On April 30, 2024, the Surface Transportation Board issued a decision that introduces narrow-scope reciprocal switching into the U.S. freight rail industry.
That decision prescribes that two supporting data sets for trains in manifest service only be made public on a weekly basis:
1: Original Estimated Time of Arrival (OETA), defined as the estimated time of arrival that the incumbent rail carrier provides when the shipper tenders the bill of lading or when the incumbent rail carrier receives the shipment from a delivering carrier. Each Class I must report the percentage of shipments on the carrier’s system that moved in manifest service and that were delivered within 24 hours of OETA, out of all shipments on the carrier’s system that moved in manifest service during that week.
2: Industry Spot and Pull (ISP), defined as a rail carrier’s success in performing local placements (“spots”) and pick-ups (“pulls”) of loaded railcars and unloaded private or shipper-leased railcars at a shipper’s or receiver’s facility during the planned service window. The industry spot and pull standard does not apply to unit trains or intermodal traffic.
Each Class I must report, for each of the carrier’s operating divisions and for the carrier’s overall system, the percentage of planned service windows during which the carrier successfully performed the requested local service, out of the total number of planned service windows on the relevant division or system for that week. Service windows are defined as 12 hours in duration, and reasonable advance notice must be given to the shipper or receiver in accordance with the carrier’s established protocol.
These two data sets will be familiar to some of you because variants of them were part of the temporary reporting metrics between May 2022 and December 2023 (EP770). OETA appears to be defined and/or measured differently than manifest on-time performance under EP770, so it’s not comparable, while ISP does appear to be the same as the old EP770 ISP, but we’ll confirm that with the STB before we publish any comparisons.
Reporting of this data became effective from Sept. 7, so we now have five weeks that we regard as sufficient to get a first read.
We’ll start with OETA, and the STB benchmark the railroads must stay above to avoid the potential for a reciprocal switch is 70%. This is depressing and inconvenient. ISP, with the STB benchmark to avoid the potential for a reciprocal switch 85% looks better, at least, with only CN’s U.S. operation consistently below the 85% benchmark so far:
What to Make of It All
This new data is relevant in two contexts. The first is just tracking the week-to-week performance of the networks, which this report is designed to do. The second, and the one that’s probably top of mind right now after looking at that depressing first chart, is, are we in store for a wave or STB-mandated reciprocal switches?
We’ll obviously track and comment on that as it evolves over time, but for now it’s important to recognize some caveats:
- This is just five weeks of data, while customers need 12 weeks before they can take a case to the Board.
- Reciprocal switches are based on performance to individual customers on a case-by-case basis while the OETA and ISP data above reflects full system, to all manifest customers.
- We purposefully used the term “narrow scope” reciprocal switching earlier because the new rule excludes traffic under contract, the vast majority of rail traffic.
- Even if service is demonstrably substandard, only a small subset of customers have another Class I carrier in sufficient proximity to make a reciprocal switch possible.
- The Canadian railroads have “broad scope” reciprocal switching in Canada, and you never hear them complaining about it.
Finally, a few mandated switches aren’t a bad thing. Based on the bullet points above, we think a wave of STB-mandated switches is unlikely, but we’ll probably see a few. While it won’t be enough to make a dent in any Class I’s market share, there’s still an embarrassment factor here. Nobody likes to lose business to a primary competitor in a highly visible manner like this, which makes this new rule useful in terms of getting some competitive juices flowing.
Given customer complaints that the railroads are too fat ’n happy, this is worth a shot.
