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STB’s new rules attempt to ‘strike a balance’ between railroads, shippers

The Surface Transportation Board has issued decisions on two final rules aimed at helping the railroads and shippers resolve rate disputes involving smaller amounts of money.

The decisions pertain to modifying an existing voluntary arbitration program and creating a new procedure for rate challenges, named final offer rate review (FORR). 

The two rules are the board’s attempt to “strike a balance between the competing interests of various stakeholders,” STB Chairman Marty Oberman said Monday in a news release, noting that shippers prefer FORR while the railroads prefer the voluntary arbitration program.  

“Both rules have much in common — they both offer relief under similar timeframes, allow for flexibility to use different methodologies, and have the same monetary limits,” Oberman said. “I am confident that either program will provide shippers with access to more meaningful rate relief than was previously available to them.”

If all the Class I railroads commit to participating in the voluntary arbitration program for five years, starting from within the 50 days that the final rule is published in the Federal Register, they will be exempt from the FORR procedure, according to STB.

The two rules pertain to rate disputes worth up to $4 million in relief over two years. If a rate is brought before the board and the board finds the rate to be unreasonable, then STB will decide the rate by selecting either the complainant’s or the defendant’s final offer, subject to an expedited procedural schedule that adheres to firm deadlines, the agency said.

Meanwhile, the arbitration program calls for the Class I railroads to commit to arbitrating rate disputes for five years, using an expedited schedule.

The final rule for the arbitration program goes into effect 30 days from its publication date in the Federal Register, while the final rule for FORR goes into effect 60 days later. 

The board has been considering this issue in the proceeding Ex Parte 755 since September 2019, when it issued a notice of proposed rulemaking on FORR. Five Class I railroads subsequently filed a joint petition asking to be exempt form FORR and promising to resolve smaller rate disputes through binding arbitration, according to STB.  

“The Board has long sought a suitable method of making adjudication of smaller rate disputes accessible, reasonable, and less time-consuming for affected parties. Experience has shown that the Board’s prior efforts to provide rate review methods suitable for smaller disputes have been rarely used by shippers,” Oberman said. 

“I am optimistic that this time the Board’s efforts will achieve this long-desired goal. I encourage the Class I railroads to accept the opportunity afforded by the new rule and sign up for the arbitration program they clearly prefer. However, if they do not, in my view, FORR also provides a strong rate relief mechanism, and its availability would also streamline rate review processes in small rate cases. To be clear, regardless of some differences of opinion about the most preferable way forward, all Board Members are committed to ensuring review of rate challenges are practical and affordable.”

Stakeholders respond to STB’s decision

Reaction to the two new rules was mixed.

The Association of American Railroads said the final rule on FORR was “fatally flawed,” while the voluntary arbitration program “ignores key principles” that could make it a viable option.

The trade group for the railroads said the FORR exceeds the agency’s authority; furthermore, if there is a dispute, STB would not conduct any independent analysis but rather rely on the proposed rates offered by the shipper or the railroad. 

“The FORR rule abdicates the agency’s statutory responsibility to determine the maximum reasonable rate. Sound economic principles are abandoned, in favor of an arbitrary procedure that offers no certainty to any stakeholder and instead rewards legal brinksmanship,”  AAR President and CEO Ian Jefferies said in a Monday news release. 

AAR disagreed with the approach that all Class I railroads must sign on for the voluntary arbitration program. The group said the rule doesn’t include provisions that would be critical for one or more railroads. 

“On its face, the ‘all or none’ approach misses the mark and risks undermining the Board’s stated desire for alternative dispute resolution over litigated outcomes. As it stands, even if a vast majority of railroads sign up for [voluntary binding arbitration], the rule will prevent small rate disputes that could quickly and cost-effectively be arbitrated because anything short of 100 percent industry participation prevents anyone from using it.” added Jefferies. “Unfortunately, today’s decisions could very well result in a missed opportunity to create a workable solution for shippers and railroads alike.”

Meanwhile, the American Chemistry Council, which represents chemicals shippers, said the “long awaited rules will provide shippers and carriers with quicker and simpler options for resolving small rail rate cases.” 

“These new procedures are an important move in the right direction that will provide the STB, railroads and shippers with a speedier option for resolving small rate cases in the absence of effective market competition,” said Kimberly Wise White, ACC’s vice president of regulatory and scientific affairs. “Instead of lingering on for years, rate cases can be resolved in a matter of months. Adopting these new rules helps the Board fulfill its Congressional mandate to ensure reasonable rates for shippers that lack competitive transportation options.”

The two new rules are the board’s response to recommendations by STB’s Rate Reform Task Force to make rate dispute procedures more accessible, ACC said. The FORR is also supported by the U.S. Department of Agriculture and the National Academies Transportation Research Board, the group said.

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