United States: Railroad Interchange Dispute Lands At The STB

Paul R. Hitchcock is a Senior Policy Advisor in our Jacksonville office.

As railroads across the country continue to feel intense pressure to drive down costs and operate more efficiently, opportunities abound for friction to develop between participants in the rail network. Because railroads operate largely on only their own tracks, they must exchange rail cars with each other to move freight from a shipper located on the tracks of one to a receiver located on the tracks of another. Just where and how that "interchange" of freight cars is to occur has traditionally been worked out by negotiations between the two connecting railroads – often through compromise, but occasionally through litigation.

Back in August, this blog reported on a controversy between two railroad giants of the west, Union Pacific and BNSF, that had found its way to the U.S. Surface Transportation Board, the federal regulator of railroad rates and practices. There, the preferred operating practices of the two railroads over a commonly used line were at odds with each other, and UP sought STB intervention to impose a preliminary injunction to require a particular method of operation pending arbitration of the two carriers' respective rights under their track use contract. The STB concluded that it could not do so because UP had not made a showing that it would suffer irreparable harm without the requested injunction.

Now, a similar controversy between two Canadian carriers operating in the US, Canadian Pacific (through a U.S. subsidiary) and Canadian National (with a U.S. subsidiary also involved), has landed at the STB. This argument involves the labyrinthine and operationally complex Chicago Terminal, the largest and most critical rail hub in North America.

Since 2010, CP and CN have interchanged traffic at CP's Spaulding Yard on the far west side of Chicago. Much simplified, today CP brings trains carrying cars destined for locations on other railroads into its main Chicago yard at Bensonville. There, CP sorts out all the cars destined to receivers on CN and takes those cars over its tracks 17 miles to Spaulding Yard where it leaves them for CN to pick up. CN's tracks go past Spaulding Yard, and CN takes the cars from Spaulding Yard to its Kirk Yard, one of its main operations hubs in Chicago. For traffic originating on CN and destined to CP, the process is reversed.  CP argues that the physical connection between the two mega-carriers at Spaulding and the short move between Spaulding and Bensonville makes that the best location for interchange.

CN feels differently and on March 11, it cancelled the existing interchange agreement and notified CP that, beginning in 60 days, it would require CP to deliver cars to it at Kirk Yard.  Kirk Yard, south of Chicago is a center of CN activity. There, it sorts out cars destined for other carriers. In CN's view, the most operationally efficient location for the two railroads to interchange is there.  Further, CN noted that the current operations at Spaulding Yard sometimes block its main route around Chicago on the former Elgin, Joliet and Eastern.

CP responded that CN's proposal was unacceptable. From CP's view, the two railroads have a physical point of interchange at Spaulding. By contrast, CP's tracks do not reach Kirk Yard. (CN has offered to grant CP trackage rights to enable it to reach Kirk Yard.) In CP's view, the CN proposal would simply amount to CP doing the work that CN does today.

On April 30, CP filed its formal complaint with the STB, and asked the agency to issue a preliminary injunction requiring CN to continue to interchange at the Spaulding Yard.

The next day, CN responded with what it characterized as a compromise proposal. In its proposal, each carrier would use its respective rights to operate to reach the Belt Railway of Chicago's main Clearing Yard. CN cited a CP offer to agree to such an arrangement, but only if CN were willing to pay CP's cost of doing so. With that alternative as the foundation of its STB response, CN told the STB that there is no need for an injunction, as CP's expenses of interchanging at the compromise location did not rise to the level of "irreparable harm."

Finally, on May 6, CP responded to the STB. It characterized CN's position as "acknowledging" that requiring CP to operate over CN for 84 miles ("approximately twice the distance between Baltimore and Washington") is unreasonable. Further, it contended that it has no legal obligation to use trackage rights to reach the new proposed interchange point, but that the STB could direct CN to pay for CP's cost to do so on an interim basis, and sort out the ultimate responsibility for those costs later.

Both railroads are probably partially correct. Spaulding is likely the most efficient for CP and Kirk is probably the most efficient for CN. The CN's offered compromise is probably equally inefficient for both. As an in-house lawyer for a major railroad for well over thirty years, I would have expected to see more "horse trading" than litigating until the two railroads compromised over this particular interchange location in exchange for some other compromise arrangement elsewhere. But, within the vital Chicago Terminal, finding a middle ground can sometimes be quite difficult.

The applicable statute imposes on each carrier the obligation to make available "reasonable, proper, and equal facilities that are within its power to provide for the interchange of traffic..." The receiving carrier has typically been given the legal prerogative to designate its preferred point of interchange -- subject to reasonableness considerations. It now falls to the STB to weigh the parties' respective arguments over which alternative is "unreasonable." While its staff is very knowledgeable about railroad operations, few have real world railroad operating experience. Adding or subtracting one train a day in each direction on any particular route through the Terminal may have consequences. It may increase (or reduce) congestion at other yards, slow (or expedite) other railroads' trains, and add (or eliminate) blocked highway crossings. It asks a great deal of the Board's professional staff to recommend a decision about operations within Chicago when even the most experienced railroad managers will often disagree.

Look for the STB to offer mediation, and barring that to look for a way to lead the two railroads to work the matter out for themselves.

The case is docketed as Finance Docket No. 36299, Soo Line Railroad Company Petition for Declaratory Order and Preliminary Injunction – Interchange with Canadian National.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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