New way sought for captive grain shippers to challenge rail rates
National Grain and Feed Association (NGFA) has submitted an extensive proposal urging the federal Surface Transportation Board (STB) to establish new rules and procedures that captive grain shippers could use to challenge rail freight rates they believe are unreasonable.
The STB on Dec. 9, 2013 launched a new proceeding (EP 665, Sub. No.-1) to explore whether a new approach is needed to allow captive shippers to challenge grain rail rates. The STB initiated the proceeding in large part in response to previous filings by the NGFA at the STB that maintained the agency's current procedures for challenging unreasonable rail rates are unworkable for agricultural shippers.
"The NGFA commends the STB for commencing this long-overdue review...," the NGFA said. "We are pleased the STB has recognized that its current rate case procedures and rules are not amenable to challenges to rail rates for agricultural commodities, and that it is willing to consider adopting rate rules and procedures that are specific to...the unique aspects of the agricultural industry and commodity markets...that are both domestic and international in nature."
The NGFA noted that current ineffective procedures for challenging unreasonable rail rates have enabled railroads to extract "excessive monopoly profits" from captive agricultural shippers and given carriers the power to pick "winners and losers in the marketplace" by setting freight rates at levels that make commodities price-uncompetitive in certain markets.
Under the Staggers Rail Act of 1980, shippers may challenge a rail rate that exceeds 180 percent of the rail carrier's variable cost of providing the service (revenue-to-variable cost ratio), as long as there is no effective intermodal competition (such as truck or barge) for the transportation movement. The NGFA's economic analysis found that for five commodities analyzed using the most recent (2012) aggregated rail rate data available, the Class I (major) carriers on average exceeded the 180 percent threshold on nearly 31 percent of corn shipments; 49 percent of wheat shipments; 43 percent of soybean shipments; 21 percent of soybean meal and soybean hull shipments; and 65 percent of ethanol shipments.
The NGFA's statement reiterates its view that the STB's existing three methods for challenging unreasonable rates - the "stand-alone cost" (SAC), "simplified SAC" and "three-benchmark" methods - are inappropriate because they are too cumbersome, costly and time-consuming given the nature and characteristics of agricultural commodity shipments. Characteristics that distinguish agricultural commodity shipments from other types of movements, such as coal and other bulk commodities, include the fact that they: 1) involve multiple, versus static, origin-and-destination pairs; and 2) are affected by fluctuating supply/demand fundamentals that can change shipping patterns more frequently and more rapidly than occurs for non-agricultural commodities. Further, the NGFA said, the STB's current rate-challenge procedures do not account for instances where a railroad excessively increases rates across-the-board for specific commodities, rather than singling out a particular shipper for market abuse.
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