Before the U.S. Surface Transportation Board

____________________________________________

STB Docket No. EP 755

Final Offer Rate Review

STB Docket No. EP 765

Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program

for Small Rate Disputes

____________________________________________

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: January 14, 2022
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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.

Summary

USDA appreciates the Board’s consideration of improvements to its rate review processes

through the proposed voluntary arbitration process in Ex Parte (EP) 765 and the supplemental 

Final Offer Rate Review (FORR) proposal in EP 755. The existing rate review processes are too 

expensive and lengthy to offer effective rate review for shippers, especially shippers with smaller 

cases. USDA welcomes the Board’s recognition of this fact in its FORR Supplemental Notice of 

Proposed Rulemaking (SNPRM). In these comments, USDA expresses its belief that change is 

needed in railroad rate reasonableness review. While USDA sees FORR as the better (indeed, 

more necessary) of the two proposed procedures, it also believes that the differences between the 

proposed arbitration process and FORR are small compared to the differences between those 

proposals and existing procedures. However, USDA emphasizes the need for at least finalizing

FORR. Participation in a voluntary arbitration process will not be compelling without an 

effective litigatory backstop. If both proposals are enacted, USDA expects them to significantly

improve small rate case review.

Discussion

The Board recently published its Annual Rail Rate Index Study: 1985-2019.

1 The study illustrates 

the dissatisfaction with deregulation that grain shippers have expressed for years. Although rates 

have fallen on average, grain rates have been equal to or higher than their levels in 1985 for the 

past decade. Many grain shippers do pay rates above the statutory 180-percent level—some well 

above.2 Of course, these facts do not mean rates are necessarily unreasonable, but they do raise 

questions around the fact that grain shippers have not brought a rate case to the Board in over 20 

years and none under the simplified procedures.

3

For this reason, USDA supports the Board’s proposals to offer better solutions to small rate case 

shippers in voluntary arbitration and FORR. Both of the proposals benefit from a short timeline

of less than 6 months; the use of a streamlined market dominance determination; and the 

methodological flexibility that should enable shippers (and railroads) to make their best case of 

rate unreasonableness (or reasonableness). As closely as USDA can discern, the major 

differences between the two proposals are in how to decide a case, in whether that decision is 

confidential, and in whether the decision is precedential. In general, USDA believes these 

differences are small relative to the benefits that would be provided either by FORR alone or 

from jointly implementing voluntary arbitration and FORR.

1 STB, Annual Rail Rate Index Study: 1985-2019, December 2021, p. 3.

2 USDA, Supplement for Informal Discussion with STB, Ex Parte meeting in Docket No. EP 755: Final Offer Rate 

Review, June 25, 2020, p. 2.

3 STB, Rail Rate Cases at the STB, November 19, 2019 (retrieved December 30, 2021).
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It is worth emphasizing the benefits provided by adopting FORR alone or jointly with voluntary 

arbitration, because USDA sees little value in the voluntary arbitration process by itself. In 

contrast, FORR is a stand-alone, workable solution. USDA understands there may be benefits to 

having both, but strongly believes that FORR is essential, either by itself or alongside voluntary 

arbitration.

The key issue with the proposed arbitration process is its voluntary nature. Private firms do not 

typically need the government to implement voluntary tools for them, because they will readily 

take advantage of mutually beneficial opportunities. For example, shippers and railroads already 

have voluntary arbitration over non-rate issues at the National Grain and Feed Association, but 

railroads refuse to arbitrate rates. As the Board mentioned, since 2016, railroads have been able 

to arbitrate rates at the Board, but it, too, has gone unused.4 That is, if both shippers and railroads 

wanted to participate in arbitration over rates, they could readily do so now, with or without the 

Board’s involvement. The fact that railroads will not voluntarily participate in arbitration now 

leaves little reason to believe they would participate in the Board’s proposal unless there were an 

effective alternative for pursuing a rate case. Without FORR, voluntary arbitration at the Board 

will continue to go unused.

This same line of reasoning demonstrates why railroads should not be exempt from FORR for 

participating in the proposed arbitration process. If FORR were finalized, there would be nothing 

preventing shippers and railroads from engaging in their own truly voluntary arbitration 

process—that is, one where both shippers and railroads opted in. FORR would give shippers and 

railroads the incentive to come up with their own arbitration process that improved upon FORR 

for both parties. In the current proposal, the “voluntary” arbitration process and its FORR 

exemption give railroads the opportunity to choose which process works best for them, and 

shippers simply have to go along with it. At a minimum, the Board should finalize FORR. If the 

Board also decides to finalize the arbitration proposal, an opt-in option for both railroads and

shippers will be necessary in order to provide a mutually beneficial alternative to litigation.

As discussed in prior comments, USDA believes FORR offers other benefits over the proposed 

arbitration process. One of the main differences between FORR and the proposed arbitration 

process is in how a decision is made. Under FORR, the decision procedure is clear: the Board 

would use a final offer process. The Board has done an exceptional job of defending that process 

in the latest FORR SNPRM. Although railroads have raised many objections to FORR, they 

primarily focus on statutory concerns (which the Board has addressed) and the need for 

clarification (which the Board adequately provided). USDA is not aware of objections to the 

benefits of the process itself, whereby the final offer process incentivizes reasonable

presentations and reasonable offers.

In contrast, how a decision will be made in the railroad’s proposed arbitration process is unclear. 

It appears the Board will let the panel of arbitrators decide, but it is not clear whether the panel

will (a) tend to choose a mid-point between the shipper and railroad positions; (b) make its own, 

independent measure of what is a reasonable rate; or (c) use some other process. The railroads 

repeatedly raised concerns about the uncertainty involved in the FORR process, but appear to 

have proposed an even more uncertain process. While FORR has methodological flexibility, the 

4 STB Decision, Docket No. EP 765: Joint Petition for Rulemaking to Establish a Voluntary Arbitration Program for 

Small Rate Disputes, November 15, 2021, p. 3.
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proposed arbitration process has both methodological and procedural flexibility. USDA believes 

FORR is the better process not only because its decision-making process is clearer, but also 

because that process is designed to produce reasonable outcomes.

The final major difference between the two proposed procedures is the issue of confidentiality. 

USDA discussed its preference for transparency in prior comments and appreciates the Board’s 

recognition of those concerns in its proposal. USDA understands the value in keeping the 

process more informal, but also appreciates the Board’s proposal to provide quarterly reports that 

summarize elements of each case.

In addition to the benefits of transparency USDA has discussed previously, there is also the 

concern of asymmetric information and bias in confidentiality. Asymmetric information appears 

when one party in an exchange has more or better information than another party, creating an 

imbalance of power in the transaction. There are thousands of shippers but only seven Class I 

railroads. Railroads will quickly become familiar with the process and know all the details of 

their cases, whereas shippers will tend to go into cases completely blind. This asymmetry gives 

railroads a distinct competitive advantage. For this reason, USDA encourages the Board to level 

the playing field, seek more information in the confidential case summaries, and provide as much 

information as possible about the cases in the quarterly reports. USDA believes the Board should 

take an approach similar to that proposed in the FORR SNPRM, where the Board is required to 

make enough information available for public inspection. Summaries of the types of evidence or 

kinds of arguments made would be helpful information to shippers, who are otherwise in the 

dark. For instance, if a shipper won a case using a modified three-benchmark approach, that kind 

of methodological information could be published without creating the secondary market effects 

the railroads are concerned about.

Finally, the petitioning railroads stated they would not use the proposed arbitration process if 

revenue adequacy evidence were admissible. USDA appreciates both the Board’s clarification in 

the EP 765 Notice of Proposed Rulemaking (NPRM) that revenue adequacy evidence would be 

admissible and its rationale underpinning this clarification. USDA believes the Board rightly

points out that revenue adequacy evidence is already embedded in a variety of rate 

reasonableness considerations and that the methodological flexibility of arbitration and FORR 

necessitate its inclusion. 

Conclusion

USDA appreciates the Board’s attempts to improve its rate review processes. USDA supports the

FORR SNPRM as proposed. USDA also supports the joint adoption of the FORR SNPRM and 

voluntary arbitration and suggests the following modifications to the arbitration NPRM: railroads 

should not be exempt from FORR—railroads and shippers should both be required to opt-in—

and sufficient information about a case should be published to reduce asymmetric information. 

Most importantly, USDA believes FORR is necessary. It is worth remembering that EP 665 

started as a grain rate review procedure. The Board’s recent research shows that grain shippers 

have disproportionately borne the costs of deregulation. USDA believes rate review change is 

needed for those shippers and applauds the Board’s current proposals as important steps in that

direction.
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Respectfully submitted,

_________________________

Jennifer Moffitt

Under Secretary

Marketing and Regulatory Programs

U.S. Department of Agriculture

Washington, D.C. 20250