NGFA Wants Open Rail Competition

WASHINGTON - Mar 22/06 - SNS -- Paper barriers exist to effective rail competition in the United States, asserts the National Grain and Feed Association (NGFA), and it is time for the Surface Transportation Board (STB) to resolve these problems.

In a statement submitted to the agency, the NGFA supported a petition by the Western Coal Traffic League to conduct such a rulemaking.

The rulemaking would focus on situations in which Class I railroads - the nation's major carriers - that enter into agreements to sell or lease rail lines include provisions restricting the ability of the purchasing carrier - most often a short line railroad - to interchange traffic through connections with other carriers with alternate routes that compete against the Class I carrier selling or leasing the tracks.

In soliciting comments on whether to initiate a rulemaking, the STB noted that larger railroads since enactment of the Staggers Rail Act of 1980 had sold or leased many rail lines to small, newly created short line carriers.

Some of these lease or sale agreements have had so-called "paper-barrier" provisions that limit the ability of the short line carrier to interchange traffic with connecting carriers that could provide competitive alternative service.

In its petition, the western coal organization asserted, among other things, that restrictions on these provisions should cover both pre-existing traffic and new traffic; that unreasonable paper barriers should be subject to challenge by shippers and short lines; and that a rebuttable presumption that a paper barrier is unreasonable should be established under various conditions, such as if it lasts longer than five years.

In its statement to the STB supporting a rulemaking proceeding to address this issue, the NGFA pointed out that such paper barriers may be detrimental to shippers served by short line carriers by:

* restricting or prohibiting short line carriers from hauling traffic over competitive routes;

* subjecting the short line carrier's traffic to potentially higher rates by foreclosing the possibility of using potentially lower-rate competitive routes;

* limiting the ability of short line railroads to receive an adequate and timely supply of cars, since they depend for car supply on the connections of the Class I railroad selling or leasing the line. The NGFA noted that this issue is relevant particularly to the grain, feed and grain processing industry, where smaller facilities often rely on Class I carriers for car supply; and

* compelling short line rail traffic to move over routes that are more congested than alternative routes of another carrier that might be available were it not for the existence of paper barriers.

The NGFA's statement also recognized that paper barriers may provide some "indirect benefits" to rail customers by inducing large railroads to sell or lease branch lines or other properties while those properties are in sufficiently sound physical condition to handle traffic without major rehabilitation expenses, rather than simply allowing them to deteriorate with the goal of abandonment.

However, the NGFA stated that "even if paper barriers may help preserve some trackage for continued use, it does not necessarily follow that paper barriers imposed as a condition of track sale or lease should be continued in perpetuity…;there may come a time when they outlive their economic justification.

"A rulemaking is an appropriate method for the (STB) to consider whether, or under what circumstances, if any, paper barriers should be permitted," the NGFA concluded.