After President Biden’s executive order targeting the maritime and railroad industries, among others, calls for enhancing competition for shippers. One of the issues that the July order directs the Surface Transportation Board to examine is, reciprocal switching.
What is Reciprocal Switching?
Reciprocal switching occurs when a shipper has access to one freight railroad but wants access to use a nearby competing freight railroad in order to cultivate a competitive pricing environment, according to Freightwaves. An argument shippers have made is reciprocal switching provides those that have access to only one railroad (captive shippers) with access to competing railroads.
Interestingly enough, reciprocal switching is known as interswitching in Canada and has existed for decades, according to Joseph Schulman, a transportation economist and principal consultant at CPCS. (Need to find link). Schulman stated, “Back in the 1900s, railways were revolutionary, and had the potential to revolutionize transportation.” However, because the population was not that large and the economy was not that developed, they weren’t as viable, and yet people were still building railways left and right.
Today interswitching looks like a shipper that is located on one freight railway line, and it is within 18 miles of an interchange where there is a competing railway. A shipper may elect to access the competing railway at the point of interchange, stated by Freightwaves. The railway must perform this action, by law, while the shipper pays the switch fee, which is established by the Canadian Transportation Agency.
Reciprocal Switching in the U.S.
In the U.S., reciprocal switching exists but the requirements to receive it are different. In the U.S. it can only be obtained by a shipper through a proceeding before the STB. The bar to obtain reciprocal switching was set so high that it’s been over 30 years since the last case was filed with the board, says Jeff Moreno, a partner at Thompson Hine who spoke to Freightwaves regarding this matter. It is important to note that the two railroads involved in the reciprocal switching, would set the switching fee. If the railroads cannot agree to the rate, the STB would set the rate.
Even though U.S. shippers would likely have interest in moving to the Canadian model, it is quite unlikely the STB would embrace such a move, as it would require action by Congress. If you have any questions or would like to learn more today, please contact us today!