Reciprocal switching poses risk to rail network, says UP CEO

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Union Pacific CEO Lance Fritz (center) speaks during his “fireside chat” session Thursday at the NRC conference in Phoenix. Left, NRC Vice-President Steve Bolte; to the right is the group’s president, Jim Hansen. (Train: David Lassen)

PHOENIX – Union Pacific CEO Lance Fritz is not sure what direction the Surface Transportation Board will take as it considers rules for reciprocal switching, but says the move poses real risks to the railway industry.

Speaking in a “fireside chat” Thursday at the National Railroad Construction and Maintenance Association conference, Fritz called the proposed rule to allow competitors access to a shipper “forced open access” . The proposal dates from 2016 and will be the subject of a hearing in March [see “STB sets details for hearing on reciprocal switching,” Trains News Wire, Dec. 28, 2021].

“Forced open access basically means that any individual customer can force a railway that serves them to allow a different railway to serve them, or force them to swap, if the originating railway continues local service. direct, ”he says. “It sounds really good to clients who think, ‘Boy, I’m getting screwed and I would like another service provider.’

“But the reality of all of our networks is that we’ve spent years and years tweaking them and investing in them, in order to aggregate the volume. We serve our existing and new customers as efficiently as possible… It takes a lot of work, and it takes a lot of volume aggregation, to make sure you have enough volume to justify the capacity investment. If this starts to deconstruct and you start having to trade in products where you don’t have the investment or it doesn’t make sense, we will start to threaten the reliability of the network and the service product itself. for everyone.

“So for the benefit of a small handful perhaps, you will get an order of magnitude of negative impact on other network users. So we ask the STB to be really careful and thoughtful when going down this path. “

Fritz said UP would participate in the March hearing in an effort to clarify “the potential negative consequences of being too broad and awkward” with a new rule.

“My concern is if they get it wrong and you start getting access requests willy-nilly, or exchange requests willy-nilly,” he says. “You [contractors] could all see a slight increase in business early on, as we need to make investments in areas where we are not currently trading, and trading is mandatory.

“Over time my concern is that our returns degrade, our growth degrade because the product of service degrades, and then the long term impact on you is that there is less business, because we invest less. And I think it’s very real. We’ve modeled different scenarios, and I think it’s potentially very real if the settlement isn’t done thoughtfully and well. “

Fritz also addressed the ongoing merger between Canadian Pacific and Kansas City Southern on two fronts: what it means for potential future consolidation, and what the merged company, CPKC, could mean for UP from a competitive perspective.

“I don’t have any unique ideas,” Fritz says of the prospect of more mergers. “I have the same ideas you can get from reading what STB decision making is and what they communicate about. But it does appear to be pretty negative about the follow-up Class I mergers beyond CP and KCS.

“We stay… active and keep our strategic plans active, so that if at some point in the future anything was possible and made sense to Union Pacific, we would jump on it. But it looks like the STB isn’t very interested. “

The combined CPKC projects capturing 80,000 railcars and 137,000 intermodal containers currently carried by other railways [see “CP and KCS project dramatic rise in daily train counts,” Trains News Wire, Nov. 2, 2021]. The new company expects at least some of this to come at the expense of Union Pacific, and Fritz has some reservations about this aspect of the merger.

“Our main concern with the CP-KCS merger is that right now we have between two-thirds and 70% of all cross-border rail freight. [between the U.S. and Mexico]”Says Fritz.” The reason we like this is that we are the best network for the Mexican industry to source or sell to. It is because of the configuration of our network; it is because of the service we provide.…

“My concern is that when CP owns the KCS, it will somehow use its market power in Mexico to block access for our customers to and from Mexico. And there are ways around that, and we are working directly with the CP and also now engaging with the STB to make sure we have a suitable solution for our customers. Because otherwise, the acquisition is not pro-competitive, as it puts an end to what today turns out to be a very, very attractive and competitive alternative for the Mexican industry as it interacts with the American economy.


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