GIVEN THE AMOUNT OF INK (OR ITS DIGITAL EQUIVAlent) devoted to the topic, you could be forgiven for assuming that
the challenges of retail deliveries are pretty much the end-all and
be-all where logistics trends and developments are concerned. In
recent months, we’ve been deluged with articles and white papers
on such subjects as drones, Amazon, Wal-Mart, same-day deliveries, free shipping, and crowdsourcing.
While this segment of our economy is unquestionably important, there is life beyond it. But in these retail-centric times, major
developments in other areas often go overlooked. For instance,
unless you’re a rail shipper and/or a regular follower of the rail
trade press, you may have missed a recent decision by the Surface
Transportation Board (STB) that could be a very big deal for a lot
of rail shippers.
To understand the implications of the decision, it helps to know a little about the U.S. rail
industry. With 140,000 miles of track and 2015
revenues of over $80 billion, the rail portion of
the U.S. transportation network is critical to the
flow of commerce. It is also the subject of considerable controversy, particularly among so-called
“captive shippers”—those served by only one
rail carrier. Since the industry was deregulated
in 1980, the number of U.S. Class I railroads has
dwindled to five, which now control 90 percent
of the country’s rail traffic. That’s left many
shippers with just one rail carrier option. With
no competition, the shippers maintain, there is little incentive for
carriers to keep rates and services at acceptable levels.
On July 27, the STB took a major step toward correcting that. In a
notice of proposed rulemaking, the agency proposed to modify language to make it easier for shippers to prove the need for “reciprocal
switching,” where one railroad, for a fee, switches carloads to a rival
carrier to give shippers access to facilities they could not otherwise
reach. Under the proposed rule, a shipper seeking reciprocal switching for its freight would have to show that the arrangement would
be, in the STB’s words, “practicable and in the public interest” or
that it is “necessary to provide competitive rail service.” The current
standard requires shippers to prove that reciprocal switching would
be necessary to “prevent an anticompetitive act”—a difficult task.
Since 1985, almost no shipper requests for reciprocal switching have
been filed, and none have been granted.
The new rules were a long time coming, resulting from a petition
filed by the National Industrial Transportation League and signed
BY CLIFFORD F. LYNCH fastlane
Let’s switch
by 700 shippers in 2011. Rail carriers have been
expecting them for well over a year and were
ready with their objections.
The same day the STB published its notice,
the Association of American Railroads (AAR)
issued a statement calling the new rules, or
“forced access” as the group termed it, a step
backward from the deregulatory path created
by the Staggers Act of 1980. The group further
stated that railroads would ultimately need
more resources to move the same amount of
freight. The rail supplier contingent weighed in
as well, noting that the move would reduce capital spending by the railroads,
which, obviously, would not
be good for suppliers.
I am sure the rail industry
has legitimate concerns, but
its pronouncements seem to
be masking what I suspect
is the underlying issue—
that no carrier is interested
in throwing the switches for
new competitors.
As for the likelihood of the
STB’s proposal being adopted, there is a possible snag
that often arises in election years. The STB is
short two members, who are not likely to be
appointed until the new administration is in
place. Right now, Democrats control the STB.
My hope is that whomever is nominated for
the empty seats will not see a railroad switch
as a partisan political tool, but rather, will
see the wisdom of providing competitive rail
service for those who have gone without it for
so long.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider
of logistics management advisory services, and author of Logistics
Outsourcing – A Management Guide and co-author of The Role of
Transportation in the Supply Chain. He can be reached at cliff@
cflynch.com.
