On December 19, 2022, the Surface Transportation Board enacted rules providing for two new rate case reasonableness procedures. Both rules establish streamlined approaches for shippers and railroads to resolve smaller rate disputes limited to $4 million over two years. The Board established a voluntary arbitration program and an entirely new procedure for rate challenges, known as Final Offer Rate Review (FORR). Both rules set up an expedited process with flexibility given to the parties to devise what the reasonable rate should be.
However, the Board determined that the voluntary arbitration program will be permitted to go into effect only if all seven Class I carriers commit to participating in the program for 5 years. The Board gave the carriers 50 days to make this decision. If all the Class I carriers agree, they will be exempt from the FORR procedure.
Under the new FORR rate case process, if the Board finds a rate to be unreasonable, the Board will decide the rate by selecting either the complainant’s or the defendant’s final offer, subject to an expedited procedural schedule. This process is based on the rate case procedures in Canada which have proven to be effective in resolving these types of disputes.
Under the arbitration program, Class I rail carriers would commit for a period of five years to arbitrate rate disputes, under a similarly expedited schedule. The final rule establishing the arbitration program is effective 30 days from the date of publication in the Federal Register, and the final rule establishing the FORR procedure is effective 60 days from the date of publication in the Federal Register.
Two Board Members, Patrick Fuchs and Michelle Schultz did not vote for FORR and expressed their concern about the voluntary arbitration program only becoming effective if all seven Class I railroads agree to participate. This opposition was certainly surprising to many who follow the Board as both Members voted for the proposed rules in 2021, although Member Schultz was not fully committed to final approval of FORR and wanted to hear more from stakeholders.
The railroads clearly were unhappy with the decisions. On December 29, 2022, CN, Norfolk Southern, Union Pacific, and CSX requested a stay of the requirement to opt into the arbitration process until the FORR decision is final, including requests for reconsideration and appeals to federal court. Kansas City Southern also supported the stay request by separate filing. On December 27, 2022, Union Pacific appealed the FORR decision to the U.S. Court of Appeals for the Eighth Circuit. On December 29, 2022, CN appealed the voluntary arbitration decision to the Seventh Circuit. On the same day, CSX also appealed the voluntary arbitration decision to the Eleventh Circuit. The Association of American Railroads said FORR exceeds the STB’s authority and was critical of the arbitration program’s requirement that all seven Class I railroads agree to participate.
Generally, the rail shipper community was delighted by the Board’s actions and has not filed anything in opposition to either new rule. A shipper could file a new case under FORR on March 6, 2023. However, that shipper still will have to see if the railroads all agree to voluntary arbitration and how the Board deals with the stay request before it knows the proper path.