Possible rate change in rail rates draws industry concerns

The nation’s largest organization of rail shippers and receivers of grain, feed and grain products say a recent proposal by the federal Surface Transportation Board to amend its so-called “simplified guidelines” for challenging unreasonable rail rates was “woefully inadequate,” and encouraged shippers of agricultural commodities to become involved in the rulemaking.

The National Grain and Feed Association said interested parties have until Sept. 1 to reserve the right to participate in the rulemaking by notifying the STB. The agency on July 28 announced the rulemaking [STB Ex Parte No. 646 (Sub. No. 1)] to amend its “simplified guidelines” for addressing small rail rate cases, which ostensibly are intended to provide small shippers with access to a simplified and expedited method for challenging unreasonable rail rates.

Congress, when enacting legislation creating the STB in 1995, directed that the agency develop such guidelines for rate cases that are too expensive, given the value of the freight rate, for shippers to utilize the full stand-alone cost methodology normally required. The full stand-alone cost methodology in essence requires shippers to research and document the cost of building an entire new railroad over the same route as the challenged rate.

The stand-alone cost method is an expensive exercise – typically costing between $3.5 million to $5 million – which has discouraged shippers from challenging unreasonable freight rates because the cost of bringing a case would far outweigh the potential financial returns.

The STB in 1996 issued what it termed “simplified guidelines” for addressing small rail rate cases. But because of those guidelines’ complexities and costs, the NGFA said, only one case has been brought challenging an unreasonable freight rate over the ensuing 10 years.

The NGFA and other shipper organizations in both 2003 and 2004 had submitted statements and testified at the STB concerning the shortcomings of its “simplified guidelines.” Those shortcomings include the vague criteria for determining what constitutes a small rail rate case, as well as the lack of definitive information about how the agency would apply various costing standards to determine whether a rate is excessive.

But the NGFA said that, based on its initial analysis, the STB’s proposed new revisions are “highly restrictive” and would exclude virtually all shippers from using the “simplified guidelines” to challenge unreasonable rail rates. Established in 1896, the NGFA consists of 900 grain, feed, processing, exporting and other grain-related companies that operate about 6,000 facilities that handle more than 70 percent of all U.S. grains and oilseeds.

The STB’s new proposal would retain three “benchmarks” for categorizing rate cases under its “simplified guidelines,” with eligibility criteria determined based upon the “maximum value of the case.” Under the STB proposal, the maximum value of the case would be equal to the challenged rail rate minus 180 percent of variable costs (which is the statutory threshold for challenging a freight rate established under the Staggers Rail Act of 1980), multiplied by five years of annual shipment volumes.

The STB proposed that the most expeditious process – in which the agency pledges to issue a decision within 270 days after a case is filed (not counting subsequent judicial appeals) – be for shippers where the maximum value of the case was $200,000 or less. If the maximum value of the case was between $200,000 and $3.5 million, the shipper would qualify for what the agency calls a “simplified stand-alone cost” procedure, which would take about 18 months to resolve. Shippers whose maximum value of the case exceeded $3.5 million would not qualify for the simplified guidelines, and instead would need to bring any rate challenges under the full stand-alone cost methodology.

Using what it called “reasonable assumptions” regarding rail freight rates for grain ($5,000 per car), the NGFA said that the net result is that the STB’s proposed new formula would limit recourse under the simplified guidelines’ most expedited treatment (where the maximum value of the case is $200,000 or less) to shippers that ship less than 67 cars over a five year period – or about 13 cars per year.

The association also estimated that shippers attempting to qualify to bring a case where the maximum value of the case was between $200,000 and $3.5 million could ship only 233 cars or less a year. The NGFA noted that while these figures will vary to some degree based upon the assumptions used, they illustrate the fact that any new rate relief that would be provided under the STB proposal would be very limited.

“Everyone recognizes that it is important for railroads to continue to earn adequate revenues to be able to invest in new infrastructure to increase capacity and improve service,” said NGFA President Kendell W. Keith. “But the time has come for the STB to establish a process that recognizes its statutory obligations and deals in the art of the possible.”

From that perspective, the NGFA said, the STB proposal falls woefully short. “It is clear that the STB’s proposal is very restrictive and the universe of rail customers that theoretically could have access to rate relief through this mechanism is quite limited,” Keith said. “The eligibility standards it would create potentially would establish an even higher barrier to bringing rate cases than exists today. Existing rules are vague. \But if the STB’s new proposal were adopted, there would be no doubt that rate relief is beyond the grasp of virtually all rail shippers.”

The NGFA encouraged agricultural rail shippers to reserve the right to participate in the STB rulemaking by submitting an electronic “notice of intent” to the agency by the Sept. 1 deadline. Instructions for submitting an e-mail to the agency are available through the STB’s Web site at www.stb.gov/stb/efilings/nsf. The mere filing of a “notice of intent” does not obligate the company or organization to file comments or participate – it merely reserves the party’s right to do so.

A sample letter to be used in filing a “notice of intent” is reprinted below.

The NGFA, through its Rail Shipper-Receiver Committee, will be developing the association’s comments on the STB proposal and will be sharing a summary of its recommendations with interested agricultural organizations and companies.

The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed manufacturers; cash grain and feed merchants; end users of grain and grain products, including processors, flour millers, and livestock and poultry integrators; commodity futures brokers and commission merchants; and allied industries. Canadian and Mexican firms also are NGFA members, and use its Trade Rules and Arbitration System by specific reference in their contracts.

The NGFA also consists of 35 affiliated state and regional grain and feed associations, as well as two international affiliated associations. It has strategic alliances with the Pet Food Institute and the Grain Elevator and Processing Society, and is co-located and has a joint operating and services agreement with the North American Export Grain Association.

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