AAR suggests that the alleged disadvantages of promulgating part
1145 can to some extent be quantified. (Id. at 114.) According to AAR,
the Board has recognized the need for data-driven rulemaking. (Id.
(citing 2012 Rulemaking, EP 711).)
The Board's Assessment
The Board has engaged in reasoned decision-making, and AAR's
arguments to the contrary lack merit. First, AAR mischaracterizes the
standard for reasoned decision-making that applies in the present
context. Second, the disadvantages that AAR alleges in connection with
promulgation of part 1145 do not reflect the actual regulation.
AAR Mischaracterizes the Applicable Standard
An agency engages in reasoned decision making under the
Administrative Procedure Act, 5 U.S.C. 551-559, when the agency reaches
a logical conclusion based on relevant factors. Motor Vehicle Mfrs.
Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42-43 (1983). The
factors that the
[[Page 38654]]
agency must consider are defined by the governing statute. See Michigan
v. EPA, 576 U.S. 743. As discussed above, the relevant factors in
implementing section 11102(c) are the RTP factors, which the Board has
weighed as discussed in Legal Framework.
AAR errs in suggesting that, under Michigan v. EPA, the Board must
go farther than it does in addressing the impact of part 1145. In
Michigan v. EPA, the EPA decided to subject power plants to certain
minimum, regulatory standards under the Clean Air Act. The Court found
that, under the ``appropriate and necessary'' standard in the Clean Air
Act, the EPA should have considered what it would cost power plants to
comply with the regulatory standards in question. The Court reasoned
that, within the statutory framework, the ``appropriate and necessary''
standard was properly interpreted as calling for consideration of the
cost of compliance. The Court relied in this respect on the fact that
related provisions of the Act expressly directed the EPA to consider
the cost of compliance. Michigan v. EPA, 576 U.S. at 749-54. The
Court's assessment of the factors that the EPA needed to consider
rested specifically on the relevant provisions of the Clean Air Act.
Id.
Michigan v. EPA therefore does not suggest that other agencies, in
implementing other statutory provisions, must consider the same
factors. See Env't Comm. of Fla. v. EPA, 94 F.4th 77, 97-98 (D.C. Cir.
2024). Of equal significance, Michigan v. EPA left in place the
principle that agencies have broad discretion in how to consider
relevant factors.\6\ Even in Michigan v. EPA, where the Court held that
the agency must consider quantifiable costs, the Court declined to hold
that the EPA must conduct a particular type of cost-based analysis:
``It will be up to the Agency to decide (as always, within the limits
of reasonable interpretation) how to account for costs.'' Michigan v.
EPA, 576 U.S. at 759. Here, neither section 11102(c) nor any related
statutory provision indicates that the Board must undertake a
particular form of analysis when implementing section 11102(c).
---------------------------------------------------------------------------
\6\ See Stilwell v. Off. of Thrift Supervision, 569 F.3d 516,
519 (D.C. Cir. 2009) (``The [Administrative Procedure Act] imposes
no general obligation on agencies to produce empirical evidence.'');
Sacora v. Thomas, 628 F.3d 1059, 1067 (9th Cir. 2010) (an agency is
entitled to rely on its own expertise in promulgating a regulation);
see also Northport Health Servs. of Ark. v. U.S. Dep't of Health &
Hum. Servs., 14 F.4th 856, 874 (8th Cir. 2021) (an agency is
entitled to rely on anecdotal evidence in promulgating a
regulation).
---------------------------------------------------------------------------
Michigan v. EPA likewise does not suggest that the Board must
speculate on the cumulative impacts of part 1145. As noted above, part
1145 establishes a framework for case-by-case consideration of the
``practicable and in the public interest'' standard in section 11102(c)
in the context of a petition for prescription of a reciprocal switching
agreement. While the Board expects that the number of petitions under
part 1145 will not be significant, the actual number will depend on
factors that the Board cannot now predict--factors that, among other
things, will include rail carriers' management and operating decisions.
Whether the Board grants a given petition will also depend on factors
that the Board cannot now predict, such as whether the incumbent
carrier had an affirmative defense and whether the carriers could
demonstrate undue impairment as provided for under part 1145. Unlike
part 1145, the regulatory scheme in Michigan v. EPA did not involve
case-by-case consideration. The future action that the EPA contemplated
would have imposed more stringent standards on power plants, beyond the
minimum standards that resulted from the EPA's original decision to
regulate. Michigan v. EPA, 576 U.S. at 756-57. Michigan v. EPA
therefore does not suggest that--when a rule establishes requirements
that will be implemented only on a case-by-case basis, and when the
outcomes in individual cases will turn on variable facts that the
agency cannot reasonably predict--the agency must nevertheless
speculate on outcomes as a condition to promulgating the rule. In any
event, as discussed in Legal Framework, the Board has considered the
many positive impacts this regulation will have on the incentive for
carriers to provide adequate service and the concerns that may arise
from particular switching orders. The Board has found that the
qualitative advantages of part 1145 under the RTP outweigh those
concerns and, in reaching this conclusion, has appropriately considered
the relevant factors.
AAR's reliance on the 2012 Rulemaking--for the proposition that the
Board should conduct a more data-driven analysis here--is similarly
unpersuasive. Pending before the Board at that time was a proposal by
the National Industrial Transportation League (NITL). NITL's proposal
was to provide, by rule, for the prescription of a reciprocal switching
agreement when four conditions were met: (1) the shipper was served by
a single Class I rail carrier; (2) there was no effective intermodal or
intramodal competition for the relevant line-haul movement; (3) there
was or could be ``a working interchange'' within a ``reasonable
distance'' of the shipper's facility; and (4) switching would be safe
and feasible, with no adverse effect on existing service. The proposal
would have established conclusive presumptions for when the second and
third elements of the four-part test were met. For example, the Board
would conclusively presume that there was no effective intermodal or
intramodal competition for a movement if the incumbent carrier's
associated revenues exceeded its variable costs by a given ratio or if
the incumbent carrier had handled a given amount of the relevant
traffic. See 2012 Rulemaking, EP 711, slip. op. at 4.
The Board found that these conclusive presumptions would tend to
make only certain types of shippers eligible for a prescription and,
indeed, would result more or less automatically in prescriptions on
behalf of those shippers. Id. The Board expressed concern that--if
those shippers obtained lower rates on a widespread basis, due to the
widespread prescription of reciprocal switching agreements on their
behalf--then other shippers (those that remained captive) might bear an
excessive portion of system costs. Id. at 7. The Board therefore sought
empirical evidence on three impacts of NITL's proposal: (1) the impact
on rates and service for qualifying shippers; (2) the impact on rates
and service for captive shippers that would not qualify; and (3) the
impacts on the financial condition of the rail industry and on the
efficiency of the industry's operations. Id. at 2.
In 2016, the Board rejected NITL's proposal, concluding that the
proposal would unduly favor certain shippers. The Board decided, as
part of the same decision, to propose a different approach to
reciprocal switching--an approach that, rather than relying on
conclusive presumptions, left the prescription of reciprocal switching
agreements almost entirely to case-by-case basis evaluation. See 2016
NPRM, EP 711 et al., slip. op. at 13-15, 16, 20. Given the difference
in the approach in the 2016 proposal, the Board did not call for
empirical evidence on the impact of that proposal.
The Board called for a particular type of analysis in considering
NITL's proposal because, due to the nature of the proposal, it seemed
likely that the proposal would have a discernible and predictable
impact on rates and service. The Board did not call for a comparable
analysis in considering the 2016 proposal, which left implementation
almost entirely to the Board's discretion on a case-by-case basis. It
would have been impractical, in that context, to attempt to predict the
impact of the proposal on rates or service. Part 1145
[[Page 38655]]
is like the 2016 proposal in this sense. Under part 1145, the Board
will prescribe a reciprocal switching agreement only on a case-by-case
basis and only upon making specific determinations under the
``practicable and in the public interest'' standard.
AAR Mischaracterizes the Impact of Part 1145
The Board finds unpersuasive AAR's claim that promulgation of part
1145 would impose significant disadvantages. AAR's list of alleged
disadvantages is notably directed at any regulation that the Board
might promulgate on reciprocal switching, no matter what standards the
Board established through that regulation. (See AAR Comments 113.) On
that level alone, AAR's list of alleged disadvantages is flawed as a
basis for challenging promulgation of part 1145; AAR has failed to
establish a sufficient nexus between its list of alleged disadvantages
and promulgation of part 1145.
Of particular note, a prescription under part 1145 would not
``force'' the incumbent carrier to relinquish the petitioner's shipment
to another rail carrier. A prescription under part 1145 would merely
establish the legal foundation for the petitioner's shipment to be
transferred to the other rail carrier should the shipper elect to take
service from that carrier. Whether a transfer actually occurred would
be determined by the petitioner, who could choose between competitive
options--the services of the incumbent railroad and those of the
alternate carrier. Within this regulatory scheme, particularly in light
of the numerous protections in the rule, a carrier that desires more
certainty, for example with respect to its capital investment
decisions, can ensure that it provides high level service, can
negotiate suitable contracts when appropriate, and can otherwise work
with its customers to avoid regulatory intervention under part 1145.
Nor will part 1145 result in ``sweeping switching requirements,''
given numerous limitations that are built into part 1145. First, under
part 1145, the Board will prescribe a reciprocal switching agreement
only on behalf of a shipper or receiver that is served by a single
Class I rail carrier (or affiliate), only in a terminal area, and only
after the incumbent carrier failed to meet one of three performance
standards. Second, a prescription would not be available under part
1145 for movements that occur under valid transportation contracts or
for movements of exempt commodities. As explained below, a shipper of
an exempt commodity would need to obtain revocation of the exemption
before obtaining prescription of a reciprocal switching agreement under
part 1145. See Contract Traffic and Exempt Traffic. As a result of
these limitations, only a relatively small portion of all Class I
movements are even potentially eligible for a prescription under part
1145. See ``Freight Rail Pricing,'' Report to Congressional Committees
by the U.S. Government Accountability Office, GAO-17-166 at 5 (December
2016). Third, under part 1145, the Board will not prescribe a
reciprocal switching agreement when there is demonstrated infeasibility
or undue impairment to a carrier's operation or ability to serve other
customers as provided for in part 1145. Fourth, a reciprocal switching
agreement that is prescribed under part 1145 would remain in place
after its initial duration only to the extent that the carrier failed
to meet standards for termination or chose not to seek termination.
Fifth, the rule allows incumbent carriers to offer affirmative defenses
regarding a failure to meet a performance standard. It not only
specifically enumerates multiple affirmative defenses but also allows a
carrier to offer additional affirmative defenses on a case-by-case
basis. In all, due to the reasonably tailored approach in part 1145,
there is no basis to assume that part 1145 will lead to significant
adverse overall impacts.
Besides lacking a sufficient nexus to part 1145, AAR's list is
flawed on another fundamental level. Underlying the list is a
mischaracterization of the nature of reciprocal switching. Under the
proper characterization, reciprocal switching is merely an incidental
movement to the line-haul movement. When a customer chooses to rely on
a reciprocal switching agreement, the incumbent carrier simply moves
the customer's shipment to/from the alternate carrier's switching yard
for the customer's terminal area rather than to/from the incumbent's
yard for that terminal area. These types of movements are routine in
the rail industry and are governed by applicable safety and related
regulations. In addition, as described throughout this decision, part
1145 includes protections against infeasibility and undue operational
impairment. Any change in fuel use or emissions would be minimal;
shippers have incentives to select the route that is overall most
efficient, which may often be the route that is most fuel efficient.
(See AAR Comments, 113-21; id., V.S. Orszag & Eilat at 15-17.) By
extension, given that an individual prescription is unlikely to impose
adverse impacts in these respects, it is unlikely that promulgation of
part 1145 will impose meaningful cumulative, adverse impacts in these
respects.
The protections that are built into part 1145 also will allow
carriers to raise concerns about investments and the ability to attract
capital (see id., V.S. Orszag & Eilat at 6), in that the Board would
consider arguments in individual cases that a proposed prescription
would impair investments to the point of unduly impairing operations or
the ability to serve other customers. Limited eligibility under part
1145 (for example, the fact that a prescription would be available
under part 1145 only for points of origin or final destination in a
terminal area) also protects against substantial, cumulative adverse
impacts on carriers' revenues, ability to attract capital, and ability
to engage in differential pricing.
Finally, the Board disagrees that the introduction of an alternate
rail carrier under this framework, especially when there are sufficient
indications that sub-optimal service was provided, could substantially
distort the market. (See, e.g., AAR Comments, V.S. Orszag & Eilat at 10
(suggesting that the Board's intervention when service dips below a
certain threshold level could result in market distortions); id. at 14
(``Cases in which switching has not happened by voluntary agreement
require an explanation for why that is the case if switching is indeed
the operationally and economically efficient outcome.''); AAR Comments
123.) A voluntary agreement between carriers to transfer a shipment
from one carrier to another might enable the carriers to maximize their
profits, but that outcome does not necessarily determine whether the
carriers have made efficient investment and operating decisions from
the perspective of the rail network as a whole.
Levels of the Performance Standards
Part 1145 relies on conservative performance standards--standards
that are set below common service expectations and goals--as indicators
of where it might be beneficial, consistent with the purposes of part
1145, to introduce an alternate rail carrier via an appropriately
defined and scoped reciprocal switching agreement. As described in the
NPRM, 88 FR at 63900, the Board has used two points of reference in
setting the levels of the performance standards in part 1145. The first
point of reference is customers' service expectations. Through public
hearings in early 2022 and through numerous ``ex parte'' meetings since
then, the Board has collected extensive
[[Page 38656]]
information about customers' service expectations. See, e.g., Hr'g Tr.
64:5 to 64:9, Apr. 26, 2022, Urgent Issues in Freight Rail Serv., EP
770; Ex Parte Mtg. Summary, Mar. 31, 2022, Reciprocal Switching, EP 711
(Sub-No. 1). The record shows that, when customers expressed heightened
concern about carriers' performance, carriers' performance was falling
dramatically.\7\ There is also significant consistency among customers
in their service expectations.\8\ These factors provide sufficient
confidence in the context of part 1145, given its specific design and
purposes, that the service expectations that customers have identified
in these proceedings generally reflect a level of rail service that is
needed for customers to conduct their businesses on a reasonably
efficient basis. While the performance standards in part 1145 are set
with reference to customers' service expectations, the standards are
set at or below the level of service that many customers have said is
needed to avoid serious disruptions in their operations. A carrier's
failure to meet one or more of the performance standards therefore is
strongly indicative that the introduction of another carrier (which
would allow market forces to address those concerns, subject to
appropriate protections) could be beneficial.
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\7\ See e.g., Hr'g Tr. 544:21 to 545:4, Apr. 27, 2022, Urgent
Issues in Freight Rail Serv., EP 770. The evidence underscores the
critical need for improved rail service reliability. When the Board
held its hearing in EP 770, CSXT and UP had 69% and 63% OETA for
manifest traffic, respectively. See CSXT Performance Data at Row
163, May 18, 2022, and UP Performance Data at Row 182, May 18, 2022,
available at <a href="http://www.stb.gov/reports-data/railservice-data/">www.stb.gov/reports-data/railservice-data/</a>. In
addition, according to 10-K filings made with the U.S. Securities
and Exchange Commission (SEC), CSXT had carload trip plan compliance
of 64% in the 2022 fiscal year, and UP had manifest/automotive car
trip plan compliance of 59% in the 2022 fiscal year, but 71% in
fiscal year 2020. These SEC filings are available at <a href="http://www.sec.gov">www.sec.gov</a>
(open tab ``Filings'', select ``Search for Company Filings'', and
then select ``EDGAR full text search'').
\8\ (See Coal. Ass'ns Comments 22; LyondellBasell Comments 2;
DCPC Comments 6-8; NGFA Comments 12; PRFBA Comments 7; GISCC
Comments 5; AFPM Comments 8-9; API Comments 3-4; NSSGA Comments 6-7;
EMA Comments 6 PRFBA Comments 6-7 (each seeking a reliability
standard as defined in the NPRM of at least 70%); see also Coal.
Ass'ns Comments 32; ACD Comments 5; NGFA Comments 12-13; Olin
Comments 6 (each seeking a service consistency standard where a
failure would result from an increase of 15% or less in transit
time); see, e.g., Coal. Ass'ns Comments 5; NSSGA Comments 9; AFPM
Comments 12; EMA Comments 8; PRFBA Comments 9; DCPC Comments 10; API
Comments 5; NGFA Comments 13; FRCA/NCTA Comments 2 (each seeking an
ISP standard of 90%).)
---------------------------------------------------------------------------
The Board's second point of reference in setting the levels of the
performance standards is the evidence that the Board collected in 2022
and 2023 in reviewing the performance of Class I rail carriers. That
evidence corroborates the service expectation levels that are suggested
by customers. The Board began its recent service oversight during the
early 2020s, when it was widely recognized that delays and other
deficiencies in the transportation of freight were substantially
impairing the national economy.\9\ Due to the pervasiveness of poor
rail service, testimony during a public hearing in March 2022--a
hearing in Docket No. EP 711 (Sub-No. 1) that was meant to explore
competitive access on a more general level--often turned to customers'
need for better service. See, e.g., Hr'g Tr. 105:4 to 105:17, Mar. 15,
2022, Reciprocal Switching, EP 711 (Sub-No. 1) et al. At roughly the
same time as that hearing, the Board received several reports--
including from the Secretary of Agriculture, U.S. Senator Shelley Moore
Capito, and stakeholders--about the serious impact that poor service
was having on rail customers. See Urgent Issues in Freight Rail Serv.,
EP 770, slip op. at 2 n.1 (STB served Apr. 7, 2022) (citing Honorable
Thomas J. Vilsack, USDA Letter, Mar. 30, 2022, Reciprocal Switching, EP
711 (Sub-No. 1); Letter from Honorable Shelley Moore Capito, to Board
Members Martin J. Oberman, Michelle A. Schultz, Patrick J. Fuchs,
Robert E. Primus, & Karen J. Hedlund (Mar. 29, 2022), available at
<a href="http://www.stb.gov">www.stb.gov</a> (open tab ``News & Communications'' & select ``Non-Docketed
Public Correspondence''); Letter from NGFA to Board Members Martin J.
Oberman, Michelle A. Schultz, Patrick J. Fuchs, Robert E. Primus, &
Karen J. Hedlund (Mar. 24, 2022), available at <a href="http://www.stb.gov">www.stb.gov</a> (open tab
``News & Communications'' & select ``Non-Docketed Public
Correspondence''); Letter from SMART-TD to Chairman Martin J. Oberman
(Apr. 1, 2022), available at <a href="http://www.stb.gov">www.stb.gov</a> (open tab ``News &
Communications'' & select ``Non-Docketed Public Correspondence'')).
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\9\ See, e.g., Fed. Reserve Bank of Cleveland, Matthew V. Gordon
and Todd E. Clark, ``The Impacts of Supply Chain Disruptions on
Inflation,'' Number 2023-08 (May 10, 2023), <a href="http://www.clevelandfed.org/publications/economic-commentary/2023/ec-202308-impacts-supply-chain-disruptions-on-inflation">www.clevelandfed.org/publications/economic-commentary/2023/ec-202308-impacts-supply-chain-disruptions-on-inflation</a>.
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These concerns led the Board to establish a new docket, Urgent
Issues in Freight Rail Service, Docket No. EP 770, and to hold a
hearing in that docket in April 2022. Through that hearing and
subsequent meetings, the Board sought to understand customers' need for
service and to examine decisions by rail carriers that had contributed
to carriers' failure to meet that need. See Urgent Issues in Freight
Rail Serv., EP 770 (STB served Apr. 7, 2022). Shortly after the April
2022 hearing, the Board began to collect data on Class I carriers'
performances both in completing line hauls and in providing local
service on a timely basis. See Urgent Issues in Freight Rail Serv.--
R.R. Reporting, EP 770 (Sub-No. 1) (STB served May 6, 2022); see also
NPRM, 88 FR at 63904.
The evidence that the Board collected reveals that Class I
carriers' system-average performances varied significantly from time
period to time period and from carrier to carrier during the early
2020s. NPRM, 88 FR at 63903-04, 63906. The evidence does more, though,
than reveal carriers' faltering and erratic service during those years.
It identifies the level of service that Class I carriers themselves set
as their short-term performance goals to bring them out of the crisis
period.\10\ For example, the 70% reliability standard in part 1145 is
set above the average level of Class I carriers' system-wide
performances during the early 2020s yet generally below the carriers'
own performance targets. This evidence reinforces the conclusion that
the reliability standard is set at a modest level that balances the
public interest in adequate rail service with a measured approach to
regulatory intervention. Application of the reliability standard would
provide a reasonable basis to conclude that intervention here--the
prescription of an appropriately defined and scoped reciprocal
switching agreement--could be beneficial (provided that the affected
carriers did not demonstrate an affirmative defense, infeasibility, or
undue impairment to their ability to serve other customers).
---------------------------------------------------------------------------
\10\ See, e.g., BNSF Status Report, Interim Update 7, Dec. 2,
2022, Urgent Issues in Freight Rail Serv.--R.R. Reporting, EP 770
(Sub-No. 1) (Merchandise OTP = 65% and ISP (referred to as ``Local
Service Performance'') = 91%); CSXT Status Report Interim Update 3,
Dec. 2, 2022, Urgent Issues in Freight Rail Serv.--R.R. Reporting,
EP 770 (Sub-No. 1) (Manifest TPC w/in 24 Hours = 82% and ISP/FMLM =
87%); NSR Status Report, Interim Update 5, Dec. 2, 2022, Urgent
Issues in Freight Rail Serv.--R.R. Reporting, EP 770 (Sub-No. 1)
(Merchandise TPC = 82% and ISP (referred to as Local Operating Plan
Adherence) = 78%); and UP Status Report, Interim Update 4, Dec. 2,
2022, Urgent Issues in Freight Rail Serv.--R.R. Reporting, EP 770
(Sub-No. 1) (TPC Manifest = 70% and ISP (referred to as FMLM) =
91%). See also NPRM, 88 FR at 63901 (the carriers recognized that
their performance during the early 2020s fell below reasonable
service expectations).
---------------------------------------------------------------------------
The same is true of the service consistency standard in part 1145.
It is clear from the carriers' reports that a 20% increase in transit
time can indicate the presence of significant service issues. In Docket
No. EP 770 (Sub-No. 1), the Board required BNSF, CSXT, NSR, and UP to
report a target system velocity for the period coming
[[Page 38657]]
out of the crisis of the early 2020s.\11\ The data that the Board has
collected on train speed informs the reasonableness of the service
consistency standard, even though that standard measures increases in
transit time rather than decreases in train speed.\12\ For each
carrier, a 20% drop from the carrier's target velocity \13\ would
correspond to service as bad as or worse than the carrier's service
during what clearly were highly problematic periods on the network, as
indicated by average train speeds that the carriers reported for those
periods. See United States Rail Service Issues--Performance Data
Reporting, EP 724 (Sub-No. 5) and data submitted to the Board pursuant
to 49 CFR part 1250.\14\ Even where velocity was reduced by less than
20% from the carrier's target velocity, the carriers recognized that
the reduction in velocity imposed significant burdens on shippers.\15\
---------------------------------------------------------------------------
\11\ The target system velocities that the carriers reported are
as follows: BNSF--Overall Velocity = 26 mph (BNSF Status Report,
Interim Update 7, Dec. 2, 2022, Urgent Issues in Freight Rail
Serv.--R.R. Reporting); CSXT--(STB LOR Velocity = 24.2 mph (CSXT
Status Report Interim Update 3, Dec. 2, 2022, Urgent Issues in
Freight Rail Serv.--R.R. Reporting); NSR--System Velocity = 22 mph
(NSR Status Report, Interim Update 5, Dec. 2, 2022, Urgent Issues in
Freight Rail Serv.--R.R. Reporting); and UP--Car Velocity = 207
(Status Report, Interim Update 4, Dec. 2, 2022, Urgent Issues in
Freight Rail Serv.--R.R. Reporting (note that UP reports its
velocity as measuring the average daily miles a car moves on UP's
network)).
\12\ Train speed is based on the time that it took a train to
cover the distance between two terminals. See 49 CFR 1250.2(a)(1). A
reduction in train speed means that the train sat idle for a longer
time between terminals, without saying anything about how long the
train sat idle at a terminal. In contrast, an increase in transit
time could arise out of increased delays at a terminal and/or
increased delays between terminals. It is reasonable to conclude
therefore that, during periods when a carrier's average train speeds
were reduced by a significant percentage, transit times over the
carrier's system likely increased by the same percentage or a higher
percentage.
\13\ The Board recognizes these velocity figures are system
averages, and it explains below how its service consistency standard
accounts for variability across lanes.
\14\ For example, a 20% drop for BNSF from its target would be
20.8 mph. The lowest average train speed BNSF has experienced since
reporting began under 49 CFR part 1250 occurred in the March 29,
2019 reporting week with a system velocity of 22.3 mph. This was due
to extreme flooding in the Midwest at that time. See ``Railroads'
flood-ravaged Midwestern tracks trigger emergency declaration,''
Progressive Railroading (Mar. 21, 2019),
www.progressiverailroading.com/class_is/news/Railroads-flood-
ravaged-Midwestern-tracks-trigger-FRA-emergency-declaration--57161.
Even during the service problems of the early 2020s, BNSF's lowest
average train speed was 24 mph--a drop of only 7.69% from BNSF's
target velocity. For CSXT, a 20% drop from its target would be 19.36
mph. The lowest average train speed CSXT has experienced since
reporting began under 49 CFR part 1250 occurred in the August 16,
2017 reporting week with a system velocity of 18.4 mph. The Board
held a hearing on CSXT's service issues at this time. See Public
Listening Session Regarding CSXT's Rail Serv. Issues, EP 742 (STB
served Aug. 24, 2017). A 20% drop for NSR from its target would be
17.6 mph. NSR had an average train speed of 17.6 mph in the November
5, 2021 reporting week and 17.0 mph in the November 24, 2021
reporting week. The 17.0 mph is the lowest recorded average train
speed for NSR since reporting began. For UP, its average train speed
was 24 mph for the reporting week of May 5, 2023. A 20% drop from UP
from this level would be 19.2 mph. The lowest average train speed
that UP has experienced since reporting began in under 49 CFR part
1250 occurred in the March 29, 2019 reporting week with a system
velocity of 21.3 mph. As with BNSF, this low velocity was due to
extreme flooding in the Midwest at that time. Even during the
service problems of the early 2020s, UP's lowest average train speed
was 22.8 mph--a drop of only about 5% from UP's target velocity. To
access data filed pursuant to 49 CFR part 1250 visit <a href="http://www.stb.gov/reports-data/rail-service-data/">www.stb.gov/reports-data/rail-service-data/</a> (in table under ``Individual Carrier
Performance Data'' select the individual railroad; then click the
most current hyperlink; then filter by date, average train speed,
and carrier).
\15\ For example, during the week of April 15, 2022, UP had an
average train speed of 22.8 mph--only 5% below UP's target of 24
mph. See id. During the Board's hearing in April 2022, UP
acknowledged that even that reduction in velocity represented a
failure to meet reasonable public demand. See testimony of Eric
Gehringer VP of Operations at UP at the Apr. 27, 2022 Urgent Issues
hearing and Testimony of Steve Bobb Chief Marketing Officer at BNSF
Hr'g Tr. 805:8-813:19, and 813:11-17, Apr. 27, 2022, Urgent Issues
in Freight Rail Serv., EP 770 (``We know we are not currently
meeting our customer's expectations. I want to reinforce our
commitment to restoring network velocity so that we can deliver the
quality of service our customers have come to expect, and position
ourselves to grow with our customers, long-term.'') See also UP's
10-K filing with the SEC, which is available at <a href="http://www.sec.gov">www.sec.gov</a> (open
tab ``Filings'', select ``Search for Company Filings'', and then
select ``EDGAR full text search'').
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This evidence is corroborated by testimony of shippers in Docket
No. EP 770, which shows that shippers were complaining about drops in
velocity of less than 20% during the early 2020s.\16\ When a shipper
uses railcars that the shipper supplies itself, any significant
reduction in the velocity of those cars through the system means that
the cars are substantially less productive, resulting in adverse
impacts on the shipper's costs, revenues, or both. See, e.g., Hr'g Tr.
551:6 to 551:14, 568:12 to 569:9, Apr. 27, 2022, Urgent Issues in
Freight Rail Serv., EP 770. Shippers that rely on carrier-supplied cars
may not have the same concern about fleet productivity but, as with
other shippers, would still be impacted by the inventory cost of
undelivered freight. A significant reduction in velocity might also be
associated with reduced availability of carrier-supplied cars, to a
shipper's detriment.
---------------------------------------------------------------------------
\16\ At the April 2022 hearing in Docket No. EP 770, several
shippers testified about the burdens associated with increased
transit times. See, e.g., Hr'g Tr. 73:7-13, Apr. 26, 2022, Urgent
Issues in Freight Rail Serv., EP 770 (Cargill testifying that rail
service deterioration since the fourth quarter of 2021 resulted in a
15% increase in transit time for its private fleet); Hr'g Tr. 364:18
to 367:15, Apr. 26, 2022, Urgent Issues in Freight Rail Serv., EP
770 (increased transit days resulting from rail service issues ``has
had a huge financial impact'' on Molson Coors); Hr'g Tr. 551:6-8,
Apr. 27, 2022, Urgent Issues in Freight Rail Serv., EP 770 (NITL
testifying that ``transit times in the first quarter this year have
increased by 15% over pre-pandemic levels due to crew and power
shortages''); Hr'g Tr. 558:12-18, Apr. 27, 2022, Urgent Issues in
Freight Rail Serv., EP 770 (ASLRRA testifying that, since the fourth
quarter of 2020, one member company ``experienced significant
deterioration in rail service'' including transit times that
increased by six days and variability of transit that made it
``impossible for shippers to plan their business'').
---------------------------------------------------------------------------
In all, record evidence indicates the conservative nature of the
service consistency standard in part 1145, which reserves federal
intervention for an increase in transit time of more than 20%. In the
absence of a proven affirmative defense, such an increase in transit
time provides sufficient indicia of service problems that are
inconsistent with meeting customer and carrier expectations. In effect,
such an increase points sufficiently to the potential value of
introducing an additional line haul carrier.
To the extent that some commenters argue that the performance
standards in part 1145 might be overinclusive, i.e., counting as a
``failure'' service that would not prove to be inadequate in the
market, the public interest is protected both by the provisions in part
1145 for consideration of factors that could work against a
prescription and by the specific and limited nature of regulatory
intervention under part 1145. Regulatory intervention--again, the
prescription of an appropriately defined and scoped reciprocal
switching agreement--would give the petitioner a service option when
there is a factual predicate for concluding that intervention is
warranted. Petitioners have the incentive to select, over the duration
of the prescribed agreement, the more efficient and responsive carrier.
To the extent that the performance standards might be underinclusive,
counting as a ``pass'' service that would have proven to be inadequate
in the market, the public interest is protected by the opportunity for
the affected shipper or receiver to seek a prescription under the
Board's other regulations. In all cases, the public interest is
protected not only by the performance standards themselves, but also by
the opportunity that carriers would have, on a case-by-case basis, to
demonstrate an affirmative defense, infeasibility, or undue impairment
to their ability to serve other customers. By ensuring that application
of the performance standards is not the end of the inquiry, part 1145
precludes a prescription when sufficient countervailing public interest
has been
[[Page 38658]]
demonstrated. In addition, as discussed in Legal Framework, the Board's
paramount interest in establishing an expeditious process for
addressing service-based reciprocal switching petitions and fostering a
sound rail transportation system is best supported by a process that
does not require protracted litigation.
Carriers' Objections
According to Class I rail carriers, the levels of the performance
standards in part 1145 are not adequately supported by record evidence.
The carriers allege several errors in this respect. First, according to
AAR, the levels of the standards were inappropriately derived from data
in Docket No. EP 770 (Sub-No. 1) that shows system-average performance.
According to AAR, system-average performance does not necessarily
indicate the level of performance that constitutes adequate service
over a given lane or at a given time. (AAR Comments 46-50; see also
CPKC Reply at 2, 8; R.V.S. Workman & Nelson at 19-23.) In addition,
according to AAR, system-average performance does not distinguish
between common carriage service and contract service. AAR suggests that
this distinction is relevant because, according to AAR, contract
customers might have agreed to different levels of service. (AAR
Comments 9, 49-50; V.S. Orszag/Eilat 7, 21-24; see also CN Comments 5-
6; CSXT Comments 14-15.)
Second, according to UP, it is inappropriate to rely on the data in
Docket No. EP 770 (Sub-No. 1) because UP used one-week periods to
measure its performance (i.e., UP reported for each week the percentage
of shipments that it delivered on time during that week). UP asserts
that a carrier's level of performance over one-week periods cannot
reasonably be used to extrapolate a reasonable level of performance
over 12-week periods as provided for in part 1145. (UP Comments 4-5.)
Third, according to UP, it is problematic to base the levels of the
performance standards on the data in Docket No. EP 770 (Sub-No. 1)
because the carriers did not necessarily report their performance in
the same way that compliance with the performance standards in part
1145 will be measured. For example, UP considered itself to have
succeeded in completing a line haul on time if UP met its original trip
plan as adjusted to account for delays encountered en route. In
contrast, under part 1145, a rail carrier will be considered to have
succeeded only if it came within 24 hours of the original estimated
time of arrival, without adjustment for delays encountered en route. UP
implies that, due to how carriers reported their performance in Docket
No. EP 770 (Sub-No. 1), the data there overstates actual performance as
compared to how performance will be measured under part 1145. (UP
Comments 6.)
Finally, in its attempt to show that the performance standards in
part 1145 are not adequately supported, AAR conducted a study of
transit times. AAR submitted the study in its reply comments, as a
result of which other parties did not have the opportunity to comment
on the study. The study was based on transit times for all movements
over Class I rail carriers from 2020 to 2023, with some exclusions.
(AAR Reply, R.V.S. Baranowski & Zebrowski at 5-6.) The study purported
to show that a year-over-year decrease in velocity of 20% would capture
about 53.9% of the movements in 2020, about 76.6% of the movements in
2021, about 82.5% of the movements during 2022, and about 65.5% of the
movements during 2023. (Id. at 7.) AAR concludes, based on its study,
that it is typical for shipments to experience increases (and
decreases) in transit time from one year to the next and that therefore
the transit time standard does not capture only inadequate service.
(Id. at 4-5.) AAR adds that its analysis showed no difference between
consistency in serving captive customers and consistency in serving
other customers. AAR concludes on that basis that the prescription of a
reciprocal switching agreement would not necessarily cure an increase
in transit time. (Id. at 5-6.)
The Board's Assessment
The Board rejects each of the foregoing arguments. First, contrary
to carriers' suggestion, it is reasonable for system-average
performance to inform the levels of the performance standards in part
1145. In the Board's experience, system-average performance is a strong
indicator of the capability of the rail system to meet the public need
for transportation service. While there is heterogeneity in lanes and
traffic, and while variations can impact different geographies and
businesses differently, the specific performance measurements under
part 1145 largely factor in these differences. For example, the
reliability standard in part 1145 is based on the estimated time of
arrival that the carrier originally predicted. In setting the OETA, the
carrier can account for the characteristics of the given lane (and, by
extension, the characteristics of the shipper's traffic \17\) and
likely delays. As a result, this type of measurement essentially
controls for lane and traffic characteristics, so service over one lane
is no more likely than service over another lane to fail the
reliability standard. The consistency standard in part 1145 is based on
how long it took the carrier to deliver the shipment over the same lane
and over the same 12-week period during the previous year. This
approach essentially controls for differences between service over a
lane that has a longer-than-average transit time and service over other
lanes.
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\17\ Under the definition of the term ``lane,'' the Board states
that ``shipments of the same commodity that have the same point of
origin and the same designated destination are deemed to travel over
the same lane, regardless of which route(s) the rail carrier uses to
move the shipments from origin to destination.'' 49 CFR 1145.1.
Through this definition, the Board is eliminating potentially flawed
comparisons between traffic of different characteristics (e.g.,
differences by commodity) and between traffic with different origin-
destination pairs.
---------------------------------------------------------------------------
A similar analysis applies to seasonal variations in rail service.
For example, because a railroad can account for likely delays in
setting OETA, service in one season is no more likely than service in
another season to fail the reliability standard. In the case of an
extreme weather-related event, that event could provide an affirmative
defense to the extent that the event could not reasonably be predicted
or mitigated. As for the fact that the system-wide data in Docket No.
EP 770 (Sub-No. 1) included service to contract customers, the Board
finds that detail to be irrelevant. In the Board's experience, most
contracts do not establish standards for quality of service and, in any
event, the EP 770 data does not establish whether carriers were
providing service consistent with any contractual commitments that
might have applied.
Second, contrary to UP's suggestion, it is reasonable to use
system-average performance as reported for one-week periods as the
basis for assessing performance over a 12-week period. The Board has
accounted for any volatility that might have resulted from week-to-week
reporting by using records of system-average performance over the
course of several years and by relying heavily on customers' reasonable
service expectations and carriers' performance targets.
Third, the ``apples to oranges'' problem that UP describes is both
substantially overstated and ultimately irrelevant. As would be
expected, in Docket No. EP 770 (Sub-No. 1), railroads that adjusted
their original trip plans for delays that they encountered en route
appeared to perform better than carriers that did not make those
adjustments. The incremental difference between the two groups of rail
carriers
[[Page 38659]]
tended to be fairly constant.\18\ As a result, the Board can reasonably
discern what system-average performance would have been across the
industry if all carriers had reported their performance on the same
basis.
---------------------------------------------------------------------------
\18\ For example, the Board observes a reasonably strong linear
association between UP's reliability data and BNSF's reliability
data as reported in Docket No. EP 770. UP and BNSF operate in
similar geographical environments, with approximately the same route
miles and employment levels. In reporting reliability, UP adjusted
its estimated time of arrival to reflect delays that UP encountered
en route when those delays were not caused by UP. (See UP Comments
at 6.) BNSF did not do so. During 85 weeks of the reporting period
(May 13, 2022 to December 22, 2023), there was a correlation of 0.55
between reliability data for UP and reliability data for BNSF. The
magnitude of the difference between the two carriers was fairly
constant after adjusting for natural shocks (such as weather-related
incidents) that each carrier may individually have experienced; for
55 of the 85 weeks of the difference in the two carriers'
reliability data fell within a 2.9% to 12.1% range. Overall, UP had
77 weeks of better performance than BNSF. The consistency of the
difference indicates that the difference was due to the difference
in how the two carriers reported their reliability data.
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Of equal importance are the details of the reliability standard in
part 1145. A carrier would fail to meet the reliability standard only
if, over a 12-week period, the carrier fell below 70% in meeting its
OETA plus or minus 24 hours. The general range of the reliability
standard recognizes that, in the ordinary course of rail service, a
shipment might encounter a certain number of unanticipated delays en
route. The specific percentage (70%) provides an additional cushion
between ordinary service and the possibility of regulatory
intervention, as suggested by the data that the Board collected in
Docket No. EP 770 (Sub-No. 1)--data that was largely collected during
the major service problems of the early 2020s. The Board reasonably
expects that rail service in the ordinary course will be better than
rail service during that period. The 24-hour grace period provides even
more cushion. In effect, the reliability standard in part 1145 provides
for regulatory intervention on a conservative basis. The 70% standard
is not as conservative as the 60% standard that the Board inquired
about in the NPRM but--in the Board's judgment, based on comments and
further analysis--provides appropriate ground for considering whether
to prescribe a reciprocal switching agreement. See Performance
Standards.
Finally, AAR's study of transit times does not persuade the Board
that the performance standards in part 1145 would capture typical rail
service. One of the glaring deficiencies in AAR's study is that it
compared transit times from year to year during the early 2020s, when
rail service was faltering and erratic. It would be unreasonable to
conclude that increases in transit times during that period reflected
variations in transit times that might be expected in the ordinary
course of rail operations; if the Board were to accept AAR's study, the
Board would implicitly and unreasonably conclude that the years that
AAR used in its study provide the proper baseline for assessing changes
in transit time.
Performance Standards
Service Reliability: Original Estimated Time of Arrival
As discussed in the NPRM, the proposed service reliability standard
would measure a Class I rail carrier's success in delivering a shipment
near its OETA, i.e., the estimated time of arrival that the rail
carrier provided when the shipper tendered the bill of lading for
shipment. NPRM, 88 FR at 63903. The OETA would be compared to when the
car was delivered to the designated destination. Id. Application of the
service reliability standard would be based on all shipments that the
shipper tendered to the carrier over a given lane over 12 consecutive
weeks. Id.\19\
---------------------------------------------------------------------------
\19\ Under part 1145, once a carrier has communicated an OETA to
a customer, that time will not be changed to reflect any subsequent
change to the original trip plan of the car, no matter the cause of
that change. As a result, a carrier will be deemed to miss the OETA
for cars that are delayed due to a cancelled or annulled train if
cars are not delivered within 24 hours of the original estimated
time of arrival.
---------------------------------------------------------------------------
Using data that Class I carriers provided in Docket No. EP 770
(Sub-No. 1) as a reasonable starting point, the agency proposed a
reliability standard of 60%, where a carrier would meet the standard
if, over a period of 12 consecutive weeks, the carrier delivered at
least 60% of the relevant shipments within 24 hours of the OETA. Id. at
63903-04. The Board also suggested that the reliability standard could
be set by rule to escalate one year after the rule took effect. Id. at
63904. The Board sought comment on the percentage at which the
reliability standard should be set, what the applicable grace period
should be, and other matters relevant to the reliability standard. Id.
at 63903-04.
Reasonableness of Using OETA
CPKC questions whether OETA is a meaningful reference point.
According to CPKC, nearly half of its shipments arrive a day or more
after the OETA. CPKC claims that it is infeasible to try to provide a
more accurate OETA because, according to CPKC, there are too many
routine factors that contribute to variations from the company's
original trip plan. (See CPKC Reply, R.V.S. Workman & Nelson 15-16.)
Contrary to CPKC's suggestion, it is reasonable to use OETA data
over a 12-week period to provide indicia of the overall reliability of
a carrier's service for purposes of part 1145. Rail carriers bring
their considerable expertise to the task of developing OETAs. Carriers
typically study the factors that affect transit time over a lane,
account for those factors through seasonal or other appropriate
tolerances, and apply those tolerances in setting OETAs. CPKC, which is
the only carrier to question use of OETA, has failed to convince the
Board that the company cannot adopt a similar approach.
OETA Percentage
Many shipper organizations ask the Board to set the reliability
standard (when based on a 24-hour grace period) at more than 60%. For
example, the Coalition Associations ask the Board to set the percentage
at 70%. (Coal. Ass'ns Comments 22.) They claim that the 70% threshold
is attainable, is more consistent with Class I carriers' own
expectations of the quality of service that they should provide, and
better reflects the threshold at which poor service reliability has
significant operational consequences for rail customers. (Id. at 24.)
LyondellBasell urges the Board to adopt the 70% standard proposed
by the Coalition Associations. (LyondellBasell Comments 2.) It asserts
that the higher standard is more in line with the level of service
customers require to conduct their business. (Id.) LyondellBasell notes
that, when railroads fail to deliver shipments close to the OETA, it
incurs: (1) increased costs from diverting traffic to other sub-optimal
modes of transportation; (2) lack of products at distribution
facilities, which in turn has required LyondellBasell to use
inefficient distribution sites and means of transportation; and (3)
reduced production rates, shutdowns, or both for its own and its
customers' facilities. (Id.) Even at reliability levels at or above
70%, according to LyondellBasell, the company incurs a substantial
burden on its operations. (Id.) For example, because most polymer
plants produce materials coming off the production line directly into
railcars as the storage receptacle, LyondellBasell will likely have
already reduced its production rates at such polymer sites. (Id. at 2-
3.)
Other shipper groups ask the Board either to set the reliability
standard at more than 70% at the outset or eventually to escalate the
standard to above 70%. (DCPC Comments 6-8 (80% in year 1 and 90% in
year 2); NGFA
[[Page 38660]]
Comments 12 (supports ``closer to 100%''); PRFBA Comments 7 (80%);
GISCC Comments 5 (80%); AFPM Comments 8-9 (65% in year 1, 70% in year
2, 75% in year 3, and 80% in year 4).) API argues that the second-year
standard should be set at 80% to 85% and that, even at higher levels of
performance by rail carriers, there are adverse impacts on the public
interest. (API Comments 3-4.) API adds that service levels affect labor
decisions made by the shipper, and that late shipments result in lost
production time; overtime labor; increased transportation costs,
demurrage, administrative burden, storage costs, and private railcar
fleets; and loss of business opportunities. (Id. at 4.) NSSGA and EMA,
which seek a reliability standard of 80% or higher, claim that at 60%
their members would need to curtail operations or ship by truck. (NSSGA
Comments 6-7; EMA Comments 6.) EMA adds that, for some of its members,
trucking is not an option at all. (EMA Comments 6.)
Railroads oppose the 60% reliability standard as well as any other
reliability standard, arguing that there is insufficient record
evidence to support such a standard. Railroads otherwise do not comment
on the level at which the reliability standard should be set. As
explained in the Analytical Justification section above, however, the
Board has sufficient justification for setting its standards based on
credible evidence of reasonable service expectations and evidence that
the Board has collected since 2022 in investigating the performance of
Class I rail carriers. AAR adds that what a customer perceives as
service that best meets its individual ``needs and requirements'' may
run counter to the interests of other shippers and the health of the
overall network that serves many shippers. (AAR Reply 39.) According to
AAR, a standard that bypasses consideration of other shippers or the
network as a whole--or the question whether a switch would remedy the
shipper's service concerns--would not be consistent with the approach
Congress directed. (Id.)
The Board will set the reliability standard at 70%.\20\ Although
several shippers support a higher OETA standard based on the argument
that it would be ``attainable'' by the railroads, that is not the basis
for the Board's decision here. The reliability standard, like the other
metrics, grows out of shippers' reasonable service expectations,
carriers' performance records, and carriers' performance goals without
specifically rendering judgment on the level of reliability that rail
carriers might in theory attain. As discussed above, many shippers have
commented that a reliability standard of 60% is too low, as service
even above that level exposes shippers to significant problems,
including increased costs and production delays. A number of shipper
organizations indicate that their members are impacted by poor service
even when the carrier provides service above 60% reliability (measured
as OETA + 24 hours). For example, PRFBA explains:
---------------------------------------------------------------------------
\20\ As discussed later in this decision, the 70% reliability
standard will apply not only to cars that arrive more than 24 hours
after the OETA but also those that arrive more than 24 hours earlier
than the OETA.
[T]hat 60%, and indeed even 70%, represent far too low a bar for
service reliability. Under the proposed rule, even those carriers
who meet the standard with 60% nearly on-time performance would
force some PRFBA members to shut down their plants and still others
frantically to seek out alternative transport by truck. There are
not enough trucks or truck drivers to keep up with that demand, to
say nothing of the greater expense passed onto the consumer and
drastically greater polluting emissions caused by trucking goods as
compared with rail shipping. Moreover, for some PRFBA members,
trucking goods simply is not an option altogether. Also, all PRFBA
members suffer from the underutilization of their railcars whenever
---------------------------------------------------------------------------
service is poor.
(PRFBA Comments 6-7.)
The Board specifically requested that shippers identify the point
at which there are negative business impacts from poor reliability in
rail service, see NPRM, 88 FR at 63904, and the information provided by
shippers supports a finding at this point that a 70% level of
reliability is reasonable as a reflection of service expectations.
The 60% standard in the NPRM was also a conservative proposal. As
the Board explained, much of the underlying Docket No. EP 770 (Sub-No.
1) data in the NPRM reflected a challenging service period. Indeed,
overall on-time performance for BNSF, CSXT, NSR, and UP had fallen from
a pre-pandemic average of 85% in May 2019 to just 67% in the last week
of May 2022, as crew shortages plagued rail service. See Stephens,
Bill, Data Reported to Federal Regulators Reveal Extent of
Deterioration in Rail Service--Trains (June 9, 2022). The Board found
that 60% was a reasonable potential starting point for determining the
reliability standard because it reflected a level that even the
carriers acknowledged was far below expectations, but the Board also
proposed an alternate standard that would escalate to 70% one year
after the effective date of the rule, reflecting the view that service
during that challenging time might not be the appropriate long-term
measure for service performance for purposes of part 1145. Not only is
that view supported by shippers' comments detailing the negative impact
of service even above the 60% reliability standard, Docket No. EP 770
(Sub-No. 1) data from last December does in fact show that carriers are
performing better. Indeed, data for the week ending December 22, 2023,
indicates overall on-time performance of the four carriers averaging
80.1%. See Urgent Issues in Freight Rail Serv.--R.R. Reporting, EP 770
(Sub-No. 1), slip op. at 4 (STB served Jan. 31, 2024). Considering this
data, the comments from shippers about negative impacts to their
businesses, and the overall framework in which failure to meet a
service standard acts as a mechanism--with appropriate protections--for
switching (as opposed to a different, more intrusive, or more severe
form of regulatory intervention), a 70% standard is therefore
reasonable.
A 70% standard is also consistent with railroads' stated, near-term
performance goals as reported in Docket No. EP 770. As noted in the
NPRM, BNSF, CSXT, NSR, and UP each identified a target for its
systemwide weekly percentage of manifest railcars placed within 24
hours of OETA (as reported in Docket No. EP 770 (Sub-No. 1)) that the
carrier would meet beginning May 2023, and these targets average
approximately 74%. NPRM, 88 FR at 63903. The 70% reliability standard
in the final rule remains below that average [as well as the average in
more recent Docket No. EP 770 (Sub-No. 1) reports]. See Analytical
Justification.
While the current record supports a finding that a reliability
standard of 70% is reasonable, the Board declines at this time to set
the reliability standard at a higher level or to provide by rule for
escalation of that standard as requested by some shipper interests. The
Board concludes that the better course of action is to gain experience
under the 70% standard and gauge the effectiveness of part 1145 before
considering whether to raise the standard above 70%.
Observation Period
Several shipper groups ask that a petitioner be allowed to rely on
less than 12 weeks of data. (EMA Comments 6 (six weeks); PRFBA Comments
7 (six weeks); GPI Comments 3 (eight weeks); GISCC Comments 5 (four to
six weeks).) According to NSSGA, which requests a six-week period, 12
weeks of bad service would have a ``devastating
[[Page 38661]]
impact'' on NSSGA members' operations. (NSSGA Comments 7.) Similarly,
AFPM asserts that allowing poor service to continue for even six weeks
would severely hurt refiners and petrochemical manufacturers, causing
curtailments in output and even shutdowns. (AFPM Comments 9.) AAR
responds that the record before the Board provides no basis to conclude
that any of those changes would help the Board accurately and
effectively identify situations where a service inadequacy exists and
warrants regulatory intervention. (AAR Reply 41.) According to AAR,
such changes would significantly complicate the proposed rule's
operation and risk generating a large number of false positives. (Id.)
The Board will use an observation period of 12 weeks as proposed in
the NPRM. Using a 12-week observation period means that the OETA
standard will not be triggered by a service problem of relatively short
duration, unless the problem is of such severity that it nevertheless
results in failure to meet the 70% standard over the 12-week period.
This approach will tend to reserve regulatory intervention under part
1145 for cases in which there had been a more chronic problem in
serving the petitioner. A chronic but not necessarily acute problem is
the type of problem that, compared to other types of service problems,
is more likely to benefit from the introduction of rail-to-rail
competition as provided for in part 1145. For acute service problems,
shippers may seek relief under parts 1146 and 1147, without waiting for
a 12-week observation period to end.
NSR recommends measuring performance under the reliability standard
over quarters of the calendar year, rather than over a rolling 12-week
period. According to NSR, using a rolling 12-week period would allow
shippers to petition for a prescription based on performance that did
not reflect the carrier's typical performance or indicate an ongoing
service problem. (NSR Comments, V.S. Israel 3, 14; see also UP Comments
19 (encouraging an approach based on the last calendar quarter to
mitigate the burden of data production).) The Board declines to adopt
NSR's recommendation. To use quarters of the calendar year as the
observation period would make the standard less likely to identify
service for which the public interest would be served by introducing an
alternate rail carrier (e.g., a carrier could miss the OETA for 22
weeks and would not fail the standard if half of those weeks were in
one quarter and the other half were in the next quarter).
The Definition of OETA
AAR notes that the definition of OETA in the NPRM differs from the
definition of OETA in the demurrage setting and asserts that the
definition in part 1145 should conform to the definition that is used
for purposes of demurrage. (AAR Comments 51-52.) Under proposed Sec.
1145.1, OETA is provided upon tender of a bill of lading. NPRM, 88 FR
at 63912-13. For purposes of demurrage billing, OETA is provided after
the shipment is physically released to the carrier or received by the
carrier in interchange and is based on the first movement of the origin
carrier. See 49 CFR 1333.4(d)(1). AAR claims that having two different
definitions creates risk of confusion and would lead to duplicative
efforts. (AAR Comments 51-52.) Individual railroads also call for OETA
to be measured at time of release. (CN Comments 45; UP Comments 6.)
The Board will not change the definition of OETA under part 1145.
The demurrage OETA definition, while appropriate for part 1333's
``minimum'' informational purposes, does not meet the goals of this
rulemaking. As noted by the Coalition Associations, to use the OETA
that is based on the carrier's first movement of the shipment rather
than tender of the bill of lading would not capture a carrier's delay
in picking up a car that had been tendered for shipment. (Coal. Ass'ns
Reply 29.) And, if the carrier failed the reliability standard due to
the shipper's delay in releasing the car, that could be raised as an
affirmative defense. See Affirmative Defenses.
Delivery at Interchange
In the NPRM, the Board proposed that, in the case of interline
service where the shipment is transferred between line-haul carriers at
an interchange en route, the shipment is deemed to be delivered when
the receiving carrier acknowledges receipt of that shipment. NPRM, 88
FR at 63904, 63912. Several commenters raised concerns with this
approach.
CN asserts that this approach fails to account for cases in which
the shipment arrived at the interchange but the receiving carrier is
unable to accept the shipment. (CN Comments 48-49.) UP similarly
asserts that a car should be deemed to be delivered upon ``delivery in
interchange.'' According to UP, ``delivery in interchange'' occurs when
a railroad moves the car past a designated automatic equipment
identification reader or places the car on a designated interchange
track, depending on the specific interchange that is involved. (UP
Comments 7.) UP claims that a car can potentially sit on an interchange
track for several days after delivery and before the subsequent carrier
acknowledges receipt, when the matter is out of the delivering
carrier's control. (Id.; see also API Comments 4 (suggesting that the
gap between delivery and receipt can last for several hours).) The
Coalition Associations respond that no carrier offers a practical
solution to address concerns about a gap, but that AAR's own rules for
assigning responsibility for car hire provide a clear and appropriate
framework for determining when interchange occurs, including in
situations where the receiving carrier causes an interchange delay.
(Coal. Ass'ns Reply 43.)
The Board will define ``delivery'' at the interchange using UP's
proposal. Although the Board suggested that in case of a dispute about
a gap at the interchange it would be guided by interchange rules, NPRM,
88 FR at 63903, UP's approach is superior. While the car hire data is
more accurate, it is more difficult to retrieve and can only be used
after any disputes are resolved. In contrast, Delivery in Interchange
data is routinely reported to the shipper on a real time basis. As
such, based on UP's approach, a car will be deemed delivered at an
interchange when it is moved past a designated automatic equipment
identification reader or placed on a designated interchange track,
depending on the specific interchange location involved. However, if
there are disputes about the accuracy of a delivery time by either the
customer or the receiving railroad, the Board can use car hire
accounting records to decide the issue.
Delivery at Customer's Facility
For deliveries to a customer's facility, the Board proposed to
define ``delivery'' as when a shipment either is actually placed at the
designated destination or, in given circumstances, is constructively
placed at a local yard that is convenient to the designated
destination. NPRM, 88 FR at 63912.
UP notes that for traffic it delivers to customer facilities, UP's
Trip Plan Compliance (TPC) measure for manifest traffic measures
compliance based on when the car is delivered to the customer facility,
regardless of whether it spends time in constructive placement. (UP
Comments 8.) For ``order in'' customers--customers who by prior
agreement have UP hold cars in serving yards pending the recipient's
request for delivery--UP ``stops the clock'' during the time a car
spends in constructive placement for purposes of measuring TPC. (Id.)
If ``spot on arrival''
[[Page 38662]]
customers--customers with facilities where railcars may be placed
without placement instructions--cannot accept delivery when their cars
arrive, UP puts the cars into a hold status then adjusts the time of
arrival under UP's trip plan when the car is released from that status.
UP asserts that its calculation method reflects the customer's role in
the delivery schedule and the full journey of the railcar. (Id.) UP
asks that the Board conform to the railroad's practice. (Id.)
The Board will retain its approach from the NPRM and not adopt UP's
proposal to define delivery as being at a customer's facility. The
proposed definition of delivery takes into account both situations
described by UP. For ``order in'' customers, the car would be
``delivered'' for purposes of OETA when the car is constructively
placed at a local yard that is convenient to the designated
destination, which is the time it arrives in the local serving yard and
is ready for local service in accordance with the rail carrier's
established protocol. See NPRM, 88 FR at 63903 n.17. The same would be
true for ``spot on arrival'' customers that are not able to accept
delivery at the designated destination. If the customer is not able to
accept delivery, the car is ``delivered'' at the time it arrives in the
local serving yard and is ready for local service in accordance with
the rail carrier's established protocol. The Board recognizes that each
carrier may currently define its trip plan compliance-like metric
differently, but one of the objectives of this rule is to standardize
the metrics that will be used for part 1145 so that they may be easily
understood by shippers, carriers, the Board, and the public. The
approach from the NPRM accomplishes this. See also Data Production to
an Eligible Customer.
Unit Trains and Intercity Passenger Trains
The Board proposed to apply the reliability standard only to
shipments that are moving in manifest service, not to unit trains.
NPRM, 88 FR at 63904. The Board explained that, in its experience,
deliveries of unit trains do not give rise to the same type of concerns
with respect to meeting OETA. Id.
A number of shipper groups ask the Board to include unit trains.
(API Comments 3; AFPM Comments 9 n.15; NSSGA Comments 7; see also FRCA/
NCTA Comments 3.) NGFA disagrees that unit trains do not have the same
need as manifest trains to be delivered on time. It adds that the
failure of Class I carriers to deliver unit trains on time can result
in significant harm to the shipper/receiver and the shipper's/
receiver's customers. (NGFA Comments 12.)
The Coalition Associations recommend including unit trains and
using a higher reliability standard (of 90%) for those trains. (Coal.
Ass'ns Comments 31.) According to the Coalition Associations, a 90%
standard would better reflect the nature of unit trains, which tend to
go through few if any interchanges. (Id.) In addition, according to the
Coalition Associations, a 90% reliability standard for unit trains
would better reflect the fact that the early or late arrival of a unit
train (which might consist of 80 or more cars) can have a
proportionally greater adverse effect on the customer. (Id.)
The Board will not apply a reliability standard to unit trains for
purposes of part 1145. Based on Board experience, while manifest
traffic runs on scheduled trains, unit trains generally do not have
schedules. They run at various, usually irregular times. And, although
some railroads have trip plans based on the unique schedule for each
unit train that are applied to each car on the train, CN, CSXT, and NSR
do not currently produce trip plans for unit trains. (See CN Comments
44); Urgent Issues in Freight R.R. Serv.--R.R. Reporting, EP 770 (Sub-
No. 1), slip op. 5 n.16, 6 n.19 (STB served Jan. 31, 2024). It would be
unduly burdensome to require those carriers to produce trip plans
(including an OETA) for unit trains for purposes of the reliability
standard under part 1145, factoring in that problems with the delivery
of unit trains can also be captured by the service consistency standard
in part 1145.
One commenter asks the Board to apply the reliability standard to
intercity passenger trains. (Ravnitzky Comments 1.) The performance of
intercity passenger trains is beyond the scope of this proceeding. As
proposed in the NPRM, part 1145 applies only to Class I freight
carriers and their affiliates and provides only for the prescription of
a reciprocal switching agreement, a regulatory action that would not be
meaningful for intercity passenger trains. Regardless, other statutory
provisions address on-time performance issues of intercity passenger
trains. See 49 U.S.C. 24308(f); Compl. & Pet. of Nat'l R.R. Passenger
Corp. Under 49 U.S.C. Sec. 24308(f)--for Substandard Performance of
Amtrak Sunset Ltd. Trains 1 & 2, NOR 42175, slip op. at 1 (STB served
July 11, 2023).
Severity of Delay
The Coalition Associations suggest significant additions to the
OETA + 24 hours model. They ask the Board to establish graduated
reliability standards, where the standard would increase as the
differential between the OETA and the time of delivery increased. Under
the Coalition Associations' approach, the reliability standard would be
set at 70% at OETA + 24 hours, 80% at OETA + 48 hours, and 90% at OETA
+ 72 hours. (Coal. Ass'ns Comments 4; see also ACD Comments 4.) The
Coalition Associations also ask the Board to base the standards for the
24-, 48-, and 72-hour time bands on the average systemwide performance
of all Class I carriers for those respective bands. (Coal. Ass'ns
Comments 4.) According to the Coalition Associations, these standards
would provide a strong incentive to railroads to achieve a reasonable
level of service reliability that is consistent with changing industry
conditions. (Id.)
Others raise concerns that the reliability standard, when based on
OETA + 24 hours, does not measure the severity of deficiencies in the
carrier's performance. For example, CSXT suggests that, under the
reliability standard, a delivery 25 hours after OETA would be treated
the same as a delivery 25 days after OETA. (CSXT Comments 17-18.) NSR
recommends replacing OETA + 24 hours with a standard that measures both
whether a delay has occurred and the severity of delay. (NSR Comments,
V.S. Israel 13.) NSR specifically recommends use of a service
reliability ratio, which would measure by what percent of the actual
duration of the shipment the carrier missed OETA + 24 hours. (Id.)
The Board will not at this time change the reliability standard to
account for the severity of a delay. The Board appreciates that its
approach does not distinguish between failed deliveries that are just
past the 24-hour mark and cars that are many days past that mark, but
the Board would like to gauge the effectiveness of its basic concept of
OETA + 24 hours before considering changes or refinements to account
for degrees of severity. And, if extremely late deliveries are
frequent, that could result in the service consistency standard not
being met. Part 1145 is also not the only course of action a shipper
will be able to pursue. In the case of more egregious delays, the
shipper could petition under part 1147 without waiting the 12 week-
observation period provided by part 1145. Where appropriate, the
shipper could also pursue a separate action based on the common carrier
obligation.
[[Page 38663]]
Early Cars
The Coalition Associations ask the Board to clarify that shipments
that arrive more than 24 hours early do not count as being delivered on
time. The Coalition Associations suggest that this approach will remove
any incentive for rail carriers to ``game'' the reliability standard by
artificially inflating OETAs and note that early cars can cause
congestion at a shipper's facility. (Coal. Ass'ns Comments 4, 29; see
also Olin Comments 5.) AAR opposes application of the reliability
standard to early arrivals and asserts that early deliveries were not
addressed in the NPRM. (AAR Reply 46-47.) AAR argues that shippers and
railroads should be able to work together to manage flow into a
customer facility, including by using constructive placement. (Id.) AAR
adds that applying the reliability standard to early deliveries could
encourage carriers to slow down the movement of traffic through their
systems. (Id.)
The Board will adopt the proposal and clarify that cars arriving
more than 24 hours before the OETA will count against the carrier for
purposes of the service reliability standard. While delivering cars
excessively early could potentially disrupt a carrier's system, it
remains a possibility that a carrier could seek to avoid failing the
standard through such practices. The Board is also persuaded by the
Coalition Associations' assertion that unexpected early deliveries can
have significant economic and operational consequences for rail
customers. (Coal. Ass'ns Comments 29.) When railcars arrive
unexpectedly early at a rail customer's facility, they can cause
congestion at the facility that can impair operations. (Id.; see also
Dow Reply 2 (noting that when raw materials customers order from Dow by
rail are delayed or arrive excessively early, the customers can
experience production slowdowns or downtime or may not have appropriate
staffing to handle the delivery).) Even if a customer has a yard or
even some extra capacity, it may simply not be ready to accept that car
for various reasons. And, if the customer does not have the
infrastructure to accept an early delivery, the customer usually must
incur demurrage or storage charges. (Coal. Ass'ns Comments 30.)
AAR claims that constructive placement prevents the problems that
early arrivals can cause for customers, (AAR Reply 46-47), but the
Coalition Associations' complaint suggests that constructive placement
is not solving the problems the shipper groups identify. In the Board's
experience, railroads usually only begin constructive placement of cars
to a spot-on-arrival customer once that shipper's facility is full of
cars and no more cars can be actually placed. See Capitol Materials
Inc.--Pet. for Declaratory Ord.--Certain Rates & Pracs. of Norfolk S.
Ry., NOR 42068, slip op. at 10 (STB served Apr. 12, 2004); (see also
Coal. Ass'ns Comments 29). Constructive placement is therefore often
not a solution for a customer who is faced with an early arrival.
While the Board did not specifically propose to cover early
deliveries in the NPRM, it made clear that it was open to approaches to
assessing reliability other than the approaches that were specifically
discussed in the NPRM. See NPRM, 88 FR at 63904. The NPRM stated that
OETA ``would . . . promote the completion of line hauls near the
original estimated time of arrival. The on-time completion of line
hauls allows the shipper to conduct its operations on a timely basis
while permitting effective coordination between rail service and other
modes of transportation.'' NPRM, 88 FR at 63903. It was therefore
foreseeable that the Board might consider early arrivals as a
circumstance that could negatively affect shippers' operations and
coordination, as reflected in the Coalition Associations' comments.
Other parties had full opportunity to respond to the Coalition
Associations' proposal. See Logansport Broad. Corp. v. United States,
210 F.2d 24, 28 (D.C. Cir. 1954); Int'l Harvester Co. v. Ruckelshaus,
478 F.2d 615, 632 n.51 (D.C. Cir. 1973).
Cross-Border Traffic
CN raises concerns about the application of part 1145 to movements
that cross into or out of the United States; CN suggests that part 1145
should apply only to movements that take place entirely within the
United States. (CN Comments 49-50.) CN also argues that system-wide
reporting should exclude cross-border traffic and notes that it only
reported on domestic U.S. trains as part of its reporting for Docket
No. EP 770 (Sub-No. 1). (Id.)
The Board will not exclude this traffic from either the service
reliability standard or the service consistency standard. The Board's
jurisdiction includes rail transportation ``in the United States
between a place in . . . the United States and another place in the
United States through a foreign country; or . . . the United States and
a place in a foreign country.'' 49 U.S.C. 10501(a)(2)(E)-(F). As to
cross-border traffic, the Board has jurisdiction to determine the
reasonableness of a joint through rate covering international
transportation in the United States and in a foreign country. E.g.,
Can. Packers, Ltd. v. Atchison, Topeka & Santa Fe R.R., 385 U.S. 182,
184 (1966). However, the Board does not have jurisdiction over
operations outside of the United States. See 49 U.S.C. 10501(a)(2) (the
Board's jurisdiction ``applies only to transportation in the United
States''). Given the Board's jurisdiction, retaining part 1145's
coverage of such traffic furthers the rule's underlying goal of
incentivizing carriers to provide a level of service that best meets
the need of the public.
However, the Board will limit action under part 1145 to situations
where there is a distinguishable movement in the United States,
specifically when the carrier records receipt or delivery at or near
the U.S. border (including where the shipment is transferred between
affiliated rail carriers at that point).\21\ At this time, CPKC does
not record an event for the U.S.-only portions of moves into or out of
Canada. (CPKC Comments 13.) And it does not appear that requiring CPKC
to do so would advance the purposes of the rule because, for moves into
or out of Canada, the record before the Board does not indicate that
the border has operational significance to customers in terms of
service reliability. However, if a customer is concerned about service
for cross-border movements within the Board's jurisdiction but without
a separately measured U.S. component, the customer could seek relief
under other statutes or regulations (e.g., part 1147).
---------------------------------------------------------------------------
\21\ Kansas City Southern historically has used such an approach
for movements with an origin or destination in Mexico. (CPKC
Comments 13.)
---------------------------------------------------------------------------
Multiple Lanes
In the NPRM, the Board explained that the service reliability
standard generally would apply individually to each lane of traffic to/
from the petitioner's facility. NPRM, 88 FR at 63904. Nonetheless, in
certain circumstances, the Board proposed that it would prescribe a
reciprocal switching agreement that governs multiple lanes of traffic
to/from the petitioner's facility, each of which has practical physical
access to only one Class I carrier, when (1) the average of the
incumbent rail carrier's success rates for the relevant lanes fell
below the applicable performance standard, (2) the Board determines
that a prescription would be practical and efficient only when the
prescription governs all of those lanes; and (3) the petition meets all
other conditions to a prescription. Id. The petitioner could choose
which lanes to/from its facility to include in
[[Page 38664]]
determining the incumbent rail carrier's average success rate. Id.
AAR raises various concerns about this approach, including that it
(1) would not satisfy the ``actual necessity or compelling reason''
standard, (2) would undermine the Board's goal of predictability, (3)
would present serious complexities to the Board, (4) would undermine
carriers' abilities to plan and invest, and (5) would allow the
petitioner to use reciprocal switching only for some of the lanes even
though the Board had found that the reciprocal switching agreement
would be ``practical and efficient'' only if it governed all of the
lanes. (AAR Comments 66-69 (quoting NPRM, 88 FR at 63904, 63914).) AAR
therefore asks the Board to apply the performance standards in part
1145 only to individual lanes. (AAR Comments 69.) AAR adds that a
shipper could aggregate lanes in its petition, as a means to increase
efficiency in proceedings before the Board, provided again that the
performance standards applied only to each lane individually. (Id.; see
also CN Comments 20-21.)
The proposal to allow prescriptions that cover multiple lanes has
raised a number of questions, (see AAR Comments 68-69), and drew no
explicit support from shippers. Therefore, in order to keep the
procedures under part 1145 simple and predictable, the Board will
withdraw this proposal. Thus, the service reliability standard and
service consistency standard will only apply individually to each lane
of traffic to/from the petitioner's facility. This, however, does not
foreclose the possibility that a petitioner could make a case for
switching irrespective of particular lanes under another part of the
Board's regulations, e.g., part 1147.
Additional Proposals
NSR asserts that the Board should modify the reliability standard
to incorporate data on rail performance from competitive markets, which
NSR asserts could include movements of exempt commodities and movements
of boxcars. NSR suggests that, by incorporating that data, the Board
would have a more useful benchmark to evaluate the quality of service
to a petitioner. (NSR Comments, V.S. Israel 15-18.) Under NSR's
proposal, the reliability standard would be replaced with a standard
that measured deviations from system-wide average performance in
competitive markets. (Id., V.S. Israel 17.)
The Board will not adopt NSR's proposal, which would undermine
predictability and ease of administration by potentially requiring
multiple OETA standards, the identification of the particular
competitive movement(s) that would provide a benchmark for the
petitioner's movement, and periodic revisions to the OETA standard(s).
NSR's proposal is also flawed insofar as it suggests that the Board
should not prescribe a reciprocal switching agreement when service
falls below reasonable expectations and performance goals unless the
carrier has singled out one or more captive shippers in failing to meet
those expectations and goals. In effect, NSR's proposal is based on the
incorrect premise that the Board's discretion to introduce an alternate
carrier is limited to situations in which the carrier is engaged in a
demonstrated abuse of market power.
UP argues that the reliability standard should allow adjustments
for delays that are not service related, such as a customer's request
while a car is en route to have the car delivered to a different
destination. (UP Comments 6.) It is not necessary to incorporate such a
``time-out'' into the reliability standard. The Board has provided, in
part 1145, for affirmative defenses, which can include that a shipment
was diverted en route based on a customer's request. The Board can
judge the merits of such a defense in the context of a specific case
and it seems unlikely that a petitioner would bring a petition if its
service were routinely affected by that issue in any given 12-week
period.
CSXT raises concerns that part 1145 does not require evidence that
the customer relied on the OETA to its detriment or even that the
customer was aware of OETA. CSXT also suggests that railroads should
get credit for providing updated OETAs. (CSXT Comments 17-18.) CSXT's
concerns fail to grapple with the purpose of the reliability standard,
which is to promote on-time deliveries vis-[agrave]-vis the schedule
that the carrier originally provides unless an affirmative defense
applies. As noted by the Coalition Associations, accurate OETAs help
avoid supply disruptions. (Coal. Ass'ns Reply 33.) They submit that,
without an accurate OETA, a rail customer cannot effectively plan its
shipments, operations, and fleet needs to avoid a supply disruption at
the destination. (Id.) As a result, rail customers must maintain
additional storage and railcar fleet capacity to prevent transportation
delays from causing supply disruptions. Moreover, ETA updates do not
make up for inaccurate OETAs. (Id.) The Coalition Associations explain
that, while an updated ETA may be helpful to allow a rail customer to
mitigate the impacts of transit variability to OETA, mitigating delays
while a shipment is in transit is challenging, and mitigation options
typically dwindle as the shipment progresses to the destination. (Id.)
Thus, ETA updates do not resolve the root problem or provide the
additional inventory and railcars necessary to address delays. (Id.)
The Board appreciates that updated ETAs remain important to
customers so that the actual status of the car and probable date of
arrival are known. With that said, shippers have pointed to numerous
valid reasons why failure to meet OETA is problematic for customers and
harmful to business operations. Given the goal of part 1145, it is
reasonable to hold a railroad accountable for its original trip plan.
To not hold the railroad accountable would undermine one of the Board's
goals of incentivizing carriers to provide service that meets their own
and shippers' expectations and needs. The Board will therefore not
modify the rule as suggested by CSXT.
Summary
In conclusion, the Board will adopt the service reliability
standard in the NPRM with the following changes: (1) the reliability
standard will increase to 70%; (2) the definition of ``delivery'' will
be clarified for purposes of interchange; (3) the reliability standard
will measure early arrivals as well as late arrivals, in each case with
a 24-hour grace period; (4) the reliability standard will be clarified
for cross-border traffic; and (5) the reliability standard will only
apply individually to each lane of traffic to/from the petitioner's
facility.
Service Consistency: Transit Time <SUP>22</SUP>
---------------------------------------------------------------------------
\22\ As noted in the Delivery at Interchange section above, the
Board is changing the definition of ``delivery'' for purposes of a
movement that involves an interchange between carriers en route.
This change also applies to the service consistency standard.
Moreover, as discussed above in Cross-Border Traffic, the Board is
clarifying how its service reliability and service consistency
standard will apply to cross-border traffic.
---------------------------------------------------------------------------
As discussed in the NPRM, the service consistency standard would
measure a rail carrier's success in maintaining, over time, the
carrier's efficiency in moving a shipment through the rail system.
NPRM, 88 FR at 63905. Based on the Board's understanding of the rail
network and available data, the Board proposed that, for loaded
manifest cars and loaded unit trains, a rail carrier would fail the
service consistency standard if the carrier's average transit time for
a shipment over a 12-week period increased by either 20% or 25% (to be
determined in the final rule) as compared to the carrier's average
transit time for that shipment over the same 12-
[[Page 38665]]
week period during the previous year. Id. Deliveries of empty system
cars and empty private cars could also result in a failure to meet the
service consistency standard. Id. The Board sought comment on what
level of increase in transit time should be used in the service
consistency standard and whether the Board should adopt a different
standard--in lieu of the proposed service consistency standard--that
captures prolonged transit time problems, to the extent those problems
would not be captured by the reliability standard or ISP standard. Id.
Whether To Adopt the Service Consistency Standard
Some carriers question the usefulness of the service consistency
standard. For example, CSXT asserts that fluctuations in transit time
for individual lanes are normal on a dynamic network and not meaningful
indicia of a service problem. (CSXT Comments 18.) CSXT adds that a
year-over-year comparison does not consider other events affecting
velocity such as track work, capacity improvements, volume surges in
other traffic, slowdowns on another railroad network, and service
design changes. (Id. at 19-20.) Similarly, CPKC warns that, unless the
service consistency standard is carefully aligned with real world facts
and data pertaining to the normal functioning of manifest carload
networks, the standard would misidentify normal variations in service
outcomes as service failures rather than spotlighting only those
situations that represent real service inadequacies. (CPKC Reply 10.)
In CSXT's view, this would lead to wasteful expenditures on proceedings
that are triggered by misaligned thresholds and, moreover, would cause
operational inefficiencies. CSXT also claims that the service
consistency standard could lead railroads ``to shun traffic that does
not fit into repeatable network operations.'' (Id.)
Using a rolling 12-week observation period at a 20% service
consistency standard, AAR's consultants project a high likelihood--
65.5%--that any given carload would not meet the service consistency
standards. (AAR Reply, R.V.S. Baranowski & Zebrowski 7, tbl. 2.) AAR
argues that this study confirms that there are substantial natural
variations in transit time, such that nearly any lane, observed enough
times, could trigger the service consistency standard. (AAR Reply 50.)
Based on data that AAR submitted in its reply comments, NSR asserts
that the service consistency standard is seriously flawed as a measure
of inadequate service. Rather than identifying potential service
problems, the standard (according to NSR) captures the majority of rail
traffic, where normal variations in transit time do not indicate
inadequate service. (NSR Reply 9-15.) NSR argues that, if the Board
wishes to use a service consistency standard, the Board should suspend
this proceeding to more carefully study transit time data, so that any
service consistency standard is empirically supported. (Id. at 2.) NSR
also suggests, as an alternative, that the Board request supplemental
evidence in support of the service consistency standard. (Id.) CN makes
a similar recommendation. (CN Reply 8.)
The Board will retain the service consistency standard. Taken at
face value, Baranowski and Zebrowski's results seem to indicate normal
variability in transit times. But that appearance is misleading. A
majority of the analysis period primarily covers the pandemic and
supply chain crises years (2020, 2021, 2022).\23\ If those years
included one ``fast'' year because shipments were down and then one
``slow'' year because the carriers had decreased their staff numbers,
it would follow that a significant amount of traffic would have been
captured under this standard. In any case, what Baranowski and
Zebrowski show is that the service consistency standard may indeed
capture a crisis on a carrier's system. The Board does not find that
outcome to be problematic. Such a carrier crisis is among the problems
that the Board wishes to address through this rulemaking. See also
Analytical Justification.
---------------------------------------------------------------------------
\23\ At the March 2022 hearing in Reciprocal Switching, EP 711
(Sub-No. 1), the Board heard testimony from shippers about the
following types of problems encountered during this period:
The railroads have pushed our sites to take on more expense and
change operations to match the new process and operating strategies. We
have had to increase our railcar fleet by over 10 percent in the past
couple of years solely due to inconsistency in the rail service and
increased transit time. And we're about to increase our fleet again in
the next six months by approximately seven to eight percent. This is
---------------------------------------------------------------------------
again due to the inconsistency in the service and transit time.
Hr'g Tr. 792:19 to 793:6, Mar. 16, 2022, Reciprocal Switching, EP 711
(Sub-No. 1). Another shipper commented: ``Our plant in the Northeast
lost production of over 57 million pounds during the first two months
of 2022 mostly due to increased transit time and railroad delays
resulting from crew shortages.'' Id., Hr'g Tr. 795:7 to 795:10, Mar.
16, 2022.
Furthermore, as explained in the NPRM, the service consistency
standard promotes the public interest in various ways. For example, it
helps to prevent the possibility that a rail carrier would increase the
OETA for a shipment for the sole purpose of meeting the OETA
performance standard--a practice that could obscure inadequate service.
NPRM, 88 FR at 63901. The standard also provides an incentive for
carriers to maintain velocity through the rail system. Id. Declines in
velocity can require shippers to procure more railcars. (LyondellBasell
Comments 3.) Increased fleets are a burden on railroads, shippers, and
the system as a whole. As UP explained at the Board's hearing
concerning reciprocal switching in Docket No. EP 711 (Sub-No. 1), ``if
we assume the cycle times for manifest traffic increase by 24 hours,
then customers would need to increase their fleets by 3,200 railcars. A
chemical customer shared that a one-day increase in transit time would
translate to an additional railcar lease cost of $100,000 annually, and
$350,000 in annual inventory carrying costs.'' Hr'g Tr. 287:9 to
287:16, Mar. 15, 2022, Reciprocal Switching, EP 711 (Sub-No. 1).
NSR itself notes that transit time data is a useful tool:
[T]ransit time data is important to its customers, and it is
important to NS--NS monitors transit time and uses it as a tool to
diagnose and problem-solve network issues as part of its commitment
to providing safe, reliable service to its customers. As such, NS
believes transit time data can be valuable for monitoring service.
(NSR Reply 9.)
The Board appreciates the carriers' concerns that normal variants
could be captured by the metric under certain challenging operating
periods like those that occurred during the pandemic. But just because
a situation is ``normal'' or has occurred before does not mean it is
excusable or acceptable. That said, part 1145 has also left the door
open to other affirmative defenses such as, for example, a velocity
problem that was due to scheduled maintenance and capital improvement
projects.\24\ And,
[[Page 38666]]
any time that is customer-controlled time is not counted in computation
of the velocity and not counted against a railroad.
---------------------------------------------------------------------------
\24\ As discussed in the Affirmative Defenses section, the Board
will consider ``scheduled maintenance and capital improvement
projects'' on a case-by-case basis. The Board does not intend the
rule to disincentivize capital investment and in fact expects that
this rule will help promote investments necessary for adequate
service. However, the nature of ``scheduled'' maintenance and
capital improvement projects suggests that carriers have a degree of
control over their execution, and the Board intends to ensure that
carriers exercise that control with reasonable consideration of
shippers' service levels.
---------------------------------------------------------------------------
Percentage
A number of shipper groups ask the Board to set the service
consistency standard at a level that would capture smaller reductions
in velocity from one year to the next. For example, based on member
feedback, the Coalition Associations urge the Board to reduce the
standard to 15%. (Coal. Ass'ns Comments 32.) They assert that a
sustained 15% increase in transit times would mean that shippers must
purchase or lease additional railcars and would incur additional
railcar maintenance costs. (Coal. Ass'ns Comments 32.) And, as shippers
rely on more and more railcars to address longer transit times, these
additional railcars can create network congestion that increases
transit times even more, thereby requiring the shipper to acquire even
more railcars. (Id.) Also, as shippers' railcar fleets swell to address
transit-time increases above 15%, corresponding rail infrastructure
requirements increase. (Id. at 33.) Rail customers would need
additional railcar storage capacity to ensure they have enough spare
railcars available, because increased transit times increase demand for
railcars in transit as well as spares. (Id.)
Other shipper groups also support a more rigorous service
consistency standard. ACD agrees that the standard should be set at
15%, (ACD Comments 5), while NGFA believes the Board should intervene
except where transit time is nearly equal to transit time during the
preceding year, (NGFA Comments 12-13). Olin adds that a service
consistency standard in the 10% to 15% range is appropriate because
service has been especially bad in the last few years and hence the
``base'' transit times have already been skewed downwards. (Olin
Comments 6.)
AAR responds that none of the proposed service consistency
standards are supported by data and that therefore none of the proposed
standards identify where prescription of a reciprocal switching
agreement could relieve inadequate service. (AAR Reply 49; see also
CPKC Reply 6-7 (asserting that the proposed service consistency
standards are not based on data concerning fluctuations in transit time
from year to year).)
The Board proposed in the NPRM to set the percentage at either 20%
or 25%. NPRM, 88 FR at 63905. Based on the comments received, the Board
will set the standard at 20%. The Board must guard against making the
standard too lenient, as at 25%, and thus not intervening before
problems with poor velocity become severe and clog a carrier's system
with cars. As acknowledged by railroads themselves, poor velocity can
trigger a vicious cycle that is harmful to shippers, the incumbent
railroad, and the network as a whole. See Hr'g Tr. 287:9 to 287:16,
Mar. 15, 2022, Reciprocal Switching, EP 711 (Sub-No. 1); Hr'g Tr. 787:1
to 787:13, Apr. 27, 2022, Urgent Issues in Rail Freight Serv., EP 770.
On the other hand, the standard should not be too strict, as that could
capture situations not warranting regulatory intervention under part
1145. Weighing these considerations, the Board finds that 20% is
currently appropriate here.\25\ The Board appreciates that a 20%
standard is conservative given that some of the testimony considered in
making this proposal referred to 15% drops in velocity, and given
commenters' subsequent calls for a standard that is not met when a
decrease is above 15%. However, the Board finds as a policy matter
that, at this point, it would be preferable to use a standard that
reserves part 1145 for somewhat more significant concerns about
patterns of decreased velocity over time. This approach is reinforced
by the Board's decision to capture, in the final rule, gradual
increases in transit time as discussed below. The Board reiterates that
stakeholders will continue to have access to other relief for service
inadequacies, including under parts 1144, 1146, and 1147. And, while
the railroads assert that the Board's general support for the part 1145
standards percentage is insufficient and not supported by data, as
discussed in the Analytical Justification section, those arguments fail
to adequately consider the purpose and built-in limitations of the rule
and the reasonableness of the indicators that the Board has chosen
based on record evidence. Here, not only has the Board considered data
submitted by the carriers, the Board has testimony from shippers as
well as comments from numerous shippers upon which to inform its
decision.
---------------------------------------------------------------------------
\25\ The Board rejects CPKC's argument that normal fluctuations
in transit time are so significant as to ``swamp'' a 20% change in
transit time. (See CPKC Reply, R.V.S. Workman & Nelson at 19-23.)
CPKC's argument fails to account for how the service consistency
standard works. The standard assesses changes from year to year in
the average transit time over a lane over the same 12-week period.
This approach inherently accounts for normal fluctuations in transit
time over the lane in question, identifying a failure to meet the
service consistency standard only when the average transit time over
that lane increased from one year to the next by more than 20%.
---------------------------------------------------------------------------
Observation Period
As with the reliability standard, a number of shipper groups ask
the Board to decrease the observation period for the service
consistency standard. NSSGA submits that 12 weeks is too long a period
of bad service, claiming that it could potentially ruin its members'
businesses. (NSSGA Comments 8.) NSSGA instead proposes a six-week
period. (Id.; see also PRFBA Comments 10 (six weeks); AFPM Comments 10-
11 (six weeks).) EMA also suggests that the Board adopt a six-week
period rather than 12 weeks so that carriers ``have less time to
obscure what level of service they truly are providing.'' (EMA Comments
7-8, 9.)
The Board will retain the 12-week observation period. As noted
early in the service reliability section, a shorter observation period
would not as clearly signal the public interest in introducing an
alternate rail carrier via switching as the means to allow the
petitioner to choose the carrier that better met its needs. And, as
noted earlier, stakeholders will continue to have access to other Board
relief, including parts 1144, 1146, and 1147--without needing to wait
for a 12-week observation period to end.
Empty Railcars
Various carriers claim that the service consistency standard should
not be triggered by decreases in velocity for movements of empty
railcars. According to CN, application of the service consistency
standard to movements of empty railcars could give a shipper access to
an alternate line-haul carrier for loaded cars when the incumbent
carrier is performing well in delivering those cars. In that case,
according to CN, the shipper's petition would not meet the ``actual
necessity or compelling reason'' standard that carriers contend should
apply. (CN Comments 47; see also AAR Comments 56-57.) \26\ CN further
asserts that there are differences in how empty cars are managed and
moved and that these differences affect transit times for those
movements. (CN Comments 46-47.) CN notes that variables such as car
supply, customer behavior, diversions, and other effects unrelated to
service performance can result in high variability in transit time for
empty private cars. (Id. at 47.) CSXT makes similar arguments, noting
that
[[Page 38667]]
empty cars do not cycle between the same origin and destination and are
often diverted. (CSXT Comments 36-37.)
---------------------------------------------------------------------------
\26\ As discussed in Legal Framework, the carriers' claims
concerning the appropriate standard lack merit.
---------------------------------------------------------------------------
The Coalition Associations urge the Board to reject railroad
arguments that oppose considering empty-car movements under the service
consistency standard. They assert that railroad concerns about the
differences in how loaded and empty cars move are overstated. (Coal.
Ass'ns Reply 35.) Even though empty railcars might not cycle between
the same origins and destinations, the Coalition Associations note that
railroads can still measure transit times on empty cars that do move
between the same empty origin and empty destination, which the
Coalition Associations claim is a substantial number of private cars.
(Id. at 36.) The Coalition Associations add that transit time increases
involving empty-car movements can have a significant impact on rail
customers, and allowing transit time increases on empty railcar
movements to justify reciprocal switching prescriptions for both the
empty movement and the associated loaded movement is a practical
solution to discourage inadequate service involving empty movements.
(Id. at 36-37.)
The Board will continue to include movements of empty cars in
applying the service consistency standard. Consistent transit time in
returning private/leased empties to the original place of loading is
critical to having cars available for loading at that location. Indeed,
if a year ago a shipper's fleet cycled at the rate of two roundtrips
per month and that deteriorated to, for example, 1.4 roundtrips per
month while demand remained constant, the customer would be faced with
either obtaining more equipment or reducing its delivery of product. As
AFPM explains, increased transit times for empty railcars can interrupt
a rail customer's supply of cars needed to support operations, deprive
a rail customer of empty cars that it may need for the goods it
produces, and ultimately prevent a rail customer from fulfilling its
own customers' orders. (AFPM Comments 11.) In the direst situations, a
disruption in empty-car supply may cause severe facility backups,
requiring a reduction of or even stalling operations. (Id.) The Board
will therefore provide for a prescription based on the velocity of
empty cars. However, customer behavior and customer-ordered diversions
could constitute an affirmative defense to a service consistency
failure arising from empty-car movements. Finally, similar to loaded
cars (as discussed below), the Board will apply the three-year, 25%
standard and 36-hour floor to empty cars.
Lanes vs. Routes
UP asserts that the Board should apply the service consistency
standard to routes as opposed to lanes. (UP Comments 9-10.) \27\ UP
claims that comparing transit times for a given route from year to
year, as opposed to comparing transit times for a given lane from year
to year, is necessary to avoid distorted results. UP appears to reason
that, by comparing transit times for a given route, the Board could
better account for unanticipated events that occurred over a given
segment of the rail system. (Id.)
---------------------------------------------------------------------------
\27\ Movement over a lane (transportation from a given point of
origin to a given destination) often can be accomplished over a
variety of routes.
---------------------------------------------------------------------------
The Board will continue to apply the service consistency standard
to lanes, not routes. It is true that different routes can have
different run times and lead to different delivery dates. But those
changes nonetheless can affect a shipper's or receiver's business. If a
railroad has decided to downgrade a route and condense volume on a core
route and that decision adds miles and days to the transit time, then
there might be grounds to prescribe access to another line haul
carrier, subject to other requirements in part 1145. As noted by the
Coalition Associations, UP's proposal would not capture increases in
transit time that resulted from the incumbent carrier's routing
decisions. (Coal. Ass'ns Comments 39.) If a routing decision is a
function of, for example, a bridge washing out, the Board has provided
an affirmative defense for extraordinary circumstances, and the carrier
has other affirmatives defenses available in other circumstances.
DCPC recommends making a customer's facility open to reciprocal
switching for all lanes, presumably as long as the incumbent carrier
failed to meet a performance standard for at least one of those lanes
and as long as the other conditions to a prescription were met. (DCPC
Comments 4.) The company reasons that otherwise the customer and the
carriers would need to closely monitor which cars from the facility
were eligible for reciprocal switching and which cars from the facility
were not. (Id. at 3-4.)
The Board declines at this time to adopt DCPC's approach, which
would represent a major change to the framework the Board proposed in
the NPRM. Its approach could make reciprocal switching available for
movements that were not necessarily implicated by the carrier's failure
to meet a performance standard. As a result, this approach would go
beyond the current design and purpose of part 1145. DCPC also asks what
would happen if a carrier created a new lane and whether a petitioner
would need to refile with the Board to seek to add that lane to any
prescription. (DCPC Comments 3-4.) As noted in Multiple Lanes, however,
the Board has decided not to allow petitioners to combine lanes.
Shorter Lanes
Several carriers raise the concern that the service consistency
standard will disproportionately affect traffic that has relatively
short running times. CN reasons that, for trips of twelve hours, the
addition of only a few hours in transit time from year to year could
mean failing to meet the service consistency standard. (CN Comments
46.) CPKC raises a similar concern, noting that a 24-hour or greater
delay-occasioned for example by a single missed connection-over a
shipment that is scheduled to arrive in four days would exceed the 20%
service consistency standard. (CPKP Reply 26.) CPKC argues that
establishing a minimum absolute value for downward movement in average
transit times of ``perhaps 36 hours'' would help to address this flaw.
(CPKC Reply 26, 41.)
The Coalition Associations respond that the service consistency
standard should be based on a percentage of transit time. They reason
(1) that increases in cycle time require proportional increases in the
size of the fleet that the shipper needs to maintain the same delivery
rate to the destination, and (2) that this increase in the required
size of the fleet imposes significant economic consequences on
shippers. Having said that, the Coalition Associations suggest that the
Board could adopt a 24-hour floor for the service consistency standard
because its shippers typically plan fleet needs based on days in
transit rather than hours in transit. (See Coal. Ass'ns Reply at 38-
39.)
The Board will adopt an absolute floor of 36 hours, meaning that an
increase in transit time over a 12-week period will fail the service
consistency standard only if the increase is more than 36 hours. This
approach is grounded in practical considerations and the specific goals
of part 1145. A reciprocal switching movement itself might add roughly
24 hours to a trip. It is therefore unlikely that it would serve the
public interest to prescribe a reciprocal switching agreement under
[[Page 38668]]
part 1145, as a means to introduce an additional line-haul carrier,
based on an increase in transit time of 36 hours or less.\28\ The 36-
hour floor applies only under part 1145. A shipper would be free to
seek to demonstrate under part 1144 or part 1147 that an increase in
transit time of 36 hours or less justified prescription of a reciprocal
switching agreement.
---------------------------------------------------------------------------
\28\ For the same reason the 36-hour floor also will be applied
to the three-year standard.
---------------------------------------------------------------------------
Calls To Measure the Entire Move
Some shipper groups raise concerns that the service consistency
standard applies only to the incumbent carrier's portion of an
interline movement and therefore does not account for increases in
transit time over the entire interline movement. (PRFBA Comments 10;
EMA Comments 9.) NSSGA suggests that applying the standard only to the
incumbent carrier's portion is, in effect, to apply the standard to an
``arbitrary subset'' of the entire movement. (NSSGA Comments 8.) The
Board disagrees that it is arbitrary to apply the service consistency
standard only to the incumbent carrier's portion of the interline
movement, given that the incumbent carrier has the most direct control
over its portion of the movement. If the incumbent carrier provided
sufficiently consistent transit times over its portion, yet there was
an excessive decline in transit times over the entire movement, then
this would very likely be due to factors beyond the incumbent carrier's
reasonable control. Given this high likelihood, the Board sees no value
in requiring the incumbent carrier to demonstrate, as an affirmative
defense, that a decline in transit time over the entire movement was
beyond the incumbent carrier's reasonable control.
Volume
AAR notes that the service consistency standard requires comparing
transit time performance in a particular lane between two windows of
time. (AAR Comments 56.) To make this an ``apples-to-apples''
comparison, it asks the Board to clarify that the selected windows must
have seen reasonably equivalent volumes shipped, with shipments moving
under non-exempt common carrier service in both windows. (Id.) AAR
asserts that volume can significantly affect transit time for a variety
of operational and economic reasons and that large blocks of cars will
often move through the network faster than single carloads. (Id.) The
Board will not adopt AAR's clarification. Requiring a shipper to
compare volumes as well as observation periods would be more difficult
to apply, and affirmative defenses provide an adequate and appropriate
path for an incumbent carrier to address transit-time increases that
primarily result from volume changes, including where the likelihood of
this occurring is not clear or predictable. (Coal. Ass'ns Comments 37.)
Gradual Increases in Transit Time
A number of parties claim that comparing transit time from one year
to the next might not capture a significant increase in transit time
that develops over a period of several years. For example, AFPM notes
that, using the standard's proposed 20% or 25% year-over-year increase
for a shipment that takes 14 days today could result in an increase to
17.5 days in the first year and nearly 22 days in the second year,
continuing to grow exponentially in perpetuity, nearly doubling its 14-
day transit time to more than 27 days after just three years. (AFPM
Comments 11; see also FRCA/NCTA Comments 3.) To avoid the compounding
effect of increases in transit time, the Coalition Associations ask the
Board to adopt an additional threshold that would make reciprocal
switching available if transit time increases by more than 25% during
the prior three years. (Coal. Ass'ns Comments 4, 31-32; V.S. Crowley/
Fapp, Ex. 2 at 5; see also Dow Reply 3.) Although AAR also made this
point in its comments, (AAR Comments, V.S. Orszag/Eilat 18), it later
argues that a multi-year approach would not be useful because,
according to AAR, it would still capture normal variations in transit
time. (AAR Reply, R.V.S. Baranowski & Zebrowski 9.)
To capture a slow increase in transit time that becomes substantial
over time, the Board will modify the transit time measure to include an
additional metric, which a carrier would not meet if a petitioner's
transit time over the lane increased by more than 25% over the prior
three years. See 49 CFR 1145.2(b)(2). For example, if the base year
average transit time over a twelve-week period in the summer was 20
days, the incumbent carrier would fail to meet the standard if in years
one through three, the average transit time for the corresponding 12-
week period in any of those three years increased by five days or more,
i.e., to 25 days or more. A rail customer would qualify for a
reciprocal switching agreement if it demonstrated that the incumbent
carrier did not meet either the one-year or three-year threshold. As
the Board explained in the NPRM, part 1145 ``would provide for the
prescription of a reciprocal switching agreement to address
deteriorating efficiency in Class I carriers' movements, specifically
when the incumbent rail carrier failed to meet an objective standard
for consistency, over time, in the transit time for a line haul.''
NPRM, 88 FR at 63901. The Board's modification of the transit time
measure is consistent with that approach.
Summary
The Board will adopt the service consistency standard that was
proposed in the NPRM using a 20% standard. The Board will also: (1)
change the definition of delivery to an interchange and customer
facility; (2) clarify how it measures transit time performance on
international lanes; (3) modify the transit time measure to add a
measure for a 25% increase in transit time over the prior three years;
(4) create an absolute floor for both the one-year and three-year
measure of 36 hours; and (5) provide that the service reliability
standard only applies individually to each lane of traffic to/from the
petitioner's facility.
Inadequate Local Service: Industry Spot and Pull
The third performance standard--ISP--would measure a rail carrier's
success in performing local deliveries (``spots'') and pick-ups
(``pulls'') of loaded railcars and unloaded private or shipper-leased
railcars during the planned service window. NPRM, 88 FR at 63905. Under
the proposed rule, a rail carrier would fail the ISP standard if the
carrier had a success rate of less than 80% over a period of 12
consecutive weeks in performing local deliveries and pick-ups during
the planned service window. Id. The success rate would compare (A) the
number of planned service windows during which the carrier successfully
completed the requested placements or pick-ups to (B) the number of
planned service windows for which the shipper or receiver, by the
applicable cut-off time, requested a placement or pick-up. Id. The
carrier would be deemed to have missed the planned service window if
the carrier did not pick up or place all the cars requested by the
shipper or receiver by the applicable cut-off time. Id. Subject to
affirmative defenses, this would include situations in which the
carrier has ``embargoed'' the shipper or receiver as a result of
congestion or other fluidity issues on the carrier's network, which
results in reduced service to the shipper or receiver. Id. Below are
responses on these matters as well as other issues that drew
significant comment.
[[Page 38669]]
The Board proposed the 80% standard based on data submitted in
Docket No. EP 770 (Sub-No. 1). Id. at 63906. As with the service
reliability standard, the Board requested that stakeholders and
shippers/receivers provide evidence and comment on the appropriateness
of this percentage and whether it should be higher or lower. Id. The
Board also sought comment on a number of other points, including two
possible service windows. Id. at 63906-07.
Whether To Adopt the ISP Standard
A number of carriers challenge the appropriateness of the ISP
standard. For example, CN asserts that the Board should eliminate the
ISP standard from Sec. 1145.2 on the ground that the prescription of a
reciprocal switching agreement is not an effective remedy for
inadequate local service. CN reasons that, even where the petitioner
chose the alternate carrier for line-haul service, the incumbent
carrier would continue to provide local service to the petitioner. (CN
Comments 36.) AAR agrees, adding that the petitioner's choice to rely
on the alternate carrier for line-haul service might exacerbate the
inadequate local service. (AAR Comments 57-58.) AAR suggests that a
more appropriate response to poor local service might be the
prescription of terminal trackage rights. AAR adds, however, that
providing for the prescription of terminal trackage rights in this
proceeding would exceed the scope of the NPRM. (Id. at 58.)
AAR asserts that, if the Board retains the ISP standard, the Board
should establish a technical working group to study and consider the
matter. AAR reasons that there is significant technical complexity
related to how carriers provide local service. (Id. at 109.) CPKC goes
further and argues that local services are too complex and require too
much on-the-ground operating discretion and flexibility to warrant the
Board's application of a universal performance standard for local
service. CPKC suggests that, if the Board might wish to adopt standards
for local service, then the agency should first examine in appropriate
detail all of the complexities and potential adverse impacts associated
with any such standard. (CPKC Reply 28.)
The Board will retain the ISP standard. The record in this
proceeding demonstrates a significant public interest in promoting
adequate local service. As discussed below, a number of shipper groups
advocate for higher standards for service. (See, e.g., ACD Comments 5
(noting that the group is supportive of this performance standard as
first-mile/last-mile service has been a significant issue for shippers
for decades); see also NSSGA Comments 9; AFPM Comments 12; EMA Comments
8; PRFBA Comments 9; DCPC Comments 10; API Comments 5; NGFA Comments
13; FRCA/NCTA Comments 2.) The Class I carriers agree that local
service is critical to meeting customers' needs and that nevertheless,
due to a variety of operating decisions by those carriers, the quality
of local service is not at times where it should be. The public
interest in adequate local service is effectively advanced by providing
for the introduction of an alternate rail carrier for purposes of line-
haul service when, through the subpar quality of the local service that
it provides, the incumbent carrier failed to meet reasonable service
expectations. The incumbent carrier's potential loss of the line haul
creates an appropriate incentive to meet local service expectations
given that provision of the line haul is the carrier's main source of
revenue. Indeed, due to the economics of providing local service, the
incumbent carrier might be indifferent to losing that service if it
retained the line haul. Potential loss of the line haul also reflects
the fact that overall operation of the network is more fluid when local
service and line-haul service are well-coordinated, for example, when a
local drop-off occurs within a reasonable time of when the line haul is
completed. While the Board supports the carriers' goal of retaining
flexibility in how they provide local service, as a means to maximize
efficiency, it is vital that their less successful experimentation not
threaten the fluidity of the network. An incumbent carrier that had to
coordinate with an alternate line haul carrier would be more pressed to
provide adequate local service.
The Board declines to convene a working group to consider
complexities and variations in the provision of local service. From the
customer's perspective, what matters is whether the carrier delivers
and picks up cars when it says it will. The Board expects that each
carrier will take into account the complexities of its operations when
making those communications to the customer.
Calls To Measure by Railcar and for a No-Show Standard
Under the ISP standard proposed in the NPRM, a rail carrier would
be deemed to have missed the planned service window for purposes of the
ISP standard if the carrier did not pick up or place all the cars
requested by the shipper or receiver by the applicable cut-off time.
NPRM, 88 FR at 63906-07. Several commenters recommend modifying that
approach.
The Coalition Associations propose two standards for local service.
One standard would measure how many cars, out of the cars that were
scheduled to be delivered or picked up during a planned service window,
were not delivered or picked up. (Coal. Ass'ns Comments 4-5.) The other
standard would measure how many planned service windows during the
observation period were ``no shows,'' where the carrier failed to
provide any local service during the planned service window. (Id.) The
Coalition Associations assert that these different types of failure
have different impacts on customers. (Id.) Under the Coalition
Associations' proposed measure, the threshold would be tripped if the
carrier failed to perform at least 80% of scheduled spots (deliveries)
and pulls (pick-ups) during the planned service window and did not
perform the remaining spots and pulls within the service window that
immediately followed the planned service window. (Id. at 5, 36.) The
Coalition Associations' proposed ``no-show'' standard would require a
carrier to provide local service during at least 90% of the planned
service windows over the 12-week observation period and not to miss two
consecutive service windows. (Id. at 5, 37-38.)
AAR asserts that any standard for local service should be based on
the number of cars that were spotted or pulled as scheduled within the
planned service window. (AAR Comments 59.) AAR claims that the approach
in the NPRM (which would credit the carrier with a ``hit'' only if the
carrier spotted and pulled all scheduled cars during the planned
service window) would overstate the impact of a carrier's failure to
perform a small portion of the scheduled spots and pulls during the
planned service window. (Id. at 23, 57-59, 109; id., V.S. Orszag/Eilat
13.) CN agrees. (CN Comments 40.) CN states that it tracks local
performance on a per-car basis. According to CN, this approach provides
better insight into its performance and into the reasons for any
misses. (Id. at 40-41; see also CSXT Comments 23; UP Comments 11.)
The Board will retain the approach to local service that was
proposed in the NPRM. This approach is straightforward, avoids the
complexity of the Coalition Associations' proposal, and provides an
appropriate incentive to provide adequate local service. Not showing up
at all counts as a ``miss'' under the Board's simpler approach and, in
some circumstances, could be
[[Page 38670]]
captured by the service consistency and service reliability standards
the Board is also adopting in part 1145. With respect to AAR's approach
based on the number of cars spotted and pulled within any service
window, the Board finds that the Board's approach is not only simpler
to measure and consistent with the expeditious and efficient handling
of proceedings but also properly reflects the relative impacts that
local service failures have on customers. For these reasons, while the
Board recognizes AAR's observation that service windows might include
varying numbers of cars, the Board finds that AAR's concerns regarding
overstatement are not persuasive. Under this rule, a carrier has
flexibility to establish protocols governing their local service,
including when to constructively place cars, when and how to establish
cut-off times, and other actions important to formulating a work order
that they should execute.
Percentage
Several shipper groups ask the Board to increase the threshold
percentage used in the ISP standard. NSSGA argues that 80% is too low--
that local service at that level causes a backup of products at the
facilities of NSSGA members. (NSSGA Comments 9.) NSSGA asserts that 90%
would be a more appropriate standard, which, if achieved, could protect
against such backups. (Id.) AFPM also supports a 90% standard based on
the adverse impacts that late or missed local service, as well as the
spot or pull of incorrect cars, have on plant production and revenues.
(AFPM Comments 12.) Others support setting the local service standard
either at 90%, (EMA Comments 8; PRFBA Comments 9; DCPC Comments 10), or
at 80% and providing by rule for an increase up to 85% or 90% after two
years, (API Comments 5 (initial standard of 80% but 85% or 90% after
two years)). NGFA recommends setting the standard at the ``high end of
the interim performance targets'' from Docket No. EP 770 (Sub-No. 1).
(NGFA Comments 13.) FRCA/NCTA recommend setting the standard at 85%.
(FRCA/NCTA Comments 2.) AAR opposes these calls to increase the
standard, asserting that the data does not support an increase. (AAR
Reply 51.)
The Board will increase the local service standard. The 80%
standard that was proposed in the NPRM would not have been triggered
for many shippers until, on average over a 12-week period, the carrier
had failed to fulfill a local work order for that shipper more than
once per week. (EMA Comments 8.) The 80% figure, however, was too low
to provide a useful indication of when it might be in the public
interest to introduce an additional line-haul carrier through a
prescription under part 1145. This point is clear both from shippers'
comments and from data that the Board collected in Docket No. EP 770
(Sub-No. 1). The Rail Service Data page on the Board's website shows
that, from May 13, 2022, to December 22, 2023, three of the four
carriers that reported data for that period had average weekly ISP
performance of between 89% and 91%, with highs between 93% and 97%. See
<a href="http://www.stb.gov/reports-data/rail-service-data/#Urgent%20Issues%20Rail%20Service%20Data">www.stb.gov/reports-data/rail-service-data/#Urgent%20Issues%20Rail%20Service%20Data</a>. While ISP performance was
measured somewhat differently in Docket No. EP 770 (Sub-No. 1) as
compared to how it will be measured under part 1145, the performance
data from Docket No. EP 770 (Sub-No. 1) shows the high level of
reliability that carriers seek to provide, and that customers expect,
even during periods of major problems on the network. With this in
mind, an 80% ISP standard would provide insufficient incentive for
carriers to provide adequate local service. An 85% standard better
reflects a level of service that is below what customers have
consistently reported as their service expectations and what carriers
appear to aim for in their service. See id. Although some shippers ask
the Board to set a higher threshold, the agency would like to implement
part 1145 before considering whether to increase the percentage.
Observation Period
AFPM argues that the 12-week observation period for the local
service standard is too long for refiners and petrochemical
manufacturers, adding that poor local service over such a sustained
period will ``dramatically hurt'' their operations. (AFPM Comments 12.)
For the reasons discussed above in the Observation Period sections
concerning the service reliability standard and the service consistency
standard, the Board will retain the 12-week observation for the local
service standard.
Rebuttable Presumption
CSXT is concerned that the local service standard does not account
for missed spots or pulls that were caused by the customer or resulted
from the customer's request for service that exceeded the capacity of
the customer's facility. (CSXT Comments 22.) CSXT asserts that the
carrier should not be required to prove to the Board, after the event,
that the miss was caused by the customer, arguing that the local crew's
recorded determination at the time of the miss should be treated as
presumptive evidence on that point. (Id. at 22-23.)
As stated in the NPRM, a miss caused by the customer would not be
counted against the incumbent rail carrier. NPRM, 88 FR at 36907. The
Coalition Associations asks the Board to include the phrase ``except
due to a variation in its traffic,'' (Coal. Ass'ns Reply 44), but that
suggestion will not be adopted. It is not clear without context why a
miss caused by a variation in a customer's traffic should count against
a carrier, but the Board can consider the relevance of the variation if
presented as an affirmative defense.
The Board will not adopt CSXT's proposal to treat the local crew's
determination of the cause of a miss as presumptive evidence of the
cause. The burden should be on the railroad to provide persuasive
evidence of the cause of the miss, given that the railroad would have
the most direct knowledge of the cause. Persuasive eviden
[…truncated; see source link]Indexed from Federal Register on May 7, 2024.
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