Before the U.S. Surface Transportation Board 

____________________________________________ 

STB Docket No. EP 768 

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

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Comments of the 

U.S. Department of Agriculture 

Jennifer Moffitt

Under Secretary

Marketing and Regulatory Programs

U.S. Department of Agriculture 

Washington, D.C. 20250 

Date: June 30, 2022 
2 

Authority and Interest

The Agricultural Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 entrust the 

Secretary of Agriculture with representing the interests of agricultural producers and shippers in 

improving transportation services and facilities. As one of many ways to accomplish this 

mission, the U.S. Department of Agriculture (USDA) initiates and participates in Surface 

Transportation Board (STB or Board) proceedings involving rates, charges, tariffs, practices, and 

services.

Introduction

The U.S. Department of Agriculture (USDA) appreciates the Board opening this proceeding to 

consider rules to enhance the efficiency of the rail industry’s use of private cars. This proceeding 

is one of several aimed at mitigating railroad underperformance. Whereas some aspects of 

underperformance are more directly related to recent events, USDA believes inefficient car use is 

a long-standing phenomenon not sufficiently addressed by existing STB guidelines. USDA also 

believes the Board has tools at its disposal to strengthen the railroads’ incentives to provide 

better service, including the penalties for poor service that are requested in the petition. In these 

comments, USDA hopes to address some essential aspects of the petition on which the Board has 

requested comments. 

Summary

USDA’s main points, discussed in detail in these comments, include the following: 

• Consistent shipper concerns regarding rail service over the past few years—coupled with

ongoing, severe rail service disruptions—demonstrate the need for enhanced incentives

for railroads to provide quality service.

• For this petition, the Board should act on its authority to incentivize better rail service and

better management of shipper-owned cars in the railroads’ control.

• Petitioners have proposed a workable solution to the gap in railroads’ incentives to

efficiently handle privately owned cars, and the Board should move forward with a

Notice of Proposed Rulemaking.

Discussion

Intervention is Needed to Enhance Incentives Around Service Quality 

As amply shown at the Board’s April hearing on urgent issues in freight rail service, below-par 

rail performance has negatively affected the bottom line for numerous agribusinesses and 

farmers. Since the hearing, the number of unfilled grain car orders has continued to increase, and 

train speeds for grain have not improved. The fact that agricultural shippers are still turning to 

rail despite the progressively poor service shows their dependence on railroads and the lack of 

any cost-effective alternatives.

Given the recent history of deteriorating rail service, USDA believes the Board must enhance the 

railroads’ incentives to provide better service. Union Pacific Railroad (UP) contends nothing is 

needed because shippers can contract with the railroads to obtain service commitments.1 In 

theory, contracts could offer service commitments similar to what the petitioners have proposed, 

1 Union Pacific, August 30, 2021. Reply to Petitioners in Ex Parte (EP) 768.
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along with penalties and rewards based on performance. However, in practice, contracts are not 

an option for many shippers. According to the Board’s confidential Carload Waybill Sample 

data, over the past two decades, only 20 to 30 percent of grain tonnage was shipped by contract. 

One reason for that low number is that the grain industry is too variable in its volumes and 

origin-destination pairings to get locked into long-term contracts. Additionally, it is not clear 

how willing railroads are to offer service commitments in their contracts. USDA has heard from 

shippers, for example, that the changes to service that came with Precision Scheduled 

Railroading were simply offered on a “take it or leave it” basis.

Another problem with UP’s suggestion that shippers pursue relief through contracts is that 

shippers have no way to challenge the rates and service conditions in those contracts. Just 

because a shipper contracts with a railroad does not mean the contract was formed fairly—the 

railroad may still have market power. Even if the contract is marginally better than the shipper’s 

next best alternative—which may be very costly—the shipper will select the contract. Given the 

limited recourse available in contracts, railroads should offer a schedule of various prices and 

service qualities in their public tariffs. That way, shippers could choose the price-service 

combination they need. Notably, though, this hypothetical improvement by the railroads would 

not necessarily avoid the Board’s need to enhance the incentives for high-quality service. Even 

with such a schedule of offered prices and qualities, several economic models predict regulation 

is needed to prevent monopolies and oligopolies from providing inefficiently low levels of 

service.2 For these reasons, USDA believes some kind of additional reward or penalty is needed 

to better incentivize the railroads.

The Board has the Authority to Act and the Petition Falls Under that Authority

The railroads question whether the proposed penalties on inefficient private car use fall under 49 

U.S.C. § 11122(a). “Car service” is defined under 49 U.S.C. § 10102 as “the use, control, supply, 

movement, distribution, exchange, interchange, and return of locomotives, cars, other vehicles, 

and special types of equipment used in the transportation of property by a rail carrier” 

(emphasis added). Further, 49 U.S.C. § 11122(a) says, “the regulations of the Board on car 

service shall encourage the purchase, acquisition, and efficient use of freight cars” and that “the 

regulations may include the compensation to be paid for the use of a locomotive, freight car, or 

other vehicle.” USDA understands the petition to fall under the third aspect of 49 U.S.C. § 

11122(a), where the Board can encourage the efficient use of freight cars through compensation 

paid for the cars.

The Association of American Railroads (AAR) argues that the petition falls under transportation 

services because the delays would apply while the cars were “in transit” and simply because 

private railcars, by definition, are used for freight transportation.3 However, because railcars are 

not typically used for anything other than rail transportation, AAR’s argument ignores the third 

aspect of 49 U.S.C. § 11122(a)—“the Board shall encourage...the efficient use of cars.” That fits 

with AAR’s later take that “the Board has authority to establish regulations for the purpose of 

ensuring that there is an adequate supply of railcars to meet shipper demand for transportation.”4

AAR’s argument focuses too narrowly on car supply and ignores efficient use. AAR concludes 

by accusing shippers of merely seeking windfall revenue with this petition. However, the petition 

2 Sappington, D. 2005. “Regulating Service Quality: A Survey.” Journal of Regulatory Economics; 27(2):123-154. 3 AAR, August 30, 2021. Reply to Petitioners in EP 768. 4 Ibid.
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is based on applying the railroads’ own demurrage charges to delays in railcar use—the exact 

same practice the railroads have always said was necessary to provide efficient rail 

transportation. The petition is clearly about efficiency and not about transferring revenues from 

railroads to shippers.

According to the railroads, the petition is about regulating the way railroads provide 

transportation. However, at the heart of the proposal, USDA believes, is the need for owners of 

privately owned cars to be properly compensated for the costs of using their cars. That 

compensation, in turn, will incentivize railroads to use the cars efficiently. In almost any other 

business, if someone wants to rent a machine or use another company’s assets, they have to pay a 

rate commensurate with the time (opportunity) cost of their use of the asset. Even in railroading, 

if shippers take too much time loading or unloading the railroad’s cars, the railroad will charge 

them fees that presumably reflect the time cost of those assets. Every minute a car is put to one 

use is a minute lost for some other use of that car. That principle is true for both shippers 

unloading railroad-owned cars and railroads moving shipper-owned cars.

Figure 1: The Gap in Fees to Incentivize Efficient Car Use.

Visualizing a two-by-two matrix is helpful to consider the various ways cars can be used and 

owned and the need for demurrage. Shown in figure 1, railroads can use railroad-owned cars or 

shipper-owned cars, as can shippers. The Board has recognized that demurrage fees are not 

appropriate to charge when shippers are handling shipper-owned cars on shipper-owned 

property.

5 Similarly, it would not make sense to charge the railroad demurrage-like fees for using 

railroad-owned cars on railroad-owned property. As the railroads argued during the May 2019 

oversight hearing on demurrage and accessorial charges, it makes sense to charge shippers 

demurrage fees when they are inefficiently using railroad-owned cars. Shippers’ choices about 

how to use the railroad-owned cars have impacts on railroad costs, and the demurrage fees 

ensure the shipper incorporates those costs into their decision making. The current petition 

simply seeks parity, in asking to charge railroads demurrage for inefficient use of shipper-owned 

5 STB Decision, EP 707: Demurrage Liability, April 11, 2014, pp. 15-16.
5 

cars. For better efficiency, the railroads should have to incorporate the costs shippers incur when 

their cars are delayed. 

Figure 1 also helps answer the Board’s question about how the incentives to use railroad-owned 

cars would be affected. In cases where shippers or railroads use their own cars, demurrage is

unnecessary. Where the shippers or railroads own the assets, their opportunity costs are already

accounted for and internalized in using the asset. If the railroad spends too long using its own 

cars, that same railroad bears the burden of reduced revenue. Because railroads already bear the 

full cost of inefficient railroad-owned car use, their relative cost of delaying railroad-owned

versus privately-owned car shipments is currently inefficiently biased towards delaying 

privately-owned cars. Putting demurrage-like fees on the railroad’s use of privately-owned cars

would change the relative cost of delaying railroad versus privately-owned cars. Yet the change

would correct an existing imbalance (and inefficiency). 

Notably, reciprocal demurrage would not only better incentivize railroads to use shipper-owned

cars efficiently, such a practice would also facilitate any necessary right-sizing of car supply. 

Final Remarks and Conclusion 

The Board has raised important questions around the Petition’s specific proposal to charge 

railroads demurrage (or a storage fee) for cars whose location city has not changed in 72 hours. 

USDA believes this policy could, at least in principle, have some incentive-distorting effects: 

railroads might try to move cars needlessly to avoid any charges. However, it is unclear to 

USDA how likely those effects would be to arise in practice. USDA also believes the details of 

the proposal—such as the choice of 72 hours—may be somewhat arbitrary. That said, USDA 

believes the petition is a step in the right direction and that the Board should move forward with 

a notice of proposed rulemaking. 

Respectfully submitted,

Jennifer Moffitt

Under Secretary

Marketing and Regulatory Programs 

U.S. Department of Agriculture 

Washington, D.C. 20250