AAR preliminary statement on STB’s final offer rate review and ADR decisions

Today, the Surface Transportation Board (STB) issued a fatally flawed final rule in its Final Offer Rate Review (FORR) proceeding, and at the same time issued a proposal for new STB arbitration rules (ADR). Unfortunately, the ADR proposal ignores key principles that could otherwise make STB-sponsored arbitration of small rate disputes a viable option. AAR and its members are closely reviewing the decisions to determine next steps, but it is clear that our primary concerns remain.

FORR, the rule modeled on baseball-style arbitration, flatly exceeds the agency’s authority. In a case filed under the new rule, the agency would do no independent analysis or engage in any reasoned decision-making, but instead would simply choose the “final offer” rate proposed either by the shipper or by the railroad.

“The FORR rule abdicates the agency’s statutory responsibility to determine the maximum reasonable rate. Sound economic principles are abandoned, in favor of an arbitrary procedure that offers no certainty to any stakeholder and instead rewards legal brinksmanship,” stated AAR President and CEO Ian Jefferies.

With respect to the ADR procedures for small rate cases that a group of Class I railroads had proposed, the Board’s decision falls short of including substantive provisions that were critical to one or more railroads. But at the same time, the rule effectively requires all Class I railroads to agree to participate in order for the procedure to be available as an option for any railroad.

“On its face, the ‘all or none’ approach misses the mark and risks undermining the Board’s stated desire for alternative dispute resolution over litigated outcomes. As it stands, even if a vast majority of railroads sign up for ADR, the rule will prevent small rate disputes that could quickly and cost-effectively be arbitrated because anything short of 100 percent industry participation prevents anyone from using it.” added Jefferies. "Unfortunately, today’s decisions could very well result in a missed opportunity to create a workable solution for shippers and railroads alike."