US railroads, shippers await changes

OREANDA-NEWS. July 24, 2015.  US energy commodity shippers and railroads will be keeping a close watch in the second half of 2015 on federal transportation regulation proceedings that could change the economics of shipping by rail.

One of the most significant proceedings is a review of a reciprocal switching proposal by the US Surface Transportation Board (STB).

The proposal would allow shippers to access a second railroad if they are close enough geographically to a connection, a change that could spur competitive pricing between two carriers. The National Industrial Transportation League(NITL) proposal has languished at the board since 2011, but market sources expect it to be acted upon in the second half of 2015.

The switching proposal has been sought after by shippers as a way to lower rates and improve rail service. But railroads say it would reduce their future investments and lead to additional terminal congestion that would affect service.

NITL has said it does not believe its proposal would harm railroads because the incumbent carrier at a facility is likely to lower rates rather than risk a competitor taking its business away. A number of shippers say US rail rates have increased dramatically in the last decade, partly because of a lack of competition among carriers.

The agency is reviewing the methodology used to determine if carriers are earning adequate revenues to cover their operating costs and provide a reasonable return on capital provided by investors. Railroads that are not deemed revenue adequate are allowed to charge higher rates on lines where they have market dominance.

Railroads say changes to the existing regulatory structure are unwarranted because higher rates support capital investments in infrastructure, which provide shippers with higher quality service. Commodity shippers say the existing structure allows railroads to arbitrarily raise rates and there needs to be a more level playing field when they seek to challenge those rates.

Activity at the board was stalled this year because the US Senate at the end of 2014 did not act on the re-nomination of chairman Dan Elliott, leaving a two-member panel to decide all cases. The US Senate confirmed him again in May and Elliott took up his position again in late June.

Transportation liability disputes have set the stage for different conflicts.

Liability issues related to tank cars are becoming a major issue because of high-profile accidents. Carriers are growing increasingly reticent to haul toxic-by-inhalation and poison-by-inhalation hazard chemicals like chlorine.

Railroads have renewed the fight to have shippers provide them with indemnification for product spills but customers are fighting back. Agrium brought a dispute over liability clauses to the STB regarding one of Canadian Pacific's latest fertilizer tariffs. The tariff seeks to have shippers indemnify the railroad for liability from a number of different release causes. The document has similarities to a tariff proposed by Union Pacific that was previously struck down by STB.