NGFA Files Rebuttal Statement in Rail Merger Proceeding

February 15, 2001

The National Grain and Feed Association has filed a rebuttal statement with the federal Surface Transportation Board contesting the assertions of several rail carriers in the ongoing proceeding under which the agency is developing new rules to govern future rail mergers. In its most recent statement, the NGFA reiterated its call on the agency to require that carriers demonstrate that future mergers will result in enhanced competition for rail shippers and receivers.

It also called for requiring carriers to commit to keeping open, both from an operational and economic standpoint, major gateways that exist between interchange points of competing carriers. The NGFA also urged that the agency provide specific remedies in its final rules if service failures and commercial injuries result from future mergers. And it again urged the STB to require carriers to agree to binding arbitration to resolve claims that may result in the aftermath of future rail mergers.

The most recent statement was the third submitted by the NGFA as part of the STB's rail merger rulemaking. The agency has said it will issue final rules before its 15-month moratorium on rail mergers, which was issued on March 17, 2000, expires in mid-June.

NGFA focused on four major issues:

--Enhanced competition: The NGFA opposed the assertions of rail carriers that "enhanced competition" should not be used as a factor in determining whether to approve future rail mergers. The NGFA concurred with the STB's statement that future rail mergers are likely to have some anticompetitive impacts, and that prior mergers have resulted in lengthy and costly service disruptions. The NGFA said it was important that the STB consider future mergers using broader criteria than it has previously , including whether the proposed merger has been shown to offer benefits for parties other than the railroad applicants, particularly since past mergers largely have eliminated rail route redundancy that existed in the U.S. rail network.

--Keeping major gateways open: The NGFA reiterated its support for the STB's proposal that would require the applicant carriers in future rail mergers "to reassure the shipping public that at a minimum major existing gateways would be kept open." But the NGFA again called on the agency to clarify in its final rules that post-merger "open gateway access" be viable from both an economic, as well as operational, standpoint. "It has never made any sense to the NGFA to think that market access might be retained by nothing more than an open switch at a major gateway, leaving it to the merged carriers to block use of the gateway, as they have in the past, through rate action or inaction clearly designed to deter the movement of traffic over the gateway, and serving no other public purpose," the NGFA said.

--Remedies for post-merger service failures: The NGFA again urged the agency to establish more concrete remedies in its final rules if service failures and commercial injuries result from future rail mergers. The NGFA reiterated its previous recommendations that the STB's final rules should: 1) require merging rail carriers to respond to service failure damage claims within 120 days of receipt of the claim; 2) require merging rail carrier applicants to apply a market-compensation standard in evaluating damage claims for service failures and prohibit the arbitrary rejection of claims by rail carriers. Such a standard would provide a framework for private-sector negotiations or serve as a benchmark for arbitration or other dispute-resolution mechanisms if private negotiations fail, the NGFA said; and 3) provide for use of its authority to stipulate as a condition for approving a merger that the applicant railroads agree to use arbitration to resolve service failure claims that cannot be settled voluntarily between the parties. The NGFA noted that rail carriers had opposed the second of these recommendations * the requirement to apply a market-compensation standard. "[T]he railroads generally maintain that, because they themselves suffer financially from their own post-merger service failures, that the STB should spurn shipper requests for a more responsible liability (on the part of carriers)," the NGFA said. "If there is a rationale behind this argument, it seems to be that, where railroads' stockholders suffer, railroad customers should be accorded no regulatory remedies."

--Rejection of the status quo: The NGFA again urged the STB to reject the many railroad proposals that would have the effect of retaining the status quo concerning the agency's approval of future rail mergers.