Before the U.S. Surface Transportation Board 

__________________________________ 

 

STB Ex Parte No. 665 (Sub-No. 1) 

Rail Transportation of Grain, Rate Regulation Review 

 _________________________________ 

 Oral Comments of the 

 U.S. Department of Agriculture 

 _________________________________ 

Edward Avalos 

Under Secretary 

Marketing and Regulatory Programs 

U.S. Department of Agriculture 

Washington, D.C. 20250 

Date: June 10, 2015 
The U.S. Department of Agriculture (USDA) appreciates the opportunity to present testimony at 

this hearing and sincerely thanks the Surface Transportation Board for investigating ways in 

which rail rate challenge procedures can be made more accessible for grain and oilseed shippers. 

USDA believes it is critical for these procedures to provide effective protection against 

unreasonable freight rail transportation rates where there is an absence of effective competition. 

For too long, most agricultural producers and shippers have been left with no practically 

accessible means to challenge rail rates, much less seek redress. It is telling that no grain or 

oilseed shipper has filed a rail rate challenge using any of the Board’s processes since the 

McCarty Farms case was decided in 1997. This is not because there have been no complaints 

about rates. Instead, USDA believes there have been no rate challenges mainly because the 

Board’s procedures are too lengthy and expensive for virtually all agricultural shippers. 

The cost of bringing a challenge is only part of the issue. Equally important, but not as easily 

quantified, is the constant changing of rules and procedures within the current rate-challenge 

system. This forces shippers to predict the outcome of any rate challenge and undermines their 

willingness to take part in any such system. Any newly proposed processes or amendments to 

existing rate challenge procedures are likely to be met with skepticism by agricultural shippers if 

they believe these new processes will not be consistently applied and therefore subject to 

unobtainable preconditions. 

A consistent process establishes credibility. Not only will it encourage greater shipper 

participation, but it will also lessen the need for litigation and/or rate challenges by shippers as 

time goes on. In the opening comments of this proceeding that they submitted last year, some 

rail carriers argued that the possibility of litigation before the STB served to prevent rate 

increases in areas where competition is not as strong. Litigation only serves as an effective 

check, however, if STB’s processes are consistently applied. This also underscores the 

importance of designing an effective and accessible rail rate challenge procedure for grain 

shippers and producers in order to ensure its credibility as a check against unreasonable rail rate 

increases. USDA believes that effective regulatory mechanisms are critical to rounding out the 

Rail Transportation Policy’s complementary directive of allowing competition to establish 

reasonable rates. 

Therefore, USDA encourages the Board to purposefully seek simplicity, practicality, and 

consistency in developing alternative rate relief methodologies for agricultural shippers and their 

unique needs. 

USDA believes the most promising ways for the Board to encourage greater use by agricultural 

shippers of a specific rate challenge procedure are through: (1) significantly lowering the costs 

associated with the procedure, and (2) demonstrating a commitment to a predictable set of 

outcomes through the development of a process that is simple to use and easy to understand. 

USDA believes a formula-based procedure using data that is easy to obtain and deterministic in 

nature would have wide appeal to agricultural shippers. 

Two such procedures have been submitted for the Board’s examination in the course of this 

proceeding—the Ag Commodity Maximum Rate Methodology (ACMRM) proposed by the 

National Grain and Feed Association and the Two-Benchmark test proposed by the Alliance for 
Rail Competition. Both of these alternative methods adhere to the criteria of simplicity, 

practicality, and consistency. Additionally, their inclusion and treatment of railroad revenue 

adequacy make them strong candidates for challenging rail rates moving forward as the 

regulatory environment increasingly incorporates this concept. 

To complement formal processes, USDA has also encouraged mediation and arbitration in its 

opening and reply comments. A major benefit of mediation and arbitration is that they have the 

potential to offer rail-rate challenge procedures that are less time-consuming and lower-cost than 

the formal Board processes. In addition, these informal processes foster direct business 

discussions, facilitating informal resolution of many issues before they require more formal 

procedures. 

If broadly utilized by the Nation’s shippers and railroads, mediation and arbitration systems 

could offer agricultural shippers greater access to rate dispute settlement mechanisms that have a 

reputation for being fair, easily understood, accessible, and affordable. Examples of these types 

of arbitration systems that already exist include the National Grain and Feed Association’s rail 

arbitration system and the Montana-BNSF mediation/arbitration system. These systems have not 

been broadly used for rate disputes because railroads have generally been unwilling to arbitrate 

rates. In addition, the scope of these systems cannot handle all agricultural rate disputes because 

of limitations on shipper membership, geographic application, and commodity. Nevertheless, 

they serve as good examples of how such systems can effectively resolve disputes and foster 

good business relationships. 

As a practical way to advance fairness for agricultural rate disputes, USDA believes that the 

Board should actively assist in facilitating the expansion or creation of a mediation and 

arbitration system. Such a system could be the most promising and viable procedure for the 

average agricultural shipper who may not have the disposition, inclination, or time and money 

for a formal process. At the same time, the use, expansion, and success of mediation and 

arbitration systems is contingent upon the Board encouraging railroads to use them when 

handling rate disputes. 

As a result of decades of efficiency improvements and recent but consistent rate increases, the 

railroads are now earning approximately their cost of capital, as documented through the study 

by Christensen Associates*

. There is no doubt that the rail industry today is in far better financial 

health than it was in the immediate post-deregulation period. 

It is in everyone’s interest for the railroads to earn sufficient returns on their investments to be 

able to maintain, improve, expand, and safely operate their extensive and expensive 

infrastructure and rolling stock. USDA realizes the gains in efficiency, improvements in service, 

and investment in infrastructure would not be possible without the financial success of the rail 

industry. Yet railroads are natural monopolies, and the Rail Transportation Policy requires the 

Board to maintain reasonable rates where there is an absence of effective competition. Producers 

with few transportation options, such as wheat farmers in remote areas, have the highest rates 

and bear the brunt of any rail service disruptions. 

 

*

 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals that Might Enhance Competition, Prepared for the Surface Transportation Board, November 2008. 
Look no further than the rail service problems of 2014 to see numerous examples of grain and 

oilseed shippers who lacked competitive transportation options. As a result of inadequate 

competitive transportation options, those shippers faced skyrocketing costs, which in some areas 

widened the grain basis and depressed the net prices that farmers received. Ultimately this 

lowered incomes as producers absorbed much of the increased transportation cost. 

USDA recognizes that policy changes should not reduce railroads’ ability to invest in their 

networks or degrade service. Furthermore, USDA does not believe that every rate increase by a 

railroad is unreasonable or that railroads necessarily charge non-competitive rates to grain and 

oilseed shippers in general. The ability to charge such rates exists in noncompetitive markets, 

however, and this warrants careful consideration of prescriptions by the Board. This is why the 

Rail Transportation Policy requires the Board to maintain reasonable rates where there is an 

absence of effective competition, and why developing a workable rate challenge process for 

grain and oilseed shippers is so important. 

At its core, this proceeding is being held to establish a means for challenging rail rates for grain 

and oilseed shippers who have neither competitive transportation options nor access to regulatory 

relief. Once such processes are established, this objective of the Rail Transportation Policy will 

have been met; going forward, the task will be for the Board to decide the merits of the rate 

challenges brought forth.