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Coal shippers could influence new rail rule to bring down shipping rates

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Coal shippers could influence new rail rule to bring down shipping rates

Coal shippers will have the chance to influence a developingrail rule that could bring down transportation prices, according to consultantsand government officials.

"If you don't like the way the railroad system is currentlyworking for you and you don't like the way the system is impacting yourcompany, this would be something to take advantage of," Jay Roman, presidentof Escalation Consultants Inc., told S&P Global Market Intelligence.

The new rule involves reciprocal switching, which wouldbasically give coal shippers the ability to sidestep rail monopolies byaccessing other nearby companies.

"Generally speaking,reciprocal switching refers to the situation in which a railroad that hasphysical access to a specific shipper facility switches rail traffic to thefacility for another railroad that does not have physical access," theU.S. Surface Transportation Board said in a July 27 release. "The secondrailroad pays compensation to the railroad that has physical access, typicallyin the form of a per car switching charge. As a result of the arrangement, theshipper facility gains access to an additional railroad."

The STB said that under theproposed rule, the shipper that sought implementation of the rule would need toshow that it is "practicable and in the public interest" or "necessaryto provide competitive rail service."

Luke Popovich, spokesperson for the National MiningAssociation, told S&P Global Market Intelligence that his organizationgenerally supported reciprocal switching rules "as we believe we couldbenefit from the increased competition."

He added that the NMA has some questions about the rule'sapplication, however, and even the STB has not yet hashed out the details ofthe new regulations.

The agency released a proposal on the new regulations onSept. 27 and will seek public comment. STBChairman Daniel Elliott said in a release that he encouraged stakeholders toparticipate in the process and looked forward to meeting them directly.

Interested parties will be able to meet with STB staffdirectly from Jan. 30 to Feb. 17 in 2017, and Roman urged coal companies totake advantage of this opportunity at the S&P Global Platts 39th AnnualCoal Marketing Days Conference in Pittsburgh earlier in September.

"The big issue is that this is happening. It could beimpacting the number of Class 1 railroads that could be serving your company,"Roman said in a follow-up interview. "The commissioners have said they don'tunderstand everything about reciprocal shipping."

Karyn Booth, a partner at Thompson Hine and general counselfor the National Industrial Transportation League who was involved in firstgetting the proposal process started with the STB, told S&P Global MarketIntelligence that the league was very happy that the STB is looking intoreciprocal switching.

However, Booth has some concerns with the way that thatcompanies will be able to access this possibility, including the distance thata competing railroad needs to be from the shipper, how much is paid to theincumbent railway and the process involved in allowing any shipper to accessreciprocal switching.

The new rule change also has opponents.

Edward Hamberger, CEO and president of the AmericanAssociation of Railroads, said in a Sept. 27 letter to members of Congress thatthe new regulations represented regulatory overreach.

"Rather than enhancing competition, the proposal isdirect government intervention into markets, ordering one railroad to use itsprivately financed infrastructure to benefit another railroad," the lettersaid. "It is like ordering Coke to use its facilities to manufacture forPepsi."

Hamberger said widespread forced switching "woulddegrade rail service for all customers" as it would involve extensive workmoving one rail car from a train, then into a yard and back onto the train ofanother carrier, thereby impacting efficiency. "Unnecessary movements ofrail cars slow the network by clogging yards and slow the overall movements ofgoods to all rail customers," he said.

Booth said the railroads likely do not want to see change. "Therailroads are going to try to make this complicated," she said inreference to the case-by-case litigation process that the STB is looking intofor reciprocal switching. "I suspect that's what [the railroads'] strategyis."

S&P Global Platts andS&P Global Market Intelligence are owned by S&P Global Inc.