The Surface Transportation Board exceeded its authority when issuing a rule requiring rail carriers to allow competitors onto their tracks to curb delays, an appeals court says.
Because a rule put in place last year does not require the board to determine whether a rail carrier's service is inadequate prior to the allowance of reciprocal switching agreements, it violates the court's interpretation of the Staggers Act, a 1980 bill that forms the foundation for the nation's rail system, a three-judge panel of the 7th Circuit Court of Appeals said in its decision to vacate the rule.
The rule was adopted unanimously by the five-member board last May. The board can compel agreements allowing carriers onto competitors tracks if railroads fail to meet their estimated times of arrival, if transit times for shipments see “significant deteriorations” from a standard, or if railroads failed to “adequately” perform local deliveries and pick-ups of railcars within a planned service window.
The Staggers Act, which enabled railroads to privately negotiate contracts with shippers, includes language allowing the STB to require rail carriers to enter into reciprocal switching agreements “where it finds such agreements to be practicable and in the public interest, or where such agreements are necessary to provide competitive rail service.”
The Interstate Commerce Commission, a predecessor to the STB, adopted an initial set of reciprocal switching regulations in 1985 but decided in its first major case on the subject that they could only be applied in situations where shippers could demonstrate their railroad “engaged in or is likely to engage in conduct that is contrary to the rail transportation policy or is otherwise anticompetitive.”
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The high standard set by that case — Midtec Paper Corp. v. Chicago and North Western Transportation Co. — made it difficult for shippers to secure reciprocal switching agreements and more hesitant to try, companies and shipper groups like the National Industrial Transportation League, Cargill, and the Alliance for Rail Competition told the board in 2023. The board received only four reciprocal switching requests following the enactment of those requirements, denying all of them, according to the NITL.
The new rule was meant to update those regulations in the wake of shipping challenges that snarled rail lines in 2021 and 2022. But Circuit Court Judge Michael Scudder, writing on behalf of judges Thomas Kirsch and John Lee, found that the rule is "at odds with itself." Despite its three-pronged framework for measuring performance standards, the rule does not "require a showing of inadequate service by an incumbent carrier before it authorizes reciprocal switching," Scudder wrote.
"We have determined that the statute authorizing the Board to prescribe reciprocal switching requires a finding of inadequate service, and this necessary finding is unambiguously missing from the final rule," Scudder said. "That outcome reflects legal infirmity."
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