The Surface Transportation Board (STB), short one member at four and evenly divided between Republicans and Democrats, on June 25 issued a somewhat nebulous decision on Docket No. Ex Parte 768, “Petition for Rulemaking to Adopt Rules Governing Private Railcar Use by Railroads” (download below). The Board said it “is unable to reach a majority” but that “the proceeding will remain open.” Railway Age Capitol Hill Contributing Editor Frank N. Wilner and Financial Editor David Nahass provide commentary.
The tie vote consisted of Republicans Patrick Fuchs (Chair) and Michelle Schultz (Vice Chair) on one side and Democrats Robert Primus and Karen Hedlund on the other, but all four voted to keep the proceeding open, allowing for more discussion and perhaps find a majority later.
On July 26, 2021, the Petitioners—North America Freight Car Association, National Grain and Feed Association, Chlorine Institute, and National Oilseed Processors Association—filed for a rulemaking proposing that the Board adopt regulations allowing private railcar providers to assess a “private railcar delay charge” on a railroad if that railroad delays the movement of private freight cars beyond a specified period. They argued that the Board should adopt the proposed regulations pursuant to its authority under 49 U.S.C. § 11122(a)(2), which provides that the Board’s car service regulations may include, in addition to the compensation to be paid, “the other terms of any arrangement for the use by a rail carrier of a locomotive, freight car or other vehicle not owned by the rail carrier using the [equipment], whether or not owned by another carrier, shipper, or third person.”
The Petitioners asked the Board to adopt regulations that would allow private railcar providers to assess a charge on railroads when a private freight car (one owned by an equipment lessor or shipper, about 70% of the North American interchange fleet of approximately 1.6 million units) does not move for more than 72 hours at any point on a railroad’s system between the time it is “released for transportation” and when it is “either constructively placed or actually placed at the private railcar provider’s facility or designated location.” They argued that “such regulations are necessary to encourage the efficient use of private freight cars because railroads do not presently have sufficient regulatory or commercial incentives to use private freight cars efficiently,” and further that “the regulations are necessary to compensate private railcar providers for the costs they incur when carriers use private freight cars inefficiently.”
In response, the Association of American Railroads and Union Pacific asserted that “the Board lacks the statutory authority … to adopt the proposed regulations.” AAR, CSX and UP “contended that the proposed regulations are unnecessary because carriers have sufficient incentives to move cars efficiently, as delayed cars hinder operations and reduce revenue … They also argued that the proposed regulations would have a negative impact on the overall efficiency of the rail network by incentivizing carriers to move private freight cars inefficiently to avoid the charges and by reducing cooperation between carriers during periods of network stress.”
Schultz, with Fuchs concurring, concluded that what the petitioners sought is unlawful regulation. Primus, with Hedlund (who did not write a separate expression) concurring concluded that he “looks forward to the opportunity for the Board to continue to consider the important and complex issues raised in this proceeding.” Following are excerpts from their separate expressions:
Michelle Schultz: “[The statute] allows the Board to issue regulations on ‘car service’ with the goal of encouraging ‘the purchase, acquisition, and efficient use of freight cars.’ Although the statutory definition of ‘car service’ is written broadly enough that it could be interpreted to encompass any ‘movement’ of railcars, courts have construed the term ‘car service’ more narrowly, having indicated that the Board’s authority to regulate car service does not generally extend to the regulation of the details of day-to-day movements of railcars.
“Considering these judicial interpretations, I question whether the regulations proposed by Petitioners relate to ‘car service’ and not ‘transportation service,’ as they would seem to regulate the day-to-day movement of cars after they are released for transportation and before they are placed with a shipper or receiver. It is unclear to me whether there is a practical difference between ordering carriers to move cars more quickly and allowing fines to be assessed if they do not move cars more quickly.”
Patrick J. Fuchs: ”I concur with Vice Chairman Schultz’s cogently presented concerns (Editor’s Note: Schultz is an attorney; Fuchs is not), and I write separately to briefly explain my decision to call for votes despite the absence of a majority. As Chairman, I have pledged accountability, transparency and collaboration. Here, in a regulatory docket where the Board had not acted in three years, accountability demands an effort to resolve this long-standing proceeding. When the Board is unable to form a majority, transparency calls for members to have an organized opportunity to explain their positions to the public. Finally, as the public now has a better sense of members’ views, I especially welcome collaborative discussion with interested parties about ways to improve the agency’s regulatory framework in support of a sound, efficient and competitive rail system.”
Robert Primus, with Karen Hedlund concurring: “Given the changes in the railroad industry documented in this proceeding, I am concerned about a potential imbalance in the relationship between private railcar providers and railroads, which petitioners argue the private railcar delay charge could begin to correct. As I stated previously, reciprocal demurrage is a solution that has been proposed for agency consideration to help alleviate car supply issues. I do not believe in regulation for the sake of regulation, and any system of reciprocal demurrage must be in accord with the Board’s statutory authority.
“I am mindful that the railroads here contend that the Board lacks the authority to adopt the private railcar delay charge, arguing that the Board’s authority to regulate ‘car service’ is limited to the use to which the vehicles of transportation are put not the transportation service rendered by means of them. The distinction between ‘car service’ and ‘transportation service’ is easy to state but appears more complicated to apply in practice because the supply of railcars and the quality of transportation service are closely linked. Indeed, it is often through service disruptions that the Board has learned about car supply issues.”
COMMENTARY: FRANK N. WILNER
Railway Age Capitol Hill Contributing Editor Frank N. Wilner, author of “Railroads & Economic Regulation,” compared this decision to two with different results when Martin J. Oberman was STB chairperson:
“What Chairperson Fuchs did by bringing this case re: private railcars to a vote to hold it open for further discussion and arrival of one or more new board members is quite the opposite of what his predecessor, Martin J. Oberman, did on two occasions.
“In a reciprocal switching case—Ex Parte No. 711 (Sub. No. 1)—the Board seemed to encourage shipper groups to pursue reciprocal switching rules as a remedy for inadequate rail service. Yet in September 2023, after a dozen years without a decision, and shippers having spent tens of millions of dollars on expert testimony and studies over that time period, Oberman terminated the proceeding without explanation. The lack of transparency left stakeholders absent an understanding of what Board members were thinking. Moreover, had he held the proceeding in abeyance awaiting a change-out of Board members, a majority may well have been formed at a later date.
“In another case when Oberman controlled the docket, the Board had previously determined railroads violated the law by imposing fuel surcharges proportional to rates rather than by a measure of costs such as mileage. But when the three-member board sought to render a remedy, it split 1-1-1, the failure to reach a majority position causing shipper relief to be denied and the case to be terminated. Again, had the case been held in abeyance pending arrival of new Board members, a majority likely would have been found.
“In fact, in this private railcar proceeding, Ex Parte No. 768, Oberman had opportunity, when chairperson years ago, to bring it to a vote that, at the least, could have done what Fuchs did here—provide transparency through separate expressions. Instead, Oberman allowed the case to sit as if it would disappear—at least during his watch.”
COMMENTARY: DAVID NAHASS
“On the surface, the logic behind Docket No. Ex Parte 768 looks to the foundation of the car-hire system (money exchanged between railroads as compensation for using someone else’s assets) as a model to hold the railroads accountable to performance-related metrics. Requiring liquidated damages for service delays would likely cause an uptick in freight rates to neutralize the dollar value impact on the carrying railroad. On the surface, the petition feels like a game of stick (penalty) meets carrot (better performance). Were this petition to be implemented, the long-term reality feels more like stick (penalty) meets stick (higher costs for shippers).
“Years ago, most industries (and private car owners and operators) exchanged receiving car-hire for lower freight rates. Car-hire rates (charged by the hour and mile) ‘compensated’ the railcar owner for time and distance. The car-hire system (although many parties feel the system is in need of overhaul) is already in place. The petition would require yet another measuring stick along with an endless series of caveats and exemptions to determine what is owed to the car owner and by whom.
“Frequent fliers are used to the idea that the airlines, as soon as the first raindrop hits the ground, use an ‘Act of God’ force majeure to cover flight cancellations and delays without financial accountability and without compensating payments to passengers. No one needs that same kind of law-abiding chaos on the rails. It’s no wonder the STB decided to sit schtum on this petition. If, when the fifth member of the Board is appointed, the Board rules in favor of the petition, get your tickets to the appeals court and SCOTUS follow-on proceedings.”
