The Surface Transportation Board (STB) is an independent federal agency that regulates the economic aspects of the nation’s freight rail system. One of its functions is to oversee the common carrier obligations of railroads, which require them to provide reasonable and nondiscriminatory service to shippers upon request. However, past jurisprudence has demonstrated this duty is not absolute. A recent case involving BNSF Railway Company (BNSF) and Navajo Transitional Energy Company, LLC (NTEC) could undermine this principle and set a dangerous precedent for rail carriers and their customers, while undermining the legitimacy of the STB as a neutral arbiter. Taxpayers, who have a direct interest in a healthy transportation sector that thrives on low taxes, light-touch regulation, and less subsidization, are paying attention.
The case stems from a complaint filed by NTEC, a Montana coal producer owned by the Navajo Nation, against BNSF, one of the largest railroads in North America. NTEC alleged that BNSF failed to provide adequate service for its coal shipments to Canada. NTEC claimed that BNSF breached its common carrier obligation by reducing the number of trains allocated to NTEC, imposing unreasonable conditions, and favoring other customers. NTEC sought an emergency service order from the STB, directing BNSF to transport 4.2 million tons of coal for NTEC in 2023, plus an additional 1 million tons if capacity becomes available.
BNSF denied NTEC’s allegations and argued that it provided reasonable and nondiscriminatory service to NTEC, considering the operational constraints and competing demands on its network. BNSF also contended that NTEC’s requests were excessive and unrealistic, given the declining market for coal and the environmental challenges of transporting it across international borders. BNSF asserted that NTEC’s complaint was motivated by political and financial interests, rather than genuine service issues.
In June 2023, the STB issued a preliminary injunction ordering BNSF to comply with NTEC’s requested tonnage for 2023, subject to availability. The STB found that NTEC had shown a likelihood of success on the merits of its complaint and that it would suffer irreparable harm without the injunction. The STB also rejected BNSF’s arguments that NTEC’s requests were unreasonable or influenced by ulterior motives.
BNSF appealed the STB’s decision to the U.S. Court of Appeals for the Fifth Circuit, arguing that the STB committed legal errors and abused its discretion in granting the injunction. BNSF also sought a partial stay of the injunction, pending the outcome of the appeal. However, the STB denied BNSF’s petition for a partial stay. The BNSF-NTEC case could potentially be a bad precedent not only for rail carriers, but also their customers. First, the case could encourage some shippers to leverage the STB over other shippers as a forum to advance their economic agendas, rather than to resolve legitimate service disputes. The decision essentially locks BNSF into terms that are based on a potential draft agreement, and the terms are in excess of what was drafted. How can this be fair to other rail customers, who have bona fide contracts that they expect to be fulfilled?
Second, the case could undermine the balance between rail carriers’ common carrier obligations and their operational autonomy. The common carrier doctrine is meant to ensure fair and reasonable access to rail transportation for all shippers, but it is not meant to dictate every aspect of rail carriers’ service decisions. Rail carriers need some flexibility and discretion to manage their networks efficiently and effectively, especially in a dynamic and competitive market environment. The STB’s injunction in this case could be interpreted as an intrusion into BNSF’s operational affairs and as a departure from the established standards of common carrier case law.
Third, the case could create a skewed dynamic that favors certain shippers over others based on political influence. The STB’s injunction effectively grants NTEC a priority status over other shippers who may have similar or greater needs for rail service from BNSF. This could result in unfair discrimination against smaller or less influential shippers who may not have the resources or connections to pursue their claims before the STB or in court. Moreover, this could create perverse incentives for certain shippers to make unreasonable or excessive requests for service from rail carriers, knowing that they can rely on the STB to intervene on their behalf.
The BNSF-NTEC case illustrates why using private contract negotiations to leverage STB decisions is not good for defining common carrier obligations. Private contracts are voluntary agreements between railroads and their customers that reflect their mutual interests and expectations. They can provide certainty, flexibility, and efficiency for both parties, as well as incentives for investment and innovation. However, private contracts cannot replace, and must coexist with, the common carrier obligations, which are imposed by law and regulated by the STB. The common carrier obligations are designed to protect the public interest and to promote the general welfare of the rail industry and its customers.
Under the current structure of federal regulation, only the STB has the authority to interpret and apply the common carrier obligations of rail carriers, based on the facts and circumstances of each case. This system depends on the STB being a neutral third party to wisely resolve differences evenhandedly. In this case, the STB cites the strategic importance of NTEC to the Navajo Nation as being a key fact. Such an argument, which has a political aspect to it, is well outside the factual, service-based criteria that normally serve as boundaries in STB decisions.
The BNSF-NTEC case also shows why the STB should not be picking winners and losers among shippers based on political influence or market power. The STB’s role is to ensure that rail carriers comply with their common carrier obligations in a reasonable and nondiscriminatory manner, not to favor or disfavor certain shippers over others based on external factors or pressures. The STB should base its decisions on objective and consistent criteria.
Last month, the STB issued a Notice of Proposed Rulemaking (NPRM) that takes a modified approach to the longstanding issue of “reciprocal switching,” which in its most stringent form would allow a customer served by only one railroad option to demand that a second railroad be allowed to provide service at a feasible switching point. The latest NPRM is less stringent than a 2016 scheme giving the government broad powers to impose reciprocal switching (which NTU warned against), and instead is “focused on more defined processes for the prescription of a reciprocal switching agreement in cases of inadequate service.” Both carriers and shippers have expressed a desire to comment in-depth on the new plan rather than dismissing it out of hand, so time will tell whether the appropriate balance will be struck among all stakeholders, including taxpayers, with this policy.
This latest development, proposing a new NPRM for a controversial matter, is only one illustration of what’s at stake if the BNSF-NTEC decision takes root in the policy playing field. The case could potentially set a bad precedent for rail carriers and their customers, as well as for the STB and its regulatory function. The case could undermine the common carrier doctrine, disrupt the balance between rail carriers’ obligations and rights, and create discrimination among shippers. The case could also erode the credibility and legitimacy of the STB as a neutral and competent regulator of the rail industry. Therefore, the case should be resolved in a way that preserves the integrity and efficacy of the common carrier obligations of rail carriers and the STB’s oversight role.