Reciprocal Switching for Inadequate Service

Federal RegisterMay 7, 2024

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SURFACE TRANSPORTATION BOARD

49 CFR Part 1145

[Docket No. EP 711 (Sub-No. 2)]

Reciprocal Switching for Inadequate Service

AGENCY:

Surface Transportation Board (the Board or STB).

ACTION:

Final rule.

SUMMARY:

The Board adopts new regulations that provide for the prescription of reciprocal switching agreements as a means to promote adequate rail service through access to an additional line haul carrier. Under the new regulations, eligibility for prescription of a reciprocal switching agreement will be determined in part using objective performance standards that address reliability in time of arrival, consistency in transit time, and reliability in providing first-mile and last-mile service. The Board will also consider, in determining whether to prescribe a reciprocal switching agreement, certain affirmative defenses and the practicability of a reciprocal switching agreement. To help implement the new regulations, the Board will require all Class I railroads to submit certain service data on an ongoing and standardized basis, which will be generalized and publicly accessible. Railroads will also be required to provide individualized, machine-readable service data to a customer upon a written request from that customer.

DATES:

The rule will be effective on September 4, 2024.

FOR FURTHER INFORMATION CONTACT:

Valerie Quinn at (202) 740-5567. If you require accommodation under the Americans with Disabilities Act, please call (202) 245-0245.

SUPPLEMENTARY INFORMATION:

Table of Contents

Introduction

Legal framework

Analytical Justification

Performance Standards

Data Production to the Board and Implementation

Data Production to an Eligible Customer

Terminal Areas

Practicability

Service Obligation

Procedures

Affirmative Defenses

Compensation

Duration and Termination

Contract Traffic

Exempt Traffic

Class II Carriers, Class III Carriers, and Affiliates

Labor

Environmental Matters

Environmental Review

Regulatory Flexibility Analysis

Paperwork Reduction Act

Congressional Review Act

Table of Commenters

Final Rule

Introduction

In a decision served on September 7, 2023, the Board issued a new notice of proposed rulemaking that would provide for the prescription of reciprocal switching agreements with emphasis on how to address inadequate rail service.

Reciprocal Switching for Inadequate Serv.

(

NPRM

), 88 FR 63897 (proposed Sept. 18, 2023).

The Board explained that, given the major service problems that occurred subsequent to the 2016 proposal in Docket No. EP 711 (Sub-No. 1) and the history of recurring service problems that continue to plague the industry, it is appropriate, at this time, to focus reciprocal switching reform on service-related issues.

NPRM,

88 FR at 63899.

The Board also closed a sub-docket involving an earlier notice of proposed rulemaking from 2016.

Reciprocal Switching,

88 FR 63917 (published Sept. 18, 2023) (closure of Docket No. EP 711 (Sub-No. 1)).

As discussed in the

NPRM,

reciprocal switching agreements provide for the transfer of a rail shipment between Class I rail carriers or their affiliated companies within the terminal area in which the shipment begins or ends its journey on the rail system.

Id.

at 63898. In a typical case, the incumbent rail carrier either (1) moves the shipment from the point of origin in the terminal area to a local yard, where an alternate carrier picks up the shipment to provide the line haul; or (2) picks up the shipment at a local yard where an alternate carrier placed the shipment after providing the line haul, for movement to the final destination in the terminal area.

Id.

The alternate carrier might pay the incumbent carrier a fee for providing that service.

Id.

The fee is often incorporated in some manner into the alternate carrier's total rate to the shipper.

Id.

A reciprocal switching agreement thus enables an alternate carrier to offer its own single-line rate or joint-line through rate for line-haul service, even if the alternate carrier's lines do not physically reach the shipper/receiver's facility.

Id.

The regulations as proposed in the

NPRM

would provide for the prescription of a reciprocal switching agreement when service to a terminal-area shipper or receiver failed to meet one or more objective performance standards and when other conditions to a prescription were met.

Id.

The proposed standards addressed: (1) a rail carrier's failures to meet its original estimated time of arrival (OETA),

i.e.,

to provide sufficiently reliable line-haul service; (2) a deterioration in the time it takes a rail carrier to deliver a shipment (transit time); and (3) a rail carrier's failures to provide local pick-ups or deliveries of cars (also known as first-mile/last-mile service (FMLM)), as measured by the carrier's success in meeting an “industry spot and pull” (ISP) standard.

Id.

at 63901. The proposed regulations also addressed regulatory procedures, affirmative defenses, and practicability.

Id.

at 63908-10. In addition to proposing to provide for the prescription of a reciprocal switching agreement when the foregoing conditions were met, the Board sought comment on what methodology the Board should use in setting the fee for switching under a prescribed agreement, in the event that the affected carriers did not reach agreement on compensation within a reasonable time.

Id.

at 63909-10.

The proposed regulations would impose certain data requirements to aid in implementation of those regulations. In part, the proposed regulations would require a Class I carrier to provide to a customer, upon written request, that customer's own individualized service data. In addition, to ensure that the Board would have an informed view of service issues across the network, the proposed regulations would (1) make permanent the filing of certain data that is similar to the data the Board had collected on a temporary basis in

Urgent Issues in Freight Rail Service—Railroad Reporting,

Docket No. EP 770 (Sub-No. 1); and (2) require consistency in reporting that data.

NPRM,

88 FR at 63910-11.

The Board solicited comments on the

NPRM

by October 23, 2023, and replies by November 21, 2023.

NPRM,

88 FR at 63897. In response to requests for extensions, these dates were extended to November 7, 2023, and December 20, 2023, respectively.

Reciprocal Switching for Inadequate Serv.

, EP 711 (Sub-No. 2)(STB served Sept. 29, 2023, and Nov. 20, 2023).

The Board received many comments and replies from interested parties, including public officials, railroads, shippers, trade organizations, and others.

As discussed below, overall, shippers and their supporting trade organizations strongly favor the Board's proposal, although many seek minor modifications or, in some instances,

significant expansions to the scope of the proposed rule. The railroads and their trade organizations generally object to the Board's legal foundation for the proposed regulations and otherwise suggest significant changes to those regulations.

A Table of Commenters with abbreviations the Board uses in the text and citations is provided below.

After reviewing the record, the Board is adopting a version of part 1145 that reflects certain modifications to the proposal in the

NPRM.

With respect to the performance standards in part 1145, some of the key modifications are as follows. First, based on numerous shipper comments and the data the Board had been collecting since 2022 in Docket No. EP 770 (Sub-No. 1), the Board is increasing the OETA standard for delivering within 24 hours of the OETA from 60% to 70% and the standard for performing ISP from 80% to 85%. Second, the Board is adopting a proposal whereby railcars that are delivered more than 24 hours before the OETA will count in assessing the rail carrier's performance. Third, the Board is establishing an absolute floor for the service consistency standard and will modify that standard to provide that certain deteriorations in transit time over a three-year period would also count as a failure. Fourth, the Board is withdrawing its proposal to combine lanes; the service reliability standard and the service consistency standard will be applied only to each individual lane of traffic to/from the petitioner's facility. Finally, in response to public comments, the Board makes other modifications to each performance standard. As discussed in the

NPRM,

the performance standards apply only to petitions under part 1145; the standards do not by themselves establish whether a carrier's operations are otherwise appropriate. The Board does not view it as appropriate to apply or draw from the standards when regulating or enforcing the common carrier obligation.

See NPRM,

88 FR at 63902. Likewise, the performance standards do not define what constitutes adequate rail service. This also means that whether a carrier meets or fails to meet the standards in part 1145 is not determinative of whether a service-related prescription might be justified under part 1144 or part 1147 of the Board's regulations.

The Board is also clarifying issues concerning Class II and Class III rail carriers. Part 1145 pertains to shippers and receivers that have practical physical access to only one Class I rail carrier or its affiliated company. The affiliated company might be a Class II or Class III railroad. Part 1145 otherwise does not apply to Class II and Class III railroads.

As discussed in the

NPRM,

the Board will initiate an ongoing collection of data similar to a subset of the data that it had collected on a temporary basis in Docket No. EP 770 (Sub-No. 1). That data must now be submitted using a standardized template to be developed by the agency. The Board will continue to require Class I railroads to provide data to a customer within seven days of receiving a request, but the Board is providing more clarity and specificity in regard to that requirement, as the original proposal could have impeded carriers' ability to provide timely responses. Based on comments, the Board also clarifies and modifies in certain respects the proposed provisions on affirmative defenses. The Board is also increasing the minimum duration of a prescribed reciprocal switching agreement from two years to three years and the maximum duration of a prescribed reciprocal switching agreement from four years to five years.

With respect to traffic that is or was moved under a transportation contract under 49 U.S.C. 10709, the Board explains that it will not prescribe a reciprocal switching agreement under part 1145 based on performance that occurs during the term of the contract. Concerning exempt commodities, the Board will not consider pre-revocation performance as the basis for a prescription under part 1145 but intends to prioritize petitions for partial revocation filed in furtherance of part 1145 cases in order to resolve expeditiously those petitions for partial revocation. The Board also intends to explore at a later date whether it should partially revoke exemptions on its own initiative to allow for reciprocal switching petitions, as is currently the case for the boxcar exemption.

See

49 CFR 1039.14(b)(3) (expressly allowing for regulation of reciprocal switching for rail transportation of commodities in boxcars).

These issues, as well as numerous others, are discussed below. After considering the record, the Board hereby adopts the proposed regulations, with modifications as indicated below, as part 1145 of its regulations.

Various entities have asked that the Board take additional steps in this proceeding such as adopting a fourth performance standard that would measure whether the incumbent carrier reasonably met the customer's local operational and service requirements, (PCA Comments 12;

see also

PRFBA Comments 9 n.4; EMA Comments 8-9 n.4; NSSGA Comments 9 n.3; Olin Comments 6), or adopting a performance standard that would apply specifically to grain shippers, (USDA Comments 5-6). USDA and others ask the Board to grant terminal trackage rights based on a carrier's failure to meet the ISP standard, (USDA Comments 8; NGFA Comments 7; NSSGA Comments 9; ACD Comments 5; NMA Comments 6), or to open a new docket concerning terminal trackage rights, (Coal. Ass'ns Comments 8).

Others seek more sweeping reform, including: expanding part 1145 to all bottleneck segments (Coal. Ass'ns Comments 8); overturning the “anti-competitive conduct” test in

Midtec Paper Corp.

Chicago & North Western Transportation Co.

(

Midtec

), 3 I.C.C.2d 171 (1986) (Coal. Ass'ns Comments 8; DOT/FRA Comments 3; ILWA Comments 1; FRCA/NCTA Comments 2; Celanese Comments 2; PCA Comments 4-7; Olin Comments 6-8; NMA Comments 4); adopting rules in

Petition for Rulemaking to Adopt Rules Governing Private Railcar Use by Railroads,

Docket No. EP 768, (NGFA Comments 9); and further delineating the scope of the common carrier obligation, (TTD Comments 3). The Coalition Associations, with support from ACD, also assert that, if the Board concludes it cannot consider the performance of contract traffic, the agency should reopen

Reciprocal Switching,

Docket No. EP 711 (Sub-No. 1), to adopt that proposal with several proposed modifications. (Coal. Ass'ns Reply 47-52; ACD Reply 3.)

The Board appreciates the Coalition Associations' efforts as well as the numerous additional suggestions from others about possible Board actions outside of this docket. However, the Board would like to gauge the effectiveness of this new rule before considering other ways to pursue the objectives of section 11102(c). As noted in the

NPRM,

in choosing to focus reciprocal switching reform on service issues at this time, the Board does not intend to suggest that consideration of additional reforms geared toward increasing competitive options is foreclosed.

Id.

at 63900. And, even with the adoption of part 1145, shippers may still pursue access to an alternate rail carrier under parts 1144 and 1147, and advocate for continued development, including, as appropriate, development by the Board of adjudicatory policies and the appropriate application of those rules in individual cases.

Id.

The Board expects part 1145 to be a significant step in incentivizing Class I railroads through competition to achieve and maintain higher service levels on an ongoing basis. The objective and transparent standards, defenses, and definitions in this rule should also provide greater certainty

than the status quo. The Board also expects the new data collection to help ensure that it has an informed view of service issues across the network.

Legal Framework

Design of Part 1145

As discussed in the NPRM, part 1145 implements the Board's authority under 49 U.S.C. 11102(c) to prescribe reciprocal switching agreements when “practicable and in the public interest.”

NPRM,

88 FR at 63899. There is a clear public interest in adequate rail service—a matter of fundamental concern under the Interstate Commerce Act.

See United States

Lowden,

308 U.S. 225, 230 (1939); 49 U.S.C. 10101 (in various policies referencing an “efficient” and “sound” rail system that can “meet the needs of the public”);

see also

House Report No. 96-1430: Staggers Rail Act of 1980, Report of the Committee on Conference on S. 1946 at 80 (Sept. 29, 1980). Inadequate rail service can substantially impair rail customers' ability to operate their businesses, resulting in substantial harm to the United States economy as a whole.

NPRM,

88 FR at 63899-900 (citing 49 U.S.C. 10101). The Board's decision to adopt part 1145 grows out of the Board's recognition that inadequate rail service can critically and adversely affect the national economy, yet the Board's existing regulations do not necessarily provide a sufficient response.

NPRM,

88 FR at 63900 & n.7. Part 1145 addresses these concerns by providing a reasonably predictable and efficient path toward a prescription under section 11102(c) while, at the same time, providing for regulatory intervention only when there are sufficient, service-related signs of a public interest in intervention and when there would be no undue impairment to rail carriers' operations or ability to service other customers.

Part 1145 is designed specifically to promote the provision of adequate rail service to terminal-area customers that have practical physical access to only one Class I rail carrier or affiliate.

NPRM,

88 FR at 63899. Under part 1145, upon petition by a shipper or receiver, the Board will prescribe a time-limited reciprocal switching agreement when (1) the prescription is in a terminal area and the petitioner has practical physical access to only one Class I rail carrier or affiliate,

see

49 CFR 1145.1 (definition of “reciprocal switching agreement”), 1145.6(a)(1); (2) the incumbent rail carrier failed to meet one or more performance standards,

see

49 CFR 1145.2, 1145.6(a)(2); (3) that failure was not excused by an affirmative defense,

see

49 CFR 1145.3, 1145.6(a)(3); (4) transfers under the reciprocal switching agreement would be operationally feasible and would not unduly impair service to other customers,

see

49 CFR 1145.6(b); and (5) resulting line-haul arrangements would be operationally feasible and would not unduly impair a participating rail carrier's ability to serve its other customers,

see id.

The performance standards in part 1145, which can be easily understood by shippers and carriers, address three fundamental aspects of adequate rail service: reliable timing in the arrival of line-haul shipments, consistent shipment times, and on-time local pick-ups and deliveries. The standards are set at levels such that performance below the standards would not meet many shippers' (and carriers') service expectations.

See

Performance Standards. Upon a petitioner's demonstration of such a failure and in the absence of an incumbent or alternate carrier's demonstration of an affirmative defense, infeasibility, or undue impairment as provided for in part 1145,

see

49 CFR 1145.3, 1145.6(b), the Board would prescribe a reciprocal switching agreement, which would give the petitioner the opportunity to obtain line-haul service from an alternate carrier that may be able to provide better service. The prescription of a reciprocal switching agreement does not necessarily mean that the incumbent carrier would lose line-haul service because the incumbent carrier would continue to have the opportunity to compete to serve the petitioner.

NPRM,

88 FR at 63901. The initial term of any prescribed agreement is for a limited duration of three to five years. 49 CFR 1145.6(c).

Part 1145 will promote the provision of adequate rail service, not only to a successful petitioner, but on a broader network basis. By providing a clearer set of conditions and procedures for the Board to prescribe reciprocal switching agreements, part 1145 will create an incentive for rail carriers to provide adequate service to terminal-area customers that lack another rail option. Part 1145 will also reduce regulatory risk and burdens under section 11102(c) by (1) enhancing the predictability of regulatory outcomes, (2) enabling potential petitioners to evaluate the costs and potential benefits of seeking a prescription, and (3) helping to contain the time and cost of petitioning for a prescription.

NPRM,

88 FR at 63901. At the same time—because part 1145 provides for an appropriately defined and scoped switching agreement prescription only after careful consideration of affirmative defenses, infeasibility, and undue impairment—part 1145 will not result in the prescription of a reciprocal switching agreement when there is an insufficient basis or when the prescription would be unwise as a matter of policy.

See Midtec Paper Corp.

United States,

857 F.2d 1487, 1499 (D.C. Cir. 1988).

Comments

Class I rail carriers claim that adoption of part 1145 would exceed the scope of the Board's legal authority. These carriers assert that, as a condition to prescribing a reciprocal switching agreement, the Board must undertake a case-by-case analysis that would be far more elaborate than what is called for under part 1145. According to carriers, the Board must find that: (1) the incumbent carrier consistently provides inadequate service to the petitioner; (2) the incumbent carrier failed to cure the inadequacy after being given notice and a reasonable opportunity to cure; (3) the inadequacy continues to exist at the time of the Board's prescription; (4) service to the petitioner is worse than service to other customers; (5) the petitioner has a compelling need for alternate rail service, as indicated by demonstrated harm to the petitioner's planning and business needs; (6) alternate service would not impose greater harm on other stakeholders; (7) the alternate service would be safe and practicable; and (8) the alternate service would actually remedy the inadequate service. (

See

AAR Comments 2, 5, 8, 13, 17-18, 20-22, 62;

see also

CN Comments 16, 21; CN Reply 3-4; NSR Comments 8-10; CSXT Comments 10-12; CSXT Reply 4-5.)

In attempting to find a legal foundation for their approach, rail carriers look past the text of section 11102(c) to three cases in which the Board's predecessor, the Interstate Commerce Commission (ICC or Commission), applied the public interest standard:

Jamestown Chamber of Commerce

Jamestown, Westfield, & Northwestern Railroad,

195 I.C.C. 289 (1933);

Central States Enterprises, Inc.

Seaboard Coast Line Railroad,

NOR 38891 (ICC served May 15, 1984),

aff'd sub nom., Central States Enterprises

ICC,

780 F.2d 664 (7th Cir. 1985); and

Delaware & Hudson Railway

Consolidated Rail Corp.,

367 I.C.C. 718 (1983). According to carriers, these cases indicate that, to find that a reciprocal switching agreement would be in the public interest, the Board must find that the petitioner has a “compelling need” for the agreement. (

See, e.g.,

AAR Comments 12-14.) AAR also relies on a statement in the legislative history suggesting that the

“practicable and in the public interest” standard in section 11102(c) is “the same standard the Commission has applied for many years in considering whether to order the joint use of terminal facilities.” (

See

AAR Comments 14 (citing H.R. Rep. No. 1430 at 116 (1980)).)

Shippers respond that carriers' “compelling need” test misstates the law. According to NSSGA, the outcome in

Jamestown

(in which the ICC denied a request to prescribe terminal trackage rights) rested in part on the fact that the incumbent carrier there provided exceptionally good service. (NSSGA Reply 1-2.) Similarly, WCTL argues that

Jamestown

was premised in part on the fact that the proposed service arrangement was sought to aid a financially weak rail carrier. (WCTL Reply 10.) PCA asserts that any “compelling need” test would improperly impose an extra-statutory limitation on the Board's authority to prescribe reciprocal switching agreements. (PCA Reply 2, 5 (describing

Jamestown

as inapposite and stating that an “actual necessity/compelling reason” standard is found nowhere in the governing statute).) The Coalition Associations assert that the carriers' proposed “compelling need” test is overly narrow. They argue that the in-depth inquiry that carriers propose under the “compelling need” test would, as a practical matter, limit the availability of prescribed reciprocal switching agreements. According to the Coalition Associations, there is sufficient need for part 1145 given the public interest in creating an incentive to provide adequate rail service. (Coal. Ass'ns Reply 15-18.) The Coalition Associations add that the Board's authority to enact part 1145 flows not only from the “practicable and in the public interest” standard but also from the “competitive rail service” standard in section 11102(c). (

Id.

at 15-16.)

Class I carriers assert, not only that the Board must undertake a detailed case-by-case investigation as described above, but that, as a condition to prescribing a reciprocal switching agreement, the Board must find that the petitioner lacks an adequate intermodal transportation option (i.e

a transportation option via a mode other than rail). Carriers reason that, when there is an intermodal option, there is unlikely to be a compelling need for an alternate rail option. (

See

AAR Comments 78-79;

see also

BNSF Comments 14-15.) The Coalition Associations respond that intermodal options are not a realistic incentive to provide adequate rail service, reasoning that a customer might have structured its facilities and business model around rail transportation. (

See

Coal. Ass'ns Reply 22-23;

see also

AF&PA/ISRI Reply 7-8.)

On a separate tack, AAR asserts that part 1145 would inappropriately amount to direct regulation of the quality of rail service. AAR bases its assertion on the rule's use of defined performance standards. According to AAR, direct regulation of quality of service would contradict congressional policy to minimize the need for federal regulatory control over the rail transportation system. (AAR Comments 14-15.)

Finally, CPKC argues that the Board is precluded by the doctrine of legislative ratification from undertaking the approach taken in part 1145. Citing a statement in

Midtec Paper Corp.

United States,

857 F.2d at 1507, that Congress did not intend the agency to undertake a radical restructuring of the rail sector through its switching authority, CPKC asserts that Congress ratified what CPKC calls the “limited scope of the statute” by not passing any of eighteen bills that, according to CPKC, would have relaxed the approach in

Midtec.

CPKC concludes on that basis that the Board may prescribe a reciprocal switching agreement only as a direct remedy to an inadequacy that is demonstrated on a case-by-case basis considering all relevant factors. (CPKC Reply 5 n.2.)

The Board's Assessment

Part 1145 reasonably implements the Board's authority to prescribe reciprocal switching agreements when practicable and in the public interest. Class I rail carriers' arguments to the contrary rest on a misinterpretation of the public interest standard in section 11102(c)—a misinterpretation that would effectively replace the statutory standard with a “compelling need” standard that, as interpreted by the carriers, would leave the Board little room to fashion its implementation of the public interest standard and the underlying congressional objectives according to the circumstances at hand. The carriers' generalized concerns about the prescription of reciprocal switching agreements are also misguided. Finally, because part 1145 is amply justified under the “practicable and in the public interest” standard, it is unnecessary to consider here whether part 1145 is also justified under the “competitive rail service” standard in section 11102(c), as some commenters have argued.

Governing Principles

The public interest standard in section 11102(c) gives the Board broad discretion to determine when to prescribe reciprocal switching agreements. In other contexts in which Congress has used the public interest standard, the United States Supreme Court has described the standard as “expansive.”

Nat'l Broad. Co.

United States,

319 U.S. 190, 219 (1943). The public interest standard serves as a “supple instrument” for the exercise of discretion by the expert body that Congress charged with carrying out legislative policy.

FCC

Pottsville Broad. Co.,

309 U.S. 134, 137-38 (1940);

see also

125 Cong. Rec. 15309, 15319 (1979). Without support, carriers contend that this general statement implies a host of restrictions on the Board's statutory authority. Properly understood, however, the statement merely points out a parallel between section 11102(a) on terminal trackage rights and section 11102(c) on reciprocal switching: both provisions use the “practicable and in the public interest” standard. Nothing in Congress's mere observation of that parallel suggests that henceforth, in implementing the public interest standard, the agency was to be bound by policy decisions or approaches that the agency had adopted in the past.

Rail carriers' interpretation of the “same standard” language fails on another level. Carriers imply that Congress meant to equate the public interest standard with the “compelling need” that the ICC looked for in

Jamestown,

even though neither the statutory text nor the legislative history includes any reference to a compelling need or to

Jamestown.

In fact, the ICC's inquiry in

Jamestown

grew out of the peculiar facts of that case; in other pre-Staggers cases in which the ICC applied the public interest standard, the ICC said nothing about a compelling need.

See, e.g., Seaboard Air Line R.R.—Terminal Facilities of Fla. E. Coast Ry.,

327 I.C.C. 1, 7-8 (1965) (finding that the proposed service arrangement was in the public interest based on anticipated operating efficiencies, without reference to whether there was a compelling need for the arrangement).

Finally, even if a compelling need were required under the public interest standard in section 11102(c), a prescription under part 1145 would meet that standard. Part 1145 promotes adequate rail service both by introducing an alternate rail carrier via an appropriately defined and scoped reciprocal switching agreement when there have been sufficient indications of service issues (without the establishment of an affirmative defense or undue impairment) and by more broadly creating an incentive for rail carriers to provide adequate service. This approach—both for individual cases and at a broader systemic level—will help to mitigate the substantial harm that inadequate rail service imposes on the national economy.

NPRM,

88 FR at 63900. At the same time and as noted throughout this decision, the Final Rule contains numerous protections against undue impairment, infeasibility, and operational impairment, including about carriers' investments and the ability to raise capital to the extent that results in undue impairment or an inability to serve other shippers.

See

Analytical Justification. Part 1145 further promotes adequate rail service by providing a clearer path to a prescription under section 11102(c), whereas carriers' approach would impose undue barriers.

Intermodal Competition

Carriers erroneously assert that, as a condition to prescribing a reciprocal switching agreement, the Board must find that the petitioner lacks an adequate option via another mode of transportation. (

See, e.g.,

AAR Comments 78-79; BNSF Comments 14-15.) Neither the text of section 11102(c) nor the legislative history suggests that the Board's discretion to prescribe a reciprocal switching agreement is limited to where there is an absence of intermodal competition.

See Del. & Hudson Ry.

Consol. Rail Corp.,

366 I.C.C. 845, 854 (1982),

affirmed,

367 I.C.C. at 727 (finding that the agency's authority to prescribe a reciprocal switching agreement is not limited to where there is an absence of intermodal competition). The presence or absence of intermodal competition might be relevant for purposes of part 1144, given that part 1144 seeks to remedy or prevent an act that is contrary to the competition policies of section 10101 or is otherwise anticompetitive. In that context, a finding of intermodal competition might inform whether the incumbent carrier could have abused market power for purposes of part 1144.

See Midtec Paper Corp.

United States,

857 F.2d at 1513. As is well established, though, part 1144 does not reflect the full breadth of the Board's discretion under section 11102(c). The statute itself does not require a finding of conduct that is anticompetitive or contrary to the competition policies of section 10101, much less a finding that the incumbent carrier holds or abused market power.

See also

49 CFR part 1147 (providing for a prescription without regard to whether the incumbent carrier holds or abused market power).

The absence of a requirement in section 11102(c) to consider intermodal competition stands in contrast to other sections where Congress has expressly required the Board to consider intermodal competition.

See, e.g.,

49 U.S.C. 10707 (requiring the Board to consider competition from other rail carriers and other modes of transportation when making market dominance determinations).

Here, there is no need either to find that the petitioner lacks an intermodal option or that the incumbent carrier holds or abused market power in serving the petitioner. To require those findings would be inconsistent with the specific concerns that the Board seeks to address through part 1145. The types of service-related problems that part 1145 seeks to address—insufficient reliability and excessive transit times—might reflect an abuse of market power vis-à-vis the petitioner but might also reflect broader management or operating decisions that are not well directed toward the development of a sound rail system. Part 1145 creates an incentive to avoid service issues, to the benefit of the rail system at large, by providing for the introduction of an alternate carrier in individual cases as would enable the shipper to choose a more efficient and responsive rail carrier.

It is beyond the scope of this proceeding to address whether, for the duration of a reciprocal switching agreement under part 1145, a carrier that served the petitioner necessarily would lack market dominance within the meaning of section 10707 and therefore would not be subject to rate review with respect to that carrier's line-haul rate to the petitioner. (

See, e.g.,

BNSF Reply 16; Coal. Ass'ns Comments 60; Coal. Ass'ns Reply 22-23.) The question of market dominance could be presented for consideration on a case-by-case basis, under the standards in section 10707, in the context of any challenge to the relevant line-haul rate.

The Ratification Doctrine Does Not Preclude Adoption of Part 1145

CPKC's ratification argument—that, by not acting on legislative proposals after

Midtec Paper Corp.

United States,

Congress mandated a narrow

interpretation of section 11102, (

see

CPKC Reply 5 n.2)—is unfounded. First, CPKC mischaracterizes the D.C. Circuit's decision in

Midtec Paper Corp.

United States.

When the court suggested that Congress did not envision a radical restructuring of the rail sector,

see

857 F.2d at 1507, the court did not suggest that the agency's discretion under the statute was limited to application of the standards in part 1144. To the contrary, the court noted that, through part 1144,

the agency

had narrowed its discretion.

Id.

at 1500;

see also

AAR Comments 9, 24-25 (asserting that, under part 1145, shippers could seek prescription of a reciprocal switching agreement, not because they needed alternate service, but as a means to extract rate concessions at others' expense).)

Third, in AAR's view, sweeping switching requirements would undermine the use of differential pricing, which AAR characterizes as critical to the health of the rail network. (

Id.

at 122 (citing

Pet. For Rulemaking to Adopt Revised Competitive Switching Rules

(

2012 Rulemaking

), EP 711, slip op. at 7 (STB served July 25, 2012)).) Additional disadvantages alleged by AAR include inefficient routing, increased congestion, environmental costs that are associated with increased use of fuel and emissions, train delays, higher risk of service failure due to increased “touches,” depressed incentives for future investment with resulting reductions in the quality of service, operational inefficiencies, safety risks, and threats to carriers' ability to recover the costs of their entire networks and to maintain financial viability. (AAR Comments 113.)

While naming a litany of alleged disadvantages, AAR asserts that provision for the prescription of reciprocal switching agreements would provide no public benefit. AAR suggests that the only benefit would be any benefit that accrued to the successful petitioner and that this benefit would impose burdens on others—for example, by causing disruptions or inefficiencies in rail service on a system-wide basis. (

Id.

at 119.)

AAR suggests that the alleged disadvantages of promulgating part 1145 can to some extent be quantified. (

Id.

at 114.) According to AAR, the Board has recognized the need for data-driven rulemaking. (

Id.

(citing

2012 Rulemaking,

EP 711).)

The Board's Assessment

The Board has engaged in reasoned decision-making, and AAR's arguments to the contrary lack merit. First, AAR mischaracterizes the standard for reasoned decision-making that applies in the present context. Second, the disadvantages that AAR alleges in connection with promulgation of part 1145 do not reflect the actual regulation.

AAR Mischaracterizes the Applicable Standard

An agency engages in reasoned decision making under the Administrative Procedure Act, 5 U.S.C. 551-559, when the agency reaches a logical conclusion based on relevant factors.

Motor Vehicle Mfrs. Ass'n

State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 42-43 (1983). The factors that the

agency must consider are defined by the governing statute.

See Michigan

EPA,

576 U.S. 743. As discussed above, the relevant factors in implementing section 11102(c) are the RTP factors, which the Board has weighed as discussed in Legal Framework.

AAR errs in suggesting that, under

Michigan

EPA,

the Board must go farther than it does in addressing the impact of part 1145. In

Michigan

EPA,

the EPA decided to subject power plants to certain minimum, regulatory standards under the Clean Air Act. The Court found that, under the “appropriate and necessary” standard in the Clean Air Act, the EPA should have considered what it would cost power plants to comply with the regulatory standards in question. The Court reasoned that, within the statutory framework, the “appropriate and necessary” standard was properly interpreted as calling for consideration of the cost of compliance. The Court relied in this respect on the fact that related provisions of the Act expressly directed the EPA to consider the cost of compliance.

Michigan

EPA,

576 U.S. at 749-54. The Court's assessment of the factors that the EPA needed to consider rested specifically on the relevant provisions of the Clean Air Act.

Id.

Michigan

EPA

therefore does not suggest that other agencies, in implementing other statutory provisions, must consider the same factors.

See Env't Comm. of Fla.

EPA,

94 F.4th 77, 97-98 (D.C. Cir. 2024). Of equal significance,

Michigan

EPA

left in place the principle that agencies have broad discretion in

how

to consider relevant factors.

Even in

Michigan

EPA,

where the Court held that the agency must consider quantifiable costs, the Court declined to hold that the EPA must conduct a particular type of cost-based analysis: “It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for costs.”

Michigan

EPA,

576 U.S. at 759. Here, neither section 11102(c) nor any related statutory provision indicates that the Board must undertake a particular form of analysis when implementing section 11102(c).

See Stilwell

Off. of Thrift Supervision,

569 F.3d 516, 519 (D.C. Cir. 2009) (“The [Administrative Procedure Act] imposes no general obligation on agencies to produce empirical evidence.”);

Sacora

Thomas,

628 F.3d 1059, 1067 (9th Cir. 2010) (an agency is entitled to rely on its own expertise in promulgating a regulation);

see also Northport Health Servs. of Ark.

U.S. Dep't of Health & Hum. Servs.,

14 F.4th 856, 874 (8th Cir. 2021) (an agency is entitled to rely on anecdotal evidence in promulgating a regulation).

Michigan

EPA

likewise does not suggest that the Board must speculate on the cumulative impacts of part 1145. As noted above, part 1145 establishes a framework for case-by-case consideration of the “practicable and in the public interest” standard in section 11102(c) in the context of a petition for prescription of a reciprocal switching agreement. While the Board expects that the number of petitions under part 1145 will not be significant, the actual number will depend on factors that the Board cannot now predict—factors that, among other things, will include rail carriers' management and operating decisions. Whether the Board grants a given petition will also depend on factors that the Board cannot now predict, such as whether the incumbent carrier had an affirmative defense and whether the carriers could demonstrate undue impairment as provided for under part 1145. Unlike part 1145, the regulatory scheme in

Michigan

EPA

did not involve case-by-case consideration. The future action that the EPA contemplated would have imposed more stringent standards on power plants, beyond the minimum standards that resulted from the EPA's original decision to regulate.

Michigan

EPA,

576 U.S. at 756-57.

Michigan

EPA

therefore does not suggest that—when a rule establishes requirements that will be implemented only on a case-by-case basis, and when the outcomes in individual cases will turn on variable facts that the agency cannot reasonably predict—the agency must nevertheless speculate on outcomes as a condition to promulgating the rule. In any event, as discussed in Legal Framework, the Board has considered the many positive impacts this regulation will have on the incentive for carriers to provide adequate service and the concerns that may arise from particular switching orders. The Board has found that the qualitative advantages of part 1145 under the RTP outweigh those concerns and, in reaching this conclusion, has appropriately considered the relevant factors.

AAR's reliance on the

2012 Rulemaking

—for the proposition that the Board should conduct a more data-driven analysis here—is similarly unpersuasive. Pending before the Board at that time was a proposal by the National Industrial Transportation League (NITL). NITL's proposal was to provide, by rule, for the prescription of a reciprocal switching agreement when four conditions were met: (1) the shipper was served by a single Class I rail carrier; (2) there was no effective intermodal or intramodal competition for the relevant line-haul movement; (3) there was or could be “a working interchange” within a “reasonable distance” of the shipper's facility; and (4) switching would be safe and feasible, with no adverse effect on existing service. The proposal would have established conclusive presumptions for when the second and third elements of the four-part test were met. For example, the Board would conclusively presume that there was no effective intermodal or intramodal competition for a movement if the incumbent carrier's associated revenues exceeded its variable costs by a given ratio or if the incumbent carrier had handled a given amount of the relevant traffic.

See 2012 Rulemaking,

EP 711, slip. op. at 4.

The Board found that these conclusive presumptions would tend to make only certain types of shippers eligible for a prescription and, indeed, would result more or less automatically in prescriptions on behalf of those shippers.

Id.

The Board expressed concern that—if those shippers obtained lower rates on a widespread basis, due to the widespread prescription of reciprocal switching agreements on their behalf—then other shippers (those that remained captive) might bear an excessive portion of system costs.

Id.

at 7. The Board therefore sought empirical evidence on three impacts of NITL's proposal: (1) the impact on rates and service for qualifying shippers; (2) the impact on rates and service for captive shippers that would not qualify; and (3) the impacts on the financial condition of the rail industry and on the efficiency of the industry's operations.

Id.

at 2.

In 2016, the Board rejected NITL's proposal, concluding that the proposal would unduly favor certain shippers. The Board decided, as part of the same decision, to propose a different approach to reciprocal switching—an approach that, rather than relying on conclusive presumptions, left the prescription of reciprocal switching agreements almost entirely to case-by-case basis evaluation.

See 2016 NPRM,

EP 711 et al., slip. op. at 13-15, 16, 20. Given the difference in the approach in the 2016 proposal, the Board did not call for empirical evidence on the impact of that proposal.

The Board called for a particular type of analysis in considering NITL's proposal because, due to the nature of the proposal, it seemed likely that the proposal would have a discernible and predictable impact on rates and service. The Board did not call for a comparable analysis in considering the 2016 proposal, which left implementation almost entirely to the Board's discretion on a case-by-case basis. It would have been impractical, in that context, to attempt to predict the impact of the proposal on rates or service. Part 1145

is like the 2016 proposal in this sense. Under part 1145, the Board will prescribe a reciprocal switching agreement only on a case-by-case basis and only upon making specific determinations under the “practicable and in the public interest” standard.

AAR Mischaracterizes the Impact of Part 1145

The Board finds unpersuasive AAR's claim that promulgation of part 1145 would impose significant disadvantages. AAR's list of alleged disadvantages is notably directed at

any

regulation that the Board might promulgate on reciprocal switching, no matter what standards the Board established through that regulation. (

See

AAR Comments 113.) On that level alone, AAR's list of alleged disadvantages is flawed as a basis for challenging promulgation of part 1145; AAR has failed to establish a sufficient nexus between its list of alleged disadvantages and promulgation of part 1145.

Of particular note, a prescription under part 1145 would not “force” the incumbent carrier to relinquish the petitioner's shipment to another rail carrier. A prescription under part 1145 would merely establish the legal foundation for the petitioner's shipment to be transferred to the other rail carrier should the shipper elect to take service from that carrier. Whether a transfer actually occurred would be determined by the petitioner, who could choose between competitive options—the services of the incumbent railroad and those of the alternate carrier. Within this regulatory scheme, particularly in light of the numerous protections in the rule, a carrier that desires more certainty, for example with respect to its capital investment decisions, can ensure that it provides high level service, can negotiate suitable contracts when appropriate, and can otherwise work with its customers to avoid regulatory intervention under part 1145.

Nor will part 1145 result in “sweeping switching requirements,” given numerous limitations that are built into part 1145. First, under part 1145, the Board will prescribe a reciprocal switching agreement only on behalf of a shipper or receiver that is served by a single Class I rail carrier (or affiliate), only in a terminal area, and only after the incumbent carrier failed to meet one of three performance standards. Second, a prescription would not be available under part 1145 for movements that occur under valid transportation contracts or for movements of exempt commodities. As explained below, a shipper of an exempt commodity would need to obtain revocation of the exemption before obtaining prescription of a reciprocal switching agreement under part 1145.

See

Contract Traffic and Exempt Traffic. As a result of these limitations, only a relatively small portion of all Class I movements are even potentially eligible for a prescription under part 1145.

See

“Freight Rail Pricing,” Report to Congressional Committees by the U.S. Government Accountability Office, GAO-17-166 at 5 (December 2016). Third, under part 1145, the Board will not prescribe a reciprocal switching agreement when there is demonstrated infeasibility or undue impairment to a carrier's operation or ability to serve other customers as provided for in part 1145. Fourth, a reciprocal switching agreement that is prescribed under part 1145 would remain in place after its initial duration only to the extent that the carrier failed to meet standards for termination or chose not to seek termination. Fifth, the rule allows incumbent carriers to offer affirmative defenses regarding a failure to meet a performance standard. It not only specifically enumerates multiple affirmative defenses but also allows a carrier to offer additional affirmative defenses on a case-by-case basis. In all, due to the reasonably tailored approach in part 1145, there is no basis to assume that part 1145 will lead to significant adverse overall impacts.

Besides lacking a sufficient nexus to part 1145, AAR's list is flawed on another fundamental level. Underlying the list is a mischaracterization of the nature of reciprocal switching. Under the proper characterization, reciprocal switching is merely an incidental movement to the line-haul movement. When a customer chooses to rely on a reciprocal switching agreement, the incumbent carrier simply moves the customer's shipment to/from the alternate carrier's switching yard for the customer's terminal area rather than to/from the incumbent's yard for that terminal area. These types of movements are routine in the rail industry and are governed by applicable safety and related regulations. In addition, as described throughout this decision, part 1145 includes protections against infeasibility and undue operational impairment. Any change in fuel use or emissions would be minimal; shippers have incentives to select the route that is overall most efficient, which may often be the route that is most fuel efficient. (

See

AAR Comments, 113-21;

id.,

V.S. Orszag & Eilat at 15-17.) By extension, given that an individual prescription is unlikely to impose adverse impacts in these respects, it is unlikely that promulgation of part 1145 will impose meaningful cumulative, adverse impacts in these respects.

The protections that are built into part 1145 also will allow carriers to raise concerns about investments and the ability to attract capital (

see id.,

V.S. Orszag & Eilat at 6), in that the Board would consider arguments in individual cases that a proposed prescription would impair investments to the point of unduly impairing operations or the ability to serve other customers. Limited eligibility under part 1145 (for example, the fact that a prescription would be available under part 1145 only for points of origin or final destination in a terminal area) also protects against substantial, cumulative adverse impacts on carriers' revenues, ability to attract capital, and ability to engage in differential pricing.

Finally, the Board disagrees that the introduction of an alternate rail carrier under this framework, especially when there are sufficient indications that sub-optimal service was provided, could substantially distort the market. (

See, e.g.,

AAR Comments, V.S. Orszag & Eilat at 10 (suggesting that the Board's intervention when service dips below a certain threshold level could result in market distortions);

id.

at 14 (“Cases in which switching has not happened by voluntary agreement require an explanation for why that is the case if switching is indeed the operationally and economically efficient outcome.”); AAR Comments 123.) A voluntary agreement between carriers to transfer a shipment from one carrier to another might enable the carriers to maximize their profits, but that outcome does not necessarily determine whether the carriers have made efficient investment and operating decisions from the perspective of the rail network as a whole.

Levels of the Performance Standards

Part 1145 relies on conservative performance standards—standards that are set below common service expectations and goals—as indicators of where it might be beneficial, consistent with the purposes of part 1145, to introduce an alternate rail carrier via an appropriately defined and scoped reciprocal switching agreement. As described in the

NPRM,

88 FR at 63900, the Board has used two points of reference in setting the levels of the performance standards in part 1145. The first point of reference is customers' service expectations. Through public hearings in early 2022 and through numerous “ex parte” meetings since then, the Board has collected extensive

information about customers' service expectations.

See, e.g.,

Hr'g Tr. 64:5 to 64:9, Apr. 26, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770; Ex Parte Mtg. Summary, Mar. 31, 2022,

Reciprocal Switching,

EP 711 (Sub-No. 1). The record shows that, when customers expressed heightened concern about carriers' performance, carriers' performance was falling dramatically.

There is also significant consistency among customers in their service expectations.

These factors provide sufficient confidence in the context of part 1145, given its specific design and purposes, that the service expectations that customers have identified in these proceedings generally reflect a level of rail service that is needed for customers to conduct their businesses on a reasonably efficient basis. While the performance standards in part 1145 are set with reference to customers' service expectations, the standards are set at or below the level of service that many customers have said is needed to avoid serious disruptions in their operations. A carrier's failure to meet one or more of the performance standards therefore is strongly indicative that the introduction of another carrier (which would allow market forces to address those concerns, subject to appropriate protections) could be beneficial.

See e.g.,

Hr'g Tr. 544:21 to 545:4, Apr. 27, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770. The evidence underscores the critical need for improved rail service reliability. When the Board held its hearing in EP 770, CSXT and UP had 69% and 63% OETA for manifest traffic, respectively.

See

CSXT Performance Data at Row 163, May 18, 2022, and UP Performance Data at Row 182, May 18, 2022, available at

www.stb.gov/reports-data/railservice-data/.

In addition, according to 10-K filings made with the U.S. Securities and Exchange Commission (SEC), CSXT had carload trip plan compliance of 64% in the 2022 fiscal year, and UP had manifest/automotive car trip plan compliance of 59% in the 2022 fiscal year, but 71% in fiscal year 2020. These SEC filings are available at

www.sec.gov

(open tab “Filings”, select “Search for Company Filings”, and then select “EDGAR full text search”).

(

See

Coal. Ass'ns Comments 22; LyondellBasell Comments 2; DCPC Comments 6-8; NGFA Comments 12; PRFBA Comments 7; GISCC Comments 5; AFPM Comments 8-9; API Comments 3-4; NSSGA Comments 6-7; EMA Comments 6 PRFBA Comments 6-7 (each seeking a reliability standard as defined in the

NPRM

of at least 70%);

see also

Coal. Ass'ns Comments 32; ACD Comments 5; NGFA Comments 12-13; Olin Comments 6 (each seeking a service consistency standard where a failure would result from an increase of 15% or less in transit time);

see, e.g.,

Coal. Ass'ns Comments 5; NSSGA Comments 9; AFPM Comments 12; EMA Comments 8; PRFBA Comments 9; DCPC Comments 10; API Comments 5; NGFA Comments 13; FRCA/NCTA Comments 2 (each seeking an ISP standard of 90%).)

The Board's second point of reference in setting the levels of the performance standards is the evidence that the Board collected in 2022 and 2023 in reviewing the performance of Class I rail carriers. That evidence corroborates the service expectation levels that are suggested by customers. The Board began its recent service oversight during the early 2020s, when it was widely recognized that delays and other deficiencies in the transportation of freight were substantially impairing the national economy.

Due to the pervasiveness of poor rail service, testimony during a public hearing in March 2022—a hearing in Docket No. EP 711 (Sub-No. 1) that was meant to explore competitive access on a more general level—often turned to customers' need for better service.

See, e.g.,

Hr'g Tr. 105:4 to 105:17, Mar. 15, 2022,

Reciprocal Switching,

EP 711 (Sub-No. 1) et al. At roughly the same time as that hearing, the Board received several reports—including from the Secretary of Agriculture, U.S. Senator Shelley Moore Capito, and stakeholders—about the serious impact that poor service was having on rail customers.

See Urgent Issues in Freight Rail Serv.,

EP 770, slip op. at 2 n.1 (STB served Apr. 7, 2022) (citing Honorable Thomas J. Vilsack, USDA Letter, Mar. 30, 2022,

Reciprocal Switching,

EP 711 (Sub-No. 1); Letter from Honorable Shelley Moore Capito, to Board Members Martin J. Oberman, Michelle A. Schultz, Patrick J. Fuchs, Robert E. Primus, & Karen J. Hedlund (Mar. 29, 2022), available at

www.stb.gov

(open tab “News & Communications” & select “Non-Docketed Public Correspondence”); Letter from NGFA to Board Members Martin J. Oberman, Michelle A. Schultz, Patrick J. Fuchs, Robert E. Primus, & Karen J. Hedlund (Mar. 24, 2022), available at

www.stb.gov

(open tab “News & Communications” & select “Non-Docketed Public Correspondence”); Letter from SMART-TD to Chairman Martin J. Oberman (Apr. 1, 2022), available at

www.stb.gov

(open tab “News & Communications” & select “Non-Docketed Public Correspondence”)).

See, e.g.,

Fed. Reserve Bank of Cleveland, Matthew V. Gordon and Todd E. Clark, “The Impacts of Supply Chain Disruptions on Inflation,” Number 2023-08 (May 10, 2023),

www.clevelandfed.org/publications/economic-commentary/2023/ec-202308-impacts-supply-chain-disruptions-on-inflation.

These concerns led the Board to establish a new docket,

Urgent Issues in Freight Rail Service,

Docket No. EP 770, and to hold a hearing in that docket in April 2022. Through that hearing and subsequent meetings, the Board sought to understand customers' need for service and to examine decisions by rail carriers that had contributed to carriers' failure to meet that need.

See Urgent Issues in Freight Rail Serv.,

EP 770 (STB served Apr. 7, 2022). Shortly after the April 2022 hearing, the Board began to collect data on Class I carriers' performances both in completing line hauls and in providing local service on a timely basis.

See Urgent Issues in Freight Rail Serv.—R.R. Reporting,

EP 770 (Sub-No. 1) (STB served May 6, 2022);

See also

UP's 10-K filing with the SEC, which is available at

www.sec.gov

(open tab “Filings”, select “Search for Company Filings”, and then select “EDGAR full text search”).

This evidence is corroborated by testimony of shippers in Docket No. EP 770, which shows that shippers were complaining about drops in velocity of less than 20% during the early 2020s.

When a shipper uses railcars that the shipper supplies itself, any significant reduction in the velocity of those cars through the system means that the cars are substantially less productive, resulting in adverse impacts on the shipper's costs, revenues, or both.

See, e.g.,

Hr'g Tr. 551:6 to 551:14, 568:12 to 569:9, Apr. 27, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770. Shippers that rely on carrier-supplied cars may not have the same concern about fleet productivity but, as with other shippers, would still be impacted by the inventory cost of undelivered freight. A significant reduction in velocity might also be associated with reduced availability of carrier-supplied cars, to a shipper's detriment.

At the April 2022 hearing in Docket No. EP 770, several shippers testified about the burdens associated with increased transit times.

See, e.g.,

Hr'g Tr. 73:7-13, Apr. 26, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770 (Cargill testifying that rail service deterioration since the fourth quarter of 2021 resulted in a 15% increase in transit time for its private fleet); Hr'g Tr. 364:18 to 367:15, Apr. 26, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770 (increased transit days resulting from rail service issues “has had a huge financial impact” on Molson Coors); Hr'g Tr. 551:6-8, Apr. 27, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770 (NITL testifying that “transit times in the first quarter this year have increased by 15% over pre-pandemic levels due to crew and power shortages”); Hr'g Tr. 558:12-18, Apr. 27, 2022,

Urgent Issues in Freight Rail Serv.,

EP 770 (ASLRRA testifying that, since the fourth quarter of 2020, one member company “experienced significant deterioration in rail service” including transit times that increased by six days and variability of transit that made it “impossible for shippers to plan their business”).

In all, record evidence indicates the conservative nature of the service consistency standard in part 1145, which reserves federal intervention for an increase in transit time of more than 20%. In the absence of a proven affirmative defense, such an increase in transit time provides sufficient indicia of service problems that are inconsistent with meeting customer and carrier expectations. In effect, such an increase points sufficiently to the potential value of introducing an additional line haul carrier.

To the extent that some commenters argue that the performance standards in part 1145 might be overinclusive,

i.e.,

counting as a “failure” service that would not prove to be inadequate in the market, the public interest is protected both by the provisions in part 1145 for consideration of factors that could work against a prescription and by the specific and limited nature of regulatory intervention under part 1145. Regulatory intervention—again, the prescription of an appropriately defined and scoped reciprocal switching agreement—would give the petitioner a service option when there is a factual predicate for concluding that intervention is warranted. Petitioners have the incentive to select, over the duration of the prescribed agreement, the more efficient and responsive carrier. To the extent that the performance standards might be underinclusive, counting as a “pass” service that would have proven to be inadequate in the market, the public interest is protected by the opportunity for the affected shipper or receiver to seek a prescription under the Board's other regulations. In all cases, the public interest is protected not only by the performance standards themselves, but also by the opportunity that carriers would have, on a case-by-case basis, to demonstrate an affirmative defense, infeasibility, or undue impairment to their ability to serve other customers. By ensuring that application of the performance standards is not the end of the inquiry, part 1145 precludes a prescription when sufficient countervailing public interest has been

demonstrated. In addition, as discussed in Legal Framework, the Board's paramount interest in establishing an expeditious process for addressing service-based reciprocal switching petitions and fostering a sound rail transportation system is best supported by a process that does not require protracted litigation.

Carriers' Objections

According to Class I rail carriers, the levels of the performance standards in part 1145 are not adequately supported by record evidence. The carriers allege several errors in this respect. First, according to AAR, the levels of the standards were inappropriately derived from data in Docket No. EP 770 (Sub-No. 1) that shows system-average performance. According to AAR, system-average performance does not necessarily indicate the level of performance that constitutes adequate service over a given lane or at a given time. (AAR Comments 46-50;

see also

CPKC Reply at 2, 8; R.V.S. Workman & Nelson at 19-23.) In addition, according to AAR, system-average performance does not distinguish between common carriage service and contract service. AAR suggests that this distinction is relevant because, according to AAR, contract customers might have agreed to different levels of service. (AAR Comments 9, 49-50; V.S. Orszag/Eilat 7, 21-24;

see also

CN Comments 5-6; CSXT Comments 14-15.)

Second, according to UP, it is inappropriate to rely on the data in Docket No. EP 770 (Sub-No. 1) because UP used one-week periods to measure its performance (

i.e.,

UP reported for each week the percentage of shipments that it delivered on time during that week). UP asserts that a carrier's level of performance over one-week periods cannot reasonably be used to extrapolate a reasonable level of performance over 12-week periods as provided for in part 1145. (UP Comments 4-5.)

Third, according to UP, it is problematic to base the levels of the performance standards on the data in Docket No. EP 770 (Sub-No. 1) because the carriers did not necessarily report their performance in the same way that compliance with the performance standards in part 1145 will be measured. For example, UP considered itself to have succeeded in completing a line haul on time if UP met its original trip plan as adjusted to account for delays encountered en route. In contrast, under part 1145, a rail carrier will be considered to have succeeded only if it came within 24 hours of the original estimated time of arrival, without adjustment for delays encountered en route. UP implies that, due to how carriers reported their performance in Docket No. EP 770 (Sub-No. 1), the data there overstates actual performance as compared to how performance will be measured under part 1145. (UP Comments 6.)

Finally, in its attempt to show that the performance standards in part 1145 are not adequately supported, AAR conducted a study of transit times. AAR submitted the study in its reply comments, as a result of which other parties did not have the opportunity to comment on the study. The study was based on transit times for all movements over Class I rail carriers from 2020 to 2023, with some exclusions. (AAR Reply, R.V.S. Baranowski & Zebrowski at 5-6.) The study purported to show that a year-over-year decrease in velocity of 20% would capture about 53.9% of the movements in 2020, about 76.6% of the movements in 2021, about 82.5% of the movements during 2022, and about 65.5% of the movements during 2023. (

Id.

at 7.) AAR concludes, based on its study, that it is typical for shipments to experience increases (and decreases) in transit time from one year to the next and that therefore the transit time standard does not capture only inadequate service. (

Id.

at 4-5.) AAR adds that its analysis showed no difference between consistency in serving captive customers and consistency in serving other customers. AAR concludes on that basis that the prescription of a reciprocal switching agreement would not necessarily cure an increase in transit time. (

Id.

at 5-6.)

The Board's Assessment

The Board rejects each of the foregoing arguments. First, contrary to carriers' suggestion, it is reasonable for system-average performance to inform the levels of the performance standards in part 1145. In the Board's experience, system-average performance is a strong indicator of the capability of the rail system to meet the public need for transportation service. While there is heterogeneity in lanes and traffic, and while variations can impact different geographies and businesses differently, the specific performance measurements under part 1145 largely factor in these differences. For example, the reliability standard in part 1145 is based on the estimated time of arrival that the carrier originally predicted. In setting the OETA, the carrier can account for the characteristics of the given lane (and, by extension, the characteristics of the shipper's traffic

) and likely delays. As a result, this type of measurement essentially controls for lane and traffic characteristics, so service over one lane is no more likely than service over another lane to fail the reliability standard. The consistency standard in part 1145 is based on how long it took the carrier to deliver the shipment over the same lane and over the same 12-week period during the previous year. This approach essentially controls for differences between service over a lane that has a longer-than-average transit time and service over other lanes.

Under the definition of the term “lane,” the Board states that “shipments of the same commodity that have the same point of origin and the same designated destination are deemed to travel over the same lane, regardless of which route(s) the rail carrier uses to move the shipments from origin to destination.” 49 CFR 1145.1. Through this definition, the Board is eliminating potentially flawed comparisons between traffic of different characteristics (

e.g.,

differences by commodity) and between traffic with different origin-destination pairs.

A similar analysis applies to seasonal variations in rail service. For example, because a railroad can account for likely delays in setting OETA, service in one season is no more likely than service in another season to fail the reliability standard. In the case of an extreme weather-related event, that event could provide an affirmative defense to the extent that the event could not reasonably be predicted or mitigated. As for the fact that the system-wide data in Docket No. EP 770 (Sub-No. 1) included service to contract customers, the Board finds that detail to be irrelevant. In the Board's experience, most contracts do not establish standards for quality of service and, in any event, the EP 770 data does not establish whether carriers were providing service consistent with any contractual commitments that might have applied.

Second, contrary to UP's suggestion, it is reasonable to use system-average performance as reported for one-week periods as the basis for assessing performance over a 12-week period. The Board has accounted for any volatility that might have resulted from week-to-week reporting by using records of system-average performance over the course of several years and by relying heavily on customers' reasonable service expectations and carriers' performance targets.

Third, the “apples to oranges” problem that UP describes is both substantially overstated and ultimately irrelevant. As would be expected, in Docket No. EP 770 (Sub-No. 1), railroads that adjusted their original trip plans for delays that they encountered en route appeared to perform better than carriers that did not make those adjustments. The incremental difference between the two groups of rail carriers

tended to be fairly constant.

As a result, the Board can reasonably discern what system-average performance would have been across the industry if all carriers had reported their performance on the same basis.

For example, the Board observes a reasonably strong linear association between UP's reliability data and BNSF's reliability data as reported in Docket No. EP 770. UP and BNSF operate in similar geographical environments, with approximately the same route miles and employment levels. In reporting reliability, UP adjusted its estimated time of arrival to reflect delays that UP encountered en route when those delays were not caused by UP. (

See

UP Comments at 6.) BNSF did not do so. During 85 weeks of the reporting period (May 13, 2022 to December 22, 2023), there was a correlation of 0.55 between reliability data for UP and reliability data for BNSF. The magnitude of the difference between the two carriers was fairly constant after adjusting for natural shocks (such as weather-related incidents) that each carrier may individually have experienced; for 55 of the 85 weeks of the difference in the two carriers' reliability data fell within a 2.9% to 12.1% range. Overall, UP had 77 weeks of better performance than BNSF. The consistency of the difference indicates that the difference was due to the difference in how the two carriers reported their reliability data.

Of equal importance are the details of the reliability standard in part 1145. A carrier would fail to meet the reliability standard only if, over a 12-week period, the carrier fell below 70% in meeting its OETA plus or minus 24 hours. The general range of the reliability standard recognizes that, in the ordinary course of rail service, a shipment might encounter a certain number of unanticipated delays en route. The specific percentage (70%) provides an additional cushion between ordinary service and the possibility of regulatory intervention, as suggested by the data that the Board collected in Docket No. EP 770 (Sub-No. 1)—data that was largely collected during the major service problems of the early 2020s. The Board reasonably expects that rail service in the ordinary course will be better than rail service during that period. The 24-hour grace period provides even more cushion. In effect, the reliability standard in part 1145 provides for regulatory intervention on a conservative basis. The 70% standard is not as conservative as the 60% standard that the Board inquired about in the

NPRM

but—in the Board's judgment, based on comments and further analysis—provides appropriate ground for considering whether to prescribe a reciprocal switching agreement.

See

Performance Standards.

Finally, AAR's study of transit times does not persuade the Board that the performance standards in part 1145 would capture typical rail service. One of the glaring deficiencies in AAR's study is that it compared transit times from year to year during the early 2020s, when rail service was faltering and erratic. It would be unreasonable to conclude that increases in transit times during that period reflected variations in transit times that might be expected in the ordinary course of rail operations; if the Board were to accept AAR's study, the Board would implicitly and unreasonably conclude that the years that AAR used in its study provide the proper baseline for assessing changes in transit time.

Performance Standards

Service Reliability: Original Estimated Time of Arrival

As discussed in the

NPRM,

the proposed service reliability standard would measure a Class I rail carrier's success in delivering a shipment near its OETA,

i.e.,

the estimated time of arrival that the rail carrier provided when the shipper tendered the bill of lading for shipment.

NPRM,

88 FR at 63903. The OETA would be compared to when the car was delivered to the designated destination.

Id.

Application of the service reliability standard would be based on all shipments that the shipper tendered to the carrier over a given lane over 12 consecutive weeks.

Id.

Under part 1145, once a carrier has communicated an OETA to a customer, that time will not be changed to reflect any subsequent change to the original trip plan of the car, no matter the cause of that change. As a result, a carrier will be deemed to miss the OETA for cars that are delayed due to a cancelled or annulled train if cars are not delivered within 24 hours of the original estimated time of arrival.

Using data that Class I carriers provided in Docket No. EP 770 (Sub-No. 1) as a reasonable starting point, the agency proposed a reliability standard of 60%, where a carrier would meet the standard if, over a period of 12 consecutive weeks, the carrier delivered at least 60% of the relevant shipments within 24 hours of the OETA.

Id.

at 63903-04. The Board also suggested that the reliability standard could be set by rule to escalate one year after the rule took effect.

Id.

at 63904. The Board sought comment on the percentage at which the reliability standard should be set, what the applicable grace period should be, and other matters relevant to the reliability standard.

Id.

at 63903-04.

Reasonableness of Using OETA

CPKC questions whether OETA is a meaningful reference point. According to CPKC, nearly half of its shipments arrive a day or more after the OETA. CPKC claims that it is infeasible to try to provide a more accurate OETA because, according to CPKC, there are too many routine factors that contribute to variations from the company's original trip plan. (

See

CPKC Reply, R.V.S. Workman & Nelson 15-16.)

Contrary to CPKC's suggestion, it is reasonable to use OETA data over a 12-week period to provide indicia of the overall reliability of a carrier's service for purposes of part 1145. Rail carriers bring their considerable expertise to the task of developing OETAs. Carriers typically study the factors that affect transit time over a lane, account for those factors through seasonal or other appropriate tolerances, and apply those tolerances in setting OETAs. CPKC, which is the only carrier to question use of OETA, has failed to convince the Board that the company cannot adopt a similar approach.

OETA Percentage

Many shipper organizations ask the Board to set the reliability standard (when based on a 24-hour grace period) at more than 60%. For example, the Coalition Associations ask the Board to set the percentage at 70%. (Coal. Ass'ns Comments 22.) They claim that the 70% threshold is attainable, is more consistent with Class I carriers' own expectations of the quality of service that they should provide, and better reflects the threshold at which poor service reliability has significant operational consequences for rail customers. (

Id.

at 24.)

LyondellBasell urges the Board to adopt the 70% standard proposed by the Coalition Associations. (LyondellBasell Comments 2.) It asserts that the higher standard is more in line with the level of service customers require to conduct their business. (

Id.

) LyondellBasell notes that, when railroads fail to deliver shipments close to the OETA, it incurs: (1) increased costs from diverting traffic to other sub-optimal modes of transportation; (2) lack of products at distribution facilities, which in turn has required LyondellBasell to use inefficient distribution sites and means of transportation; and (3) reduced production rates, shutdowns, or both for its own and its customers' facilities. (

Id.

) Even at reliability levels at or above 70%, according to LyondellBasell, the company incurs a substantial burden on its operations. (

Id.

) For example, because most polymer plants produce materials coming off the production line directly into railcars as the storage receptacle, LyondellBasell will likely have already reduced its production rates at such polymer sites. (

Id.

at 2-3.)

Other shipper groups ask the Board either to set the reliability standard at more than 70% at the outset or eventually to escalate the standard to above 70%. (DCPC Comments 6-8 (80% in year 1 and 90% in year 2); NGFA

Comments 12 (supports “closer to 100%”); PRFBA Comments 7 (80%); GISCC Comments 5 (80%); AFPM Comments 8-9 (65% in year 1, 70% in year 2, 75% in year 3, and 80% in year 4).) API argues that the second-year standard should be set at 80% to 85% and that, even at higher levels of performance by rail carriers, there are adverse impacts on the public interest. (API Comments 3-4.) API adds that service levels affect labor decisions made by the shipper, and that late shipments result in lost production time; overtime labor; increased transportation costs, demurrage, administrative burden, storage costs, and private railcar fleets; and loss of business opportunities. (

Id.

at 4.) NSSGA and EMA, which seek a reliability standard of 80% or higher, claim that at 60% their members would need to curtail operations or ship by truck. (NSSGA Comments 6-7; EMA Comments 6.) EMA adds that, for some of its members, trucking is not an option at all. (EMA Comments 6.)

Railroads oppose the 60% reliability standard as well as any other reliability standard, arguing that there is insufficient record evidence to support such a standard. Railroads otherwise do not comment on the level at which the reliability standard should be set. As explained in the Analytical Justification section above, however, the Board has sufficient justification for setting its standards based on credible evidence of reasonable service expectations and evidence that the Board has collected since 2022 in investigating the performance of Class I rail carriers. AAR adds that what a customer perceives as service that best meets its individual “needs and requirements” may run counter to the interests of other shippers and the health of the overall network that serves many shippers. (AAR Reply 39.) According to AAR, a standard that bypasses consideration of other shippers or the network as a whole—or the question whether a switch would remedy the shipper's service concerns—would not be consistent with the approach Congress directed. (

Id.

)

The Board will set the reliability standard at 70%.

Although several shippers support a higher OETA standard based on the argument that it would be “attainable” by the railroads, that is not the basis for the Board's decision here. The reliability standard, like the other metrics, grows out of shippers' reasonable service expectations, carriers' performance records, and carriers' performance goals without specifically rendering judgment on the level of reliability that rail carriers might in theory attain. As discussed above, many shippers have commented that a reliability standard of 60% is too low, as service even above that level exposes shippers to significant problems, including increased costs and production delays. A number of shipper organizations indicate that their members are impacted by poor service even when the carrier provides service above 60% reliability (measured as OETA + 24 hours). For example, PRFBA explains:

As discussed later in this decision, the 70% reliability standard will apply not only to cars that arrive more than 24 hours after the OETA but also those that arrive more than 24 hours

earlier

than the OETA.

[T]hat 60%, and indeed even 70%, represent far too low a bar for service reliability. Under the proposed rule, even those carriers who meet the standard with 60% nearly on-time performance would force some PRFBA members to shut down their plants and still others frantically to seek out alternative transport by truck. There are not enough trucks or truck drivers to keep up with that demand, to say nothing of the greater expense passed onto the consumer and drastically greater polluting emissions caused by trucking goods as compared with rail shipping. Moreover, for some PRFBA members, trucking goods simply is not an option altogether. Also, all PRFBA members suffer from the underutilization of their railcars whenever service is poor.

(PRFBA Comments 6-7.)

The Board specifically requested that shippers identify the point at which there are negative business impacts from poor reliability in rail service,

see NPRM,

88 FR at 63904, and the information provided by shippers supports a finding at this point that a 70% level of reliability is reasonable as a reflection of service expectations.

The 60% standard in the

NPRM

was also a conservative proposal. As the Board explained, much of the underlying Docket No. EP 770 (Sub-No. 1) data in the

NPRM

reflected a challenging service period. Indeed, overall on-time performance for BNSF, CSXT, NSR, and UP had fallen from a pre-pandemic average of 85% in May 2019 to just 67% in the last week of May 2022, as crew shortages plagued rail service.

See

Stephens, Bill, Data Reported to Federal Regulators Reveal Extent of Deterioration in Rail Service—Trains (June 9, 2022). The Board found that 60% was a reasonable potential starting point for determining the reliability standard because it reflected a level that even the carriers acknowledged was far below expectations, but the Board also proposed an alternate standard that would escalate to 70% one year after the effective date of the rule, reflecting the view that service during that challenging time might not be the appropriate long-term measure for service performance for purposes of part 1145. Not only is that view supported by shippers' comments detailing the negative impact of service even above the 60% reliability standard, Docket No. EP 770 (Sub-No. 1) data from last December does in fact show that carriers are performing better. Indeed, data for the week ending December 22, 2023, indicates overall on-time performance of the four carriers averaging 80.1%.

See Urgent Issues in Freight Rail Serv.—R.R. Reporting,

EP 770 (Sub-No. 1), slip op. at 4 (STB served Jan. 31, 2024). Considering this data, the comments from shippers about negative impacts to their businesses, and the overall framework in which failure to meet a service standard acts as a mechanism—with appropriate protections—for switching (as opposed to a different, more intrusive, or more severe form of regulatory intervention), a 70% standard is therefore reasonable.

A 70% standard is also consistent with railroads' stated, near-term performance goals as reported in Docket No. EP 770. As noted in the

NPRM,

BNSF, CSXT, NSR, and UP each identified a target for its systemwide weekly percentage of manifest railcars placed within 24 hours of OETA (as reported in Docket No. EP 770 (Sub-No. 1)) that the carrier would meet beginning May 2023, and these targets average approximately 74%.

NPRM,

88 FR at 63903. The 70% reliability standard in the final rule remains below that average [as well as the average in more recent Docket No. EP 770 (Sub-No. 1) reports].

See

Analytical Justification.

While the current record supports a finding that a reliability standard of 70% is reasonable, the Board declines at this time to set the reliability standard at a higher level or to provide by rule for escalation of that standard as requested by some shipper interests. The Board concludes that the better course of action is to gain experience under the 70% standard and gauge the effectiveness of part 1145 before considering whether to raise the standard above 70%.

Observation Period

Several shipper groups ask that a petitioner be allowed to rely on less than 12 weeks of data. (EMA Comments 6 (six weeks); PRFBA Comments 7 (six weeks); GPI Comments 3 (eight weeks); GISCC Comments 5 (four to six weeks).) According to NSSGA, which requests a six-week period, 12 weeks of bad service would have a “devastating

impact” on NSSGA members' operations. (NSSGA Comments 7.) Similarly, AFPM asserts that allowing poor service to continue for even six weeks would severely hurt refiners and petrochemical manufacturers, causing curtailments in output and even shutdowns. (AFPM Comments 9.) AAR responds that the record before the Board provides no basis to conclude that any of those changes would help the Board accurately and effectively identify situations where a service inadequacy exists and warrants regulatory intervention. (AAR Reply 41.) According to AAR, such changes would significantly complicate the proposed rule's operation and risk generating a large number of false positives. (

Id.

)

The Board will use an observation period of 12 weeks as proposed in the

NPRM.

Using a 12-week observation period means that the OETA standard will not be triggered by a service problem of relatively short duration, unless the problem is of such severity that it nevertheless results in failure to meet the 70% standard over the 12-week period. This approach will tend to reserve regulatory intervention under part 1145 for cases in which there had been a more chronic problem in serving the petitioner. A chronic but not necessarily acute problem is the type of problem that, compared to other types of service problems, is more likely to benefit from the introduction of rail-to-rail competition as provided for in part 1145. For acute service problems, shippers may seek relief under parts 1146 and 1147, without waiting for a 12-week observation period to end.

NSR recommends measuring performance under the reliability standard over quarters of the calendar year, rather than over a rolling 12-week period. According to NSR, using a rolling 12-week period would allow shippers to petition for a prescription based on performance that did not reflect the carrier's typical performance or indicate an ongoing service problem. (NSR Comments, V.S. Israel 3, 14;

see also

UP Comments 19 (encouraging an approach based on the last calendar quarter to mitigate the burden of data production).) The Board declines to adopt NSR's recommendation. To use quarters of the calendar year as the observation period would make the standard less likely to identify service for which the public interest would be served by introducing an alternate rail carrier (

e.g.,

a carrier could miss the OETA for 22 weeks and would not fail the standard if half of those weeks were in one quarter and the other half were in the next quarter).

The Definition of OETA

AAR notes that the definition of OETA in the

NPRM

differs from the definition of OETA in the demurrage setting and asserts that the definition in part 1145 should conform to the definition that is used for purposes of demurrage. (AAR Comments 51-52.) Under proposed § 1145.1, OETA is provided upon tender of a bill of lading.

NPRM,

88 FR at 63912-13. For purposes of demurrage billing, OETA is provided after the shipment is physically released to the carrier or received by the carrier in interchange and is based on the first movement of the origin carrier.

See

49 CFR 1333.4(d)(1). AAR claims that having two different definitions creates risk of confusion and would lead to duplicative efforts. (AAR Comments 51-52.) Individual railroads also call for OETA to be measured at time of release. (CN Comments 45; UP Comments 6.)

The Board will not change the definition of OETA under part 1145. The demurrage OETA definition, while appropriate for part 1333's “minimum” informational purposes, does not meet the goals of this rulemaking. As noted by the Coalition Associations, to use the OETA that is based on the carrier's first movement of the shipment rather than tender of the bill of lading would not capture a carrier's delay in picking up a car that had been tendered for shipment. (Coal. Ass'ns Reply 29.) And, if the carrier failed the reliability standard due to the shipper's delay in releasing the car, that could be raised as an affirmative defense.

See

Affirmative Defenses.

Delivery at Interchange

In the

NPRM,

the Board proposed that, in the case of interline service where the shipment is transferred between line-haul carriers at an interchange en route, the shipment is deemed to be delivered when the receiving carrier acknowledges receipt of that shipment.

NPRM,

88 FR at 63904, 63912. Several commenters raised concerns with this approach.

CN asserts that this approach fails to account for cases in which the shipment arrived at the interchange but the receiving carrier is unable to accept the shipment. (CN Comments 48-49.) UP similarly asserts that a car should be deemed to be delivered upon “delivery in interchange.” According to UP, “delivery in interchange” occurs when a railroad moves the car past a designated automatic equipment identification reader or places the car on a designated interchange track, depending on the specific interchange that is involved. (UP Comments 7.) UP claims that a car can potentially sit on an interchange track for several days after delivery and before the subsequent carrier acknowledges receipt, when the matter is out of the delivering carrier's control. (

Id.; see also

API Comments 4 (suggesting that the gap between delivery and receipt can last for several hours).) The Coalition Associations respond that no carrier offers a practical solution to address concerns about a gap, but that AAR's own rules for assigning responsibility for car hire provide a clear and appropriate framework for determining when interchange occurs, including in situations where the receiving carrier causes an interchange delay. (Coal. Ass'ns Reply 43.)

The Board will define “delivery” at the interchange using UP's proposal. Although the Board suggested that in case of a dispute about a gap at the interchange it would be guided by interchange rules,

NPRM,

88 FR at 63903, UP's approach is superior. While the car hire data is more accurate, it is more difficult to retrieve and can only be used after any disputes are resolved. In contrast, Delivery in Interchange data is routinely reported to the shipper on a real time basis. As such, based on UP's approach, a car will be deemed delivered at an interchange when it is moved past a designated automatic equipment identification reader or placed on a designated interchange track, depending on the specific interchange location involved. However, if there are disputes about the accuracy of a delivery time by either the customer or the receiving railroad, the Board can use car hire accounting records to decide the issue.

Delivery at Customer's Facility

For deliveries to a customer's facility, the Board proposed to define “delivery” as when a shipment either is actually placed at the designated destination or, in given circumstances, is constructively placed at a local yard that is convenient to the designated destination.

NPRM,

88 FR at 63912.

UP notes that for traffic it delivers to customer facilities, UP's Trip Plan Compliance (TPC) measure for manifest traffic measures compliance based on when the car is delivered to the customer facility, regardless of whether it spends time in constructive placement. (UP Comments 8.) For “order in” customers—customers who by prior agreement have UP hold cars in serving yards pending the recipient's request for delivery—UP “stops the clock” during the time a car spends in constructive placement for purposes of measuring TPC. (

Id.

) If “spot on arrival”

customers—customers with facilities where railcars may be placed without placement instructions—cannot accept delivery when their cars arrive, UP puts the cars into a hold status then adjusts the time of arrival under UP's trip plan when the car is released from that status. UP asserts that its calculation method reflects the customer's role in the delivery schedule and the full journey of the railcar. (

Id.

) UP asks that the Board conform to the railroad's practice. (

Id.

)

The Board will retain its approach from the

NPRM

and not adopt UP's proposal to define delivery as being at a customer's facility. The proposed definition of delivery takes into account both situations described by UP. For “order in” customers, the car would be “delivered” for purposes of OETA when the car is constructively placed at a local yard that is convenient to the designated destination, which is the time it arrives in the local serving yard and is ready for local service in accordance with the rail carrier's established protocol.

See NPRM,

88 FR at 63903 n.17. The same would be true for “spot on arrival” customers that are not able to accept delivery at the designated destination. If the customer is not able to accept delivery, the car is “delivered” at the time it arrives in the local serving yard and is ready for local service in accordance with the rail carrier's established protocol. The Board recognizes that each carrier may currently define its trip plan compliance-like metric differently, but one of the objectives of this rule is to standardize the metrics that will be used for part 1145 so that they may be easily understood by shippers, carriers, the Board, and the public. The approach from the

NPRM

accomplishes this.

See also

Data Production to an Eligible Customer.

Unit Trains and Intercity Passenger Trains

The Board proposed to apply the reliability standard only to shipments that are moving in manifest service, not to unit trains.

NPRM,

88 FR at 63904. The Board explained that, in its experience, deliveries of unit trains do not give rise to the same type of concerns with respect to meeting OETA.

Id.

A number of shipper groups ask the Board to include unit trains. (API Comments 3; AFPM Comments 9 n.15; NSSGA Comments 7;

see also

FRCA/NCTA Comments 3.) NGFA disagrees that unit trains do not have the same need as manifest trains to be delivered on time. It adds that the failure of Class I carriers to deliver unit trains on time can result in significant harm to the shipper/receiver and the shipper's/receiver's customers. (NGFA Comments 12.)

The Coalition Associations recommend including unit trains and using a higher reliability standard (of 90%) for those trains. (Coal. Ass'ns Comments 31.) According to the Coalition Associations, a 90% standard would better reflect the nature of unit trains, which tend to go through few if any interchanges. (

Id.

) In addition, according to the Coalition Associations, a 90% reliability standard for unit trains would better reflect the fact that the early or late arrival of a unit train (which might consist of 80 or more cars) can have a proportionally greater adverse effect on the customer. (

Id.

)

The Board will not apply a reliability standard to unit trains for purposes of part 1145. Based on Board experience, while manifest traffic runs on scheduled trains, unit trains generally do not have schedules. They run at various, usually irregular times. And, although some railroads have trip plans based on the unique schedule for each unit train that are applied to each car on the train, CN, CSXT, and NSR do not currently produce trip plans for unit trains. (

See

CN Comments 44);

Urgent Issues in Freight R.R. Serv.—R.R. Reporting,

EP 770 (Sub-No. 1), slip op. 5 n.16, 6 n.19 (STB served Jan. 31, 2024). It would be unduly burdensome to require those carriers to produce trip plans (including an OETA) for unit trains for purposes of the reliability standard under part 1145, factoring in that problems with the delivery of unit trains can also be captured by the service consistency standard in part 1145.

One commenter asks the Board to apply the reliability standard to intercity passenger trains. (Ravnitzky Comments 1.) The performance of intercity passenger trains is beyond the scope of this proceeding. As proposed in the

NPRM,

part 1145 applies only to Class I freight carriers and their affiliates and provides only for the prescription of a reciprocal switching agreement, a regulatory action that would not be meaningful for intercity passenger trains. Regardless, other statutory provisions address on-time performance issues of intercity passenger trains.

See

49 U.S.C. 24308(f);

Compl. & Pet. of Nat'l R.R. Passenger Corp. Under 49 U.S.C. § 24308(f)—for Substandard Performance of Amtrak Sunset Ltd. Trains 1 & 2,

NOR 42175, slip op. at 1 (STB served July 11, 2023).

Severity of Delay

The Coalition Associations suggest significant additions to the OETA + 24 hours model. They ask the Board to establish graduated reliability standards, where the standard would increase as the differential between the OETA and the time of delivery increased. Under the Coalition Associations' approach, the reliability standard would be set at 70% at OETA + 24 hours, 80% at OETA + 48 hours, and 90% at OETA + 72 hours. (Coal. Ass'ns Comments 4;

see also

ACD Comments 4.) The Coalition Associations also ask the Board to base the standards for the 24-, 48-, and 72-hour time bands on the average systemwide performance of all Class I carriers for those respective bands. (Coal. Ass'ns Comments 4.) According to the Coalition Associations, these standards would provide a strong incentive to railroads to achieve a reasonable level of service reliability that is consistent with changing industry conditions. (

Id.

)

Others raise concerns that the reliability standard, when based on OETA + 24 hours, does not measure the severity of deficiencies in the carrier's performance. For example, CSXT suggests that, under the reliability standard, a delivery 25 hours after OETA would be treated the same as a delivery 25 days after OETA. (CSXT Comments 17-18.) NSR recommends replacing OETA + 24 hours with a standard that measures both whether a delay has occurred and the severity of delay. (NSR Comments, V.S. Israel 13.) NSR specifically recommends use of a service reliability ratio, which would measure by what percent of the actual duration of the shipment the carrier missed OETA + 24 hours. (

Id.

)

The Board will not at this time change the reliability standard to account for the severity of a delay. The Board appreciates that its approach does not distinguish between failed deliveries that are just past the 24-hour mark and cars that are many days past that mark, but the Board would like to gauge the effectiveness of its basic concept of OETA + 24 hours before considering changes or refinements to account for degrees of severity. And, if extremely late deliveries are frequent, that could result in the service consistency standard not being met. Part 1145 is also not the only course of action a shipper will be able to pursue. In the case of more egregious delays, the shipper could petition under part 1147 without waiting the 12 week-observation period provided by part 1145. Where appropriate, the shipper could also pursue a separate action based on the common carrier obligation.

Early Cars

The Coalition Associations ask the Board to clarify that shipments that arrive more than 24 hours early do not count as being delivered on time. The Coalition Associations suggest that this approach will remove any incentive for rail carriers to “game” the reliability standard by artificially inflating OETAs and note that early cars can cause congestion at a shipper's facility. (Coal. Ass'ns Comments 4, 29;

see also

Olin Comments 5.) AAR opposes application of the reliability standard to early arrivals and asserts that early deliveries were not addressed in the

NPRM.

(AAR Reply 46-47.) AAR argues that shippers and railroads should be able to work together to manage flow into a customer facility, including by using constructive placement. (

Id.

) AAR adds that applying the reliability standard to early deliveries could encourage carriers to slow down the movement of traffic through their systems. (

Id.

)

The Board will adopt the proposal and clarify that cars arriving more than 24 hours before the OETA will count against the carrier for purposes of the service reliability standard. While delivering cars excessively early could potentially disrupt a carrier's system, it remains a possibility that a carrier could seek to avoid failing the standard through such practices. The Board is also persuaded by the Coalition Associations' assertion that unexpected early deliveries can have significant economic and operational consequences for rail customers. (Coal. Ass'ns Comments 29.) When railcars arrive unexpectedly early at a rail customer's facility, they can cause congestion at the facility that can impair operations. (

Id.; see also

Dow Reply 2 (noting that when raw materials customers order from Dow by rail are delayed or arrive excessively early, the customers can experience production slowdowns or downtime or may not have appropriate staffing to handle the delivery).) Even if a customer has a yard or even some extra capacity, it may simply not be ready to accept that car for various reasons. And, if the customer does not have the infrastructure to accept an early delivery, the customer usually must incur demurrage or storage charges. (Coal. Ass'ns Comments 30.)

AAR claims that constructive placement prevents the problems that early arrivals can cause for customers, (AAR Reply 46-47), but the Coalition Associations' complaint suggests that constructive placement is not solving the problems the shipper groups identify. In the Board's experience, railroads usually only begin constructive placement of cars to a spot-on-arrival customer once that shipper's facility is full of cars and no more cars can be actually placed.

See Capitol Materials Inc.—Pet. for Declaratory Ord.—Certain Rates & Pracs. of Norfolk S. Ry.,

NOR 42068, slip op. at 10 (STB served Apr. 12, 2004); (

see also

Coal. Ass'ns Comments 29). Constructive placement is therefore often not a solution for a customer who is faced with an early arrival.

While the Board did not specifically propose to cover early deliveries in the

NPRM,

it made clear that it was open to approaches to assessing reliability other than the approaches that were specifically discussed in the

NPRM. See

NPRM,

88 FR at 63904. The

NPRM

stated that OETA “would . . . promote the completion of line hauls near the original estimated time of arrival. The on-time completion of line hauls allows the shipper to conduct its operations on a timely basis while permitting effective coordination between rail service and other modes of transportation.”

NPRM,

88 FR at 63903. It was therefore foreseeable that the Board might consider early arrivals as a circumstance that could negatively affect shippers' operations and coordination, as reflected in the Coalition Associations' comments. Other parties had full opportunity to respond to the Coalition Associations' proposal.

See Logansport Broad. Corp.

United States,

210 F.2d 24, 28 (D.C. Cir. 1954);

Int'l Harvester Co.

Ruckelshaus,

478 F.2d 615, 632 n.51 (D.C. Cir. 1973).

Cross-Border Traffic

CN raises concerns about the application of part 1145 to movements that cross into or out of the United States; CN suggests that part 1145 should apply only to movements that take place entirely within the United States. (CN Comments 49-50.) CN also argues that system-wide reporting should exclude cross-border traffic and notes that it only reported on domestic U.S. trains as part of its reporting for Docket No. EP 770 (Sub-No. 1). (

Id.

)

The Board will not exclude this traffic from either the service reliability standard or the service consistency standard. The Board's jurisdiction includes rail transportation “in the United States between a place in . . . the United States and another place in the United States through a foreign country; or . . . the United States and a place in a foreign country.” 49 U.S.C. 10501(a)(2)(E)-(F). As to cross-border traffic, the Board has jurisdiction to determine the reasonableness of a joint through rate covering international transportation in the United States and in a foreign country.

E.g., Can. Packers, Ltd.

Atchison, Topeka & Santa Fe R.R.,

385 U.S. 182, 184 (1966). However, the Board does not have jurisdiction over operations outside of the United States.

See

49 U.S.C. 10501(a)(2) (the Board's jurisdiction “applies only to transportation in the United States”). Given the Board's jurisdiction, retaining part 1145's coverage of such traffic furthers the rule's underlying goal of incentivizing carriers to provide a level of service that best meets the need of the public.

However, the Board will limit action under part 1145 to situations where there is a distinguishable movement in the United States, specifically when the carrier records receipt or delivery at or near the U.S. border (including where the shipment is transferred between affiliated rail carriers at that point).

At this time, CPKC does not record an event for the U.S.-only portions of moves into or out of Canada. (CPKC Comments 13.) And it does not appear that requiring CPKC to do so would advance the purposes of the rule because, for moves into or out of Canada, the record before the Board does not indicate that the border has operational significance to customers in terms of service reliability. However, if a customer is concerned about service for cross-border movements within the Board's jurisdiction but without a separately measured U.S. component, the customer could seek relief under other statutes or regulations (

e.g.,

part 1147).

Kansas City Southern historically has used such an approach for movements with an origin or destination in Mexico. (CPKC Comments 13.)

Multiple Lanes

In the

NPRM,

the Board explained that the service reliability standard generally would apply individually to each lane of traffic to/from the petitioner's facility.

NPRM,

88 FR at 63904. Nonetheless, in certain circumstances, the Board proposed that it would prescribe a reciprocal switching agreement that governs multiple lanes of traffic to/from the petitioner's facility, each of which has practical physical access to only one Class I carrier, when (1) the average of the incumbent rail carrier's success rates for the relevant lanes fell below the applicable performance standard, (2) the Board determines that a prescription would be practical and efficient only when the prescription governs all of those lanes; and (3) the petition meets all other conditions to a prescription.

Id.

The petitioner could choose which lanes to/from its facility to include in

determining the incumbent rail carrier's average success rate.

Id.

AAR raises various concerns about this approach, including that it (1) would not satisfy the “actual necessity or compelling reason” standard, (2) would undermine the Board's goal of predictability, (3) would present serious complexities to the Board, (4) would undermine carriers' abilities to plan and invest, and (5) would allow the petitioner to use reciprocal switching only for some of the lanes even though the Board had found that the reciprocal switching agreement would be “practical and efficient” only if it governed all of the lanes. (AAR Comments 66-69 (quoting

NPRM,

88 FR at 63904, 63914).) AAR therefore asks the Board to apply the performance standards in part 1145 only to individual lanes. (AAR Comments 69.) AAR adds that a shipper could aggregate lanes in its petition, as a means to increase efficiency in proceedings before the Board, provided again that the performance standards applied only to each lane individually. (

Id.; see also

CN Comments 20-21.)

The proposal to allow prescriptions that cover multiple lanes has raised a number of questions, (

see

AAR Comments 68-69), and drew no explicit support from shippers. Therefore, in order to keep the procedures under part 1145 simple and predictable, the Board will withdraw this proposal. Thus, the service reliability standard and service consistency standard will only apply individually to each lane of traffic to/from the petitioner's facility. This, however, does not foreclose the possibility that a petitioner could make a case for switching irrespective of particular lanes under another part of the Board's regulations,

e.g.,

part 1147.

Additional Proposals

NSR asserts that the Board should modify the reliability standard to incorporate data on rail performance from competitive markets, which NSR asserts could include movements of exempt commodities and movements of boxcars. NSR suggests that, by incorporating that data, the Board would have a more useful benchmark to evaluate the quality of service to a petitioner. (NSR Comments, V.S. Israel 15-18.) Under NSR's proposal, the reliability standard would be replaced with a standard that measured deviations from system-wide average performance in competitive markets. (

Id.,

V.S. Israel 17.)

The Board will not adopt NSR's proposal, which would undermine predictability and ease of administration by potentially requiring multiple OETA standards, the identification of the particular competitive movement(s) that would provide a benchmark for the petitioner's movement, and periodic revisions to the OETA standard(s). NSR's proposal is also flawed insofar as it suggests that the Board should not prescribe a reciprocal switching agreement when service falls below reasonable expectations and performance goals unless the carrier has singled out one or more captive shippers in failing to meet those expectations and goals. In effect, NSR's proposal is based on the incorrect premise that the Board's discretion to introduce an alternate carrier is limited to situations in which the carrier is engaged in a demonstrated abuse of market power.

UP argues that the reliability standard should allow adjustments for delays that are not service related, such as a customer's request while a car is en route to have the car delivered to a different destination. (UP Comments 6.) It is not necessary to incorporate such a “time-out” into the reliability standard. The Board has provided, in part 1145, for affirmative defenses, which can include that a shipment was diverted en route based on a customer's request. The Board can judge the merits of such a defense in the context of a specific case and it seems unlikely that a petitioner would bring a petition if its service were routinely affected by that issue in any given 12-week period.

CSXT raises concerns that part 1145 does not require evidence that the customer relied on the OETA to its detriment or even that the customer was aware of OETA. CSXT also suggests that railroads should get credit for providing updated OETAs. (CSXT Comments 17-18.) CSXT's concerns fail to grapple with the purpose of the reliability standard, which is to promote on-time deliveries vis-à-vis the schedule that the carrier originally provides unless an affirmative defense applies. As noted by the Coalition Associations, accurate OETAs help avoid supply disruptions. (Coal. Ass'ns Reply 33.) They submit that, without an accurate OETA, a rail customer cannot effectively plan its shipments, operations, and fleet needs to avoid a supply disruption at the destination. (

Id.

) As a result, rail customers must maintain additional storage and railcar fleet capacity to prevent transportation delays from causing supply disruptions. Moreover, ETA updates do not make up for inaccurate OETAs. (

Id.

) The Coalition Associations explain that, while an updated ETA may be helpful to allow a rail customer to mitigate the impacts of transit variability to OETA, mitigating delays while a shipment is in transit is challenging, and mitigation options typically dwindle as the shipment progresses to the destination. (

Id.

) Thus, ETA updates do not resolve the root problem or provide the additional inventory and railcars necessary to address delays. (

Id.

)

The Board appreciates that updated ETAs remain important to customers so that the actual status of the car and probable date of arrival are known. With that said, shippers have pointed to numerous valid reasons why failure to meet OETA is problematic for customers and harmful to business operations. Given the goal of part 1145, it is reasonable to hold a railroad accountable for its original trip plan. To not hold the railroad accountable would undermine one of the Board's goals of incentivizing carriers to provide service that meets their own and shippers' expectations and needs. The Board will therefore not modify the rule as suggested by CSXT.

Summary

In conclusion, the Board will adopt the service reliability standard in the

NPRM

with the following changes: (1) the reliability standard will increase to 70%; (2) the definition of “delivery” will be clarified for purposes of interchange; (3) the reliability standard will measure early arrivals as well as late arrivals, in each case with a 24-hour grace period; (4) the reliability standard will be clarified for cross-border traffic; and (5) the reliability standard will only apply individually to each lane of traffic to/from the petitioner's facility.

Service Consistency: Transit Time

As noted in the Delivery at Interchange section above, the Board is changing the definition of “delivery” for purposes of a movement that involves an interchange between carriers en route. This change also applies to the service consistency standard. Moreover, as discussed above in Cross-Border Traffic, the Board is clarifying how its service reliability and service consistency standard will apply to cross-border traffic.

As discussed in the

NPRM,

the service consistency standard would measure a rail carrier's success in maintaining, over time, the carrier's efficiency in moving a shipment through the rail system.

NPRM,

88 FR at 63905. Based on the Board's understanding of the rail network and available data, the Board proposed that, for loaded manifest cars and loaded unit trains, a rail carrier would fail the service consistency standard if the carrier's average transit time for a shipment over a 12-week period increased by either 20% or 25% (to be determined in the final rule) as compared to the carrier's average transit time for that shipment over the same 12-

week period during the previous year.

Id.

Deliveries of empty system cars and empty private cars could also result in a failure to meet the service consistency standard.

Id.

The Board sought comment on what level of increase in transit time should be used in the service consistency standard and whether the Board should adopt a different standard—in lieu of the proposed service consistency standard—that captures prolonged transit time problems, to the extent those problems would not be captured by the reliability standard or ISP standard.

Id.

Whether To Adopt the Service Consistency Standard

Some carriers question the usefulness of the service consistency standard. For example, CSXT asserts that fluctuations in transit time for individual lanes are normal on a dynamic network and not meaningful indicia of a service problem. (CSXT Comments 18.) CSXT adds that a year-over-year comparison does not consider other events affecting velocity such as track work, capacity improvements, volume surges in other traffic, slowdowns on another railroad network, and service design changes. (

Id.

at 19-20.) Similarly, CPKC warns that, unless the service consistency standard is carefully aligned with real world facts and data pertaining to the normal functioning of manifest carload networks, the standard would misidentify normal variations in service outcomes as service failures rather than spotlighting only those situations that represent real service inadequacies. (CPKC Reply 10.) In CSXT's view, this would lead to wasteful expenditures on proceedings that are triggered by misaligned thresholds and, moreover, would cause operational inefficiencies. CSXT also claims that the service consistency standard could lead railroads “to shun traffic that does not fit into repeatable network operations.” (

Id.

)

Using a rolling 12-week observation period at a 20% service consistency standard, AAR's consultants project a high likelihood—65.5%—that any given carload would not meet the service consistency standards. (AAR Reply, R.V.S. Baranowski & Zebrowski 7, tbl. 2.) AAR argues that this study confirms that there are substantial natural variations in transit time, such that nearly any lane, observed enough times, could trigger the service consistency standard. (AAR Reply 50.)

Based on data that AAR submitted in its reply comments, NSR asserts that the service consistency standard is seriously flawed as a measure of inadequate service. Rather than identifying potential service problems, the standard (according to NSR) captures the majority of rail traffic, where normal variations in transit time do not indicate inadequate service. (NSR Reply 9-15.) NSR argues that, if the Board wishes to use a service consistency standard, the Board should suspend this proceeding to more carefully study transit time data, so that any service consistency standard is empirically supported. (

Id.

at 2.) NSR also suggests, as an alternative, that the Board request supplemental evidence in support of the service consistency standard. (

Id.

) CN makes a similar recommendation. (CN Reply 8.)

The Board will retain the service consistency standard. Taken at face value, Baranowski and Zebrowski's results seem to indicate normal variability in transit times. But that appearance is misleading. A majority of the analysis period primarily covers the pandemic and supply chain crises years (2020, 2021, 2022).

If those years included one “fast” year because shipments were down and then one “slow” year because the carriers had decreased their staff numbers, it would follow that a significant amount of traffic would have been captured under this standard. In any case, what Baranowski and Zebrowski show is that the service consistency standard may indeed capture a crisis on a carrier's system. The Board does not find that outcome to be problematic. Such a carrier crisis is among the problems that the Board wishes to address through this rulemaking.

See also

Analytical Justification.

At the March 2022 hearing in

Reciprocal Switching,

EP 711 (Sub-No. 1), the Board heard testimony from shippers about the following types of problems encountered during this period:

The railroads have pushed our sites to take on more expense and change operations to match the new process and operating strategies. We have had to increase our railcar fleet by over 10 percent in the past couple of years solely due to inconsistency in the rail service and increased transit time. And we're about to increase our fleet again in the next six months by approximately seven to eight percent. This is again due to the inconsistency in the service and transit time.

Hr'g Tr. 792:19 to 793:6, Mar. 16, 2022,

Reciprocal Switching,

EP 711 (Sub-No. 1). Another shipper commented: “Our plant in the Northeast lost production of over 57 million pounds during the first two months of 2022 mostly due to increased transit time and railroad delays resulting from crew shortages.”

Id.,

Hr'g Tr. 795:7 to 795:10, Mar. 16, 2022.

Furthermore, as explained in the

NPRM,

the service consistency standard promotes the public interest in various ways. For example, it helps to prevent the possibility that a rail carrier would increase the OETA for a shipment for the sole purpose of meeting the OETA performance standard—a practice that could obscure inadequate service.

NPRM,

88 FR at 63901. The standard also provides an incentive for carriers to maintain velocity through the rail system.

Id.

Declines in velocity can require shippers to procure more railcars. (LyondellBasell Comments 3.) Increased fleets are a burden on railroads, shippers, and the system as a whole. As UP explained at the Board's hearing concerning reciprocal switching in Docket No. EP 711 (Sub-No. 1), “if we assume the cycle times for manifest traffic increase by 24 hours, then customers would need to increase their fleets by 3,200 railcars. A chemical customer shared that a one-day increase in transit time would translate to an additional railcar lease cost of $100,000 annually, and $350,000 in annual inventory carrying costs.” Hr'g Tr. 287:9 to 287:16, Mar. 15, 2022,

Reciprocal Switching,

EP 711 (Sub-No. 1).

NSR itself notes that transit time data is a useful tool:

[T]ransit time data is important to its customers, and it is important to NS—NS monitors transit time and uses it as a tool to diagnose and problem-solve network issues as part of its commitment to providing safe, reliable service to its customers. As such, NS believes transit time data can be valuable for monitoring service.

(NSR Reply 9.)

The Board appreciates the carriers' concerns that normal variants could be captured by the metric under certain challenging operating periods like those that occurred during the pandemic. But just because a situation is “normal” or has occurred before does not mean it is excusable or acceptable. That said, part 1145 has also left the door open to other affirmative defenses such as, for example, a velocity problem that was due to scheduled maintenance and capital improvement projects.

And,

any time that is customer-controlled time is not counted in computation of the velocity and not counted against a railroad.

As discussed in the Affirmative Defenses section, the Board will consider “scheduled maintenance and capital improvement projects” on a case-by-case basis. The Board does not intend the rule to disincentivize capital investment and in fact expects that this rule will help promote investments necessary for adequate service. However, the nature of “scheduled” maintenance and capital improvement projects suggests that carriers have a degree of control over their execution, and the Board intends to ensure that carriers exercise that

control with reasonable consideration of shippers' service levels.

Percentage

A number of shipper groups ask the Board to set the service consistency standard at a level that would capture smaller reductions in velocity from one year to the next. For example, based on member feedback, the Coalition Associations urge the Board to reduce the standard to 15%. (Coal. Ass'ns Comments 32.) They assert that a sustained 15% increase in transit times would mean that shippers must purchase or lease additional railcars and would incur additional railcar maintenance costs. (Coal. Ass'ns Comments 32.) And, as shippers rely on more and more railcars to address longer transit times, these additional railcars can create network congestion that increases transit times even more, thereby requiring the shipper to acquire even more railcars. (

Id.

) Also, as shippers' railcar fleets swell to address transit-time increases above 15%, corresponding rail infrastructure requirements increase. (

Id.

at 33.) Rail customers would need additional railcar storage capacity to ensure they have enough spare railcars available, because increased transit times increase demand for railcars in transit as well as spares. (

Id.

)

Other shipper groups also support a more rigorous service consistency standard. ACD agrees that the standard should be set at 15%, (ACD Comments 5), while NGFA believes the Board should intervene except where transit time is nearly equal to transit time during the preceding year, (NGFA Comments 12-13). Olin adds that a service consistency standard in the 10% to 15% range is appropriate because service has been especially bad in the last few years and hence the “base” transit times have already been skewed downwards. (Olin Comments 6.)

AAR responds that none of the proposed service consistency standards

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