Rail cars at grain elevator

Rules sought for challenging unreasonable freight rates

National Grain and Feed Association leaders are urging the federal Surface Transportation Board to issue a proposed rulemaking to establish a new process that agricultural commodity shippers could use to challenge freight rates they believe are unreasonable or unlawful under the Staggers Rail Act of 1980.

The NGFA made the recommendation during a public hearing conducted by the STB to examine proposals developed by the NGFA and others to create a more accessible, streamlined, cost-effective and workable process for grain shippers to use to challenge unreasonable rates.

Kevin Thompson, chairman of the NGFA Rail Shipper/Receiver Committee and assistant vice president and transportation lead for Cargill, Inc., testified before the STB in a day-long hearing on June 10.

He said the agency’s current rate-challenge appeal procedures “are inappropriate and unworkable for agricultural commodities” because they are too complex and costly compared to the potential recovery of rate overcharges and the nature and characteristics of rail movements of agricultural commodities, the multiple origins-and-destinations for agricultural shipments and volumes that vary from year-to-year, as well as within a given marketing year, and the nature of railroads’ pricing practices to impose uniformly high rates across-the-board for certain commodities or types of traffic.

“We believe strongly that having a rate-complaint process in place that is viewed by both shippers and railroads as being reasonably ‘accessible’ will have a broad salutary effect in disciplining unreasonable rate behavior by rail carriers, which now operate in what at best is a duopolistic market,” Thompson testified.

“We do not believe that adoption of NGFA’s proposed approach will result in a torrent of rate cases filed at the STB. Instead, by disciplining market behavior, it will change the dynamic under which commercial decisions are made outside of the (STB’s) purview. This is not unlike the beneficial impacts NGFA has experienced from its Rail Arbitration Rules, where the mere existence of mandatory arbitration that works has resulted not in the filing of more cases, but encouraged reasonable business behavior and ongoing communications between railroads and shippers to resolve differences in a balanced manner.”

As part of the STB’s proceeding (Ex Parte 665, Sub-No. 1), NGFA in 2014 developed and proposed a new rate-reasonableness methodology — dubbed the “agricultural commodity maximum rate methodology” — as one approach that the STB could use to change its existing procedures to resolve rail rate challenges involving agricultural products.

The NGFA noted that its proposed new approach would meet the tests of being more accessible and inexpensive to administer, including for shippers with smaller claims; provide a meaningful constraint on the ability of carriers through their rate-pricing practices to make certain facilities uncompetitive in shipping by rail, and provide for more expedited and timely decisions.

The NGFA maintains the three existing methods created by the STB for challenging unreasonable rail rates — the stand-alone cost (SAC), simplified SAC and three-benchmark methods — are each too complex, time-consuming and costly to be relevant for shipments of agricultural commodities.

Meanwhile, NGFA Board member Bruce Sutherland, vice president of Michigan Agricultural Commodities (MAC), presented real-world examples to the STB of current rate-pricing practices by a major Class I rail carrier that will significantly alter geographical rate spreads in the eastern corn belt, leading to dramatically increased freight rates and reducing the prices elevators are able to pay to producer-customers in some parts of the region, while reducing traffic on regional shortlines and making some facilities uncompetitive to serve customers by rail.

“These increases in rail rates are several orders of magnitude greater than typically thin grain-trading margins,” Sutherland said. “Consequently if we are to be price-competitive in selling commodities to domestic user and foreign buyers, we inevitably have to try and pass on the cost impacts we can’t absorb back to farmer customers. Seldom are we able to pass such costs forward to the ultimate buyer, as they have alternative sources of supply in the grain market — which is a truly competitive market.”

Tom Crowley, president of L.E. Peabody & Associates, Inc., Alexandria, Va., explained the NGFA’s new rail rate methodology proposal to the STB, while NGFA Transportation Counsel Tom Wilcox, principal of GKG Law P.C., Washington, D.C., discussed legal aspects of the association’s proposal.

Under the NGFA’s proposal, rail rates that could be challenged would be those that exceed 180 percent of a rail carrier’s variable cost of providing the service — the regulatory jurisdictional threshold mandated under the Staggers Rail Act of 1980. Further, the NGFA’s approach only would apply if the rail carrier is deemed to be revenue adequate.

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