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The Surface Transportation Board and Chairman Marty Oberman recently responded to several rail shipper-related issues before the board:

Oberman responds to Midwest lawmakers about UP’s service

Oberman acknowledged the frustration that members of Congress from the Midwest had over Union Pacific’s recent weather-related embargo, but he did not commit to hosting a hearing on the issue.

Eight members of Congress representing districts in Iowa, Minnesota and Wisconsin asked STB in a Jan. 13 letter to compel Union Pacific to lift weather-related embargoes in their states. UP (NYSE: UNP) had placed a temporary embargo on operations in the states in late December amid severe weather events and Arctic temperatures. That embargo started on Dec. 29 and was to last an estimated 14 days, but it got extended by another two weeks in mid-January. 

Railroads use embargoes to limit the number of cars on the rail network as a means to encourage fluidity and avoid backups.

On Thursday, UP said it had lifted its embargo, although it also noted that a winter storm will brew soon in Iowa.

“The Board is deeply aware of UP’s service shortfalls and I thank you again for your letter addressing the serious concerns UP’s current embargo presents for your constituents in Minnesota, Iowa, and Wisconsin, and to the Nation’s supply chain overall,” Oberman said in a letter dated Jan. 18. He also said the board has been following UP’s response to deteriorating service via orders to the Class I railroads last spring to fix service, and STB held a hearing in December to discuss UP’s increased use of embargoes in 2022. The board also urged UP in both June and December to fix service to California chicken processor Foster Farms.

“I share your concerns and will continue to hold UP accountable with respect to its plans to lift not only the current embargo, but to address its general use of embargoes to manage its operations,” Oberman said.

STB rules against Class I railroads’ request to delay arbitration program

The board also rejected a request by the Class I railroads to pause the implementation of a voluntary arbitration program for small rate disputes, or rail rate disputes involving smaller financial amounts.

The vote Monday was 5-0.

The board had adopted a final decision on Dec. 19 on the program, which would go into effect 30 days after the decision was published in the Federal Register. It is poised to go into effect this coming Friday. The railroads have a 20-day window, or until Feb. 23, to inform the board whether they will opt into the program.

But CSX (NASDAQ: CSX), Norfolk Southern (NYSE: NSC), UP and the U.S. subsidiaries of Canadian railway CN (NYSE: CNI) had countered that STB’s deadline for the Class I railroads to commit to a five-year arbitration program as prescribed in STB’s December order is too soon. They said the sign-up window could expire before the railroads know the outcome of the petitions asking for the reconsideration of the final rule governing the arbitration program. 

Those Class I railroads also filed appeals in the federal courts to review STB’s December order. 

STB’s Monday decision said the Class I railroads in their appeal had failed to produce a merits-based argument for why the board or a court should change the date when the program becomes effective.

To approve the railroads’ request “based solely on the due date of the opt-in would be meaningless because there would be no reason to adjust the deadline if the arbitration program would not otherwise change,” STB said. “Although the petition vaguely alludes to the possibility that some party could file an appeal that raises additional issues, the petition before the board fails to identify any such issues.”

The decision continued, “Because the four Class I carriers have not even argued that there is some additional aspect of the program that they are likely to succeed in challenging, there is simply no reason to conclude that the program is likely to change and, thus, no reason for the board to stay the opt-in deadline in anticipation of such changes.”

STB also said the four railroads already know the content of the rule and the conditions for opting in, and they did not provide a reason why they would not be permitted to continue their appeals after having opted into the program.

“The Board finds that the Four Class I Carriers have not shown irreparable harm. As discussed above, the Four Class I Carriers have not articulated any reason why they would forgo their right to seek administrative or judicial appeals by choosing to participate in the arbitration program,” STB said.

2 STB members raise concerns about arbitration program

While all five board members lent their signatures in support of the decision, two members raised concerns about the nature of the program calling for an all-or-nothing approach to the Class I railroads’ participation. 

As the December rule is written, there are two procedures to resolve smaller rate disputes: a voluntary arbitration program and a new procedure for rate challenges named final offer rate review (FORR). 

If all the Class I railroads commit to participating in the voluntary arbitration program for five years, starting from within the 50 days that the final rule is published in the Federal Register, they will be exempt from the FORR procedure, according to STB.

“I agree that, on this record, the Four Class I carriers do not make the necessary showing for a stay, but I write separately to express my view that the board should nonetheless move to eliminate the participation condition in its entirety and allow all industry participants additional opportunities to opt into the program following the conclusion of judicial appeals and the Board’s reconsideration process,” said STB member Patrick Fuchs in an additional statement within the decision.

December’s final rule “should not have included the participation condition because it deviated from the board’s arbitration policy and precedent, created an internal inconsistency within the rule itself, and sacrificed the benefits of the program in a heavy-handed attempt at universal participation. … If the Board does not reconsider arbitration final rule, remove the ill-advised condition, and adopt reasonable, fair changes that promote participation, it will throw away years of work on a program that it admits is better than FORR.” Fuchs continued. 

Said STB member Michelle Schultz: “The board fails to acknowledge that this is no ordinary rulemaking, but is instead one that tied the fates of all Class I carriers together, forcing them to act as one rather than the separate companies that they are. By requiring all Class I carriers to opt-in, it is becoming ever more likely that the Board ensured that the program will simply never go into effect. Accordingly, I concur in the result, but I respectfully disagree with the Board’s reasoning.”

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