Mandatory Switching: A Solution in Search of a Problem
The perpetual push and pull between those who send freight and those who move their goods has invited governments to intervene time and time again. The temptation to regulate rail prices has existed since the first track was laid almost 200 years ago, and the notion’s popularity has grown, declined and resurged at different times.
Today, the conversation continues at the Surface Transportation Board (STB), where policymakers are considering new rules that could put the brakes on America’s resurgent freight rail sector. At issue are rules about “reciprocal switching”—the question of whether major railroads have an obligation to haul loads from connecting railroads to complete the trip when those loads are bound for a third party.
Reciprocal switching is a normal part of the rail transportation market, but certain shippers rely far more than others on the practice. Smaller shippers with properties served by shortline railroads rely on the reciprocal switching market to reach customers that don’t connect to their local freight service directly. Prior to the rise of trucking, larger rail companies threatened these industries with non-competitive behavior. But a century of investment in highway infrastructure has neutralized most of that risk.
Today, the switching debate amounts to opinions on relative shipping prices. Shippers and their shortlines argue for more rate regulation to keep prices low, while infrastructure owners argue that the current prices don’t generate enough return on their investments.
The STB has held the authority to regulate the switching market since its inception, but has declined to use that authority for over 30 years. To do so could upend the relationship between railroads and their customers, and allow lower investment rates in jointly-used infrastructure to wipe out public benefits. Over time, that could make the rail industry less competitive with long-distance trucks.
To that end, I am joining others to call for an end to the STB’s flirtation with rules that would make it easier for shippers to justify the forced switching of railcars. As it stands, switching is mandatory only if a shipper can prove that the railroad engaged in non-competitive behavior. The proposed rules would broaden that criteria to mandate switching if a shipper shows that it would be in the public interest or that it would be necessary to ensure competitive rail service.
Combined, these new lines of reasoning would make mandatory switching an ever-present feature of the American shipping landscape. It would increase government intervention in the economy, and crown winners and losers based on the type of rail line relied on by a given industry. There’s even a chance for the rules to backfire entirely by encouraging large railroads to buy and shut down small railroads that generate disproportionate costs under the new system.
In coming years, the STB will have to guide America’s adaptation of new transportation technologies, and its capacity is already limited. The STB shouldn’t waste valuable resources by relitigating an age-old price debate between different types of railroads.
