On track for 2004

On track for 2004

Roger Nober is thinking small as he looks to 2004, but he expects big payoffs for rail shippers.

The chairman - and for now, sole member - of the Surface Transportation Board says his top priority for the year is to clear the tracks for shippers to file smaller rate cases involving commodities other than coal. The issue may lack the grand scope of questions of rail competition and consolidation, but Nober believes it could help smooth railroad-shipper relations that have been soured by disputes over rates and service.

"If we get to the point where the marketplace is able to work out rail disputes and we don't need to have rate cases," Nober said in an interview, then such a relationship would show "that the railroads have gotten to a point where they're dealing with their customers in a way that they don't need a regulatory body to be there. We haven't seen evidence that that's the case, but I would be thrilled."

Nober, who became STB chairman at the end of 2002, said he believes his return to open voting conferences at the STB and informal meetings with railroads and their customers has helped broker some measure of peace in a historically contentious field.

Railroads must become "more business-like by focusing on their customers and understanding the need to be more responsive to their customers," he said. "Railroads aren't doing that enough now. I think senior management is, but it doesn't always translate down to the customer level, or at least below the Top 20 customer level. I want to use our agency and the weight we carry with the industry to continue to move them forward on that, in both a formal and informal way.

"I'm not a 'foamer' when it comes to railroads, but I want to see them and their customers both succeed," he said.

Nober, 39, is a former counselor to Transportation Secretary Norman Mineta. He has a long, and in some ways unprecedented, experience in transportation - first as an attorney, later as counsel to the House Transportation and Infrastructure Committee and more recently as the STB's only member.

He said he wanted to tackle the issue of procedures for increases in small rate cases in 2003, but with the departures of fellow board members Linda Morgan and Wayne Burkes this year, he said the issue was too important to leave in the hands of a single board member.

Being a solo member of the ICC "has been a frustration, because it has prevented me from making more changes going forward, particularly on this issue," he said. "People should have been talking about the new process by now."

The Bush administration nominated Democrat Francis D. Mulvey and Republican William D. Buttrey to the STB. They are expected to be confirmed early in 2004.

Rail-service issues have occupied much of Nober's time. Faced with rising complaints over railroad service, he called the chief executives of major railroads several times, met weekly with the board's rail service group, and consulted with Federal Railroad Administrator Allan Rutter.

"I came away with the conclusion that there was no single reason" for the service declines, Nober said. "In some cases it was crew shortages caused by railroad hiring practices. Sometimes it was the weather. In other places it was track taken down for maintenance. And some railroads just weren't as focused on crisp operations. But we focused on it, and I think the railroads are focusing on it to try to improve."

Whether it's service or rates, however, Nober also believes the railroads may be getting a prod from a shifting marketplace.

For instance, Burlington Northern Santa Fe Railway recently reported that intermodal traffic generated more than half its volume in one week, the first time that has happened for a railroad. "That means they've officially become an integrated transportation company," Nober said. "Sometimes railroads still think of themselves as 19th century-style monopolists. This proves that they're really not."

It also means they must be more responsive to customers who may turn elsewhere. "They acknowledge that they don't have as many customer service people in place that they would like. That's been a fair criticism from customers," he said.

Of course, customers captive to one railroad have never really been satisfied with service, and the fact that no small rate cases have been filed since procedures for handling them were enacted in 1996 shows that the procedures need to be changed, Nober said. "Right now there's no effective regulatory backstop for shippers with no competitive alternatives. That's wrong," he said.

Shippers say the current procedures are so ambiguous they don't even know whether a potential case qualifies to be brought before the board. Shippers also want the board to limit the costly discovery process by requiring binding arbitration. Railroads oppose arbitration, saying it would produce inconsistent results. Both sides believe that the standard for evaluating rates under the rules are unclear and unfair.

Devising a standard for determining whether a rate is reasonable "is where the rubber hits the road," Nober said. "That's going to be hard to do."

But Nober has some ideas. He wants to hire administrative law judges - the STB's predecessor, the Interstate Commerce Commission, used to have 30 of them - to speed up discovery by getting first crack at the cases and their thorny procedural issues. The STB also may establish a special counsel to assist shippers in bringing a small rate case.

To devise rate standards, Nober is considering proposing average costs (the total of fixed and variable costs divided by units of production) in calculating fair rates, as opposed to the variable cost standard that's applied in large rate cases. Nober would also like to see a small rate case start and end within six months.

"There needs to be an expedited process for small shippers," agreed Ed Hamberger, president of the Association of American Railroads. "But the questions are, to whom does it apply, and what exactly is the process. Our concern is that it doesn't lead to automatic rate compression. There are in fact different rates for different movements, and we don't want to see everything driven toward an average rate, because that's not differential pricing."

Shippers clearly want Nober to take on the procedures. "The board has to do more than just speed up the process," said Charles E. Platz, president of Basell North America, a plastics manufacturer. "Substantial things need to be changed to swing the pendulum closer to the middle."

Platz has criticized the railroads and their portrayal of captive shippers as a "fringe group." He noted that customers that depend on a single rail line spend more than $18 billion a year on rail transportation and represent more than half the railroads' total annual revenue. Platz argues the railroads' abuse of market power is helping drive manufacturing overseas.

Nober "might have to offend the railroads a little bit," Platz said. "But it's going to take a bold move. If he's ready to do that, I will support him and anything he can do to make a positive change, because we're all in this together. The railroads are our best customers. It's true that you win some and you lose some, but it's been too one-sided."

How bold Nober wants to be will become clear next year, but there is little to suggest a dramatic departure from the past. Nober testified in October that legislation designed to address captive-shipper issues would "fundamentally change the economic model of the railroad industry and is unwise."

He also said legislation to address the issue was unlikely to clear Congress while the railroads and shippers remain polarized. "It's not the model for most transportation legislation," he said.

But Nober said his stance on shipper competition legislation will not have a bearing on the revamping of procedures for small rate cases.

"Will it be a perfect process? No," he said. "Will it go as far as shippers would like? Absolutely not. Will it go further than railroads would like? Almost certainly."