[Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
[Rules and Regulations]
[Pages 19663-19666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10526]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Part 1039

[STB Ex Parte No. 561]


Rail General Exemption Authority--Nonferrous Recyclables

AGENCY: Surface Transportation Board.

ACTION: Final rule.

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SUMMARY: The Surface Transportation Board (Board) is exempting from 
regulation 29 nonferrous recyclable commodity groups, because their 
regulation is unnecessary under the exemption statute.

EFFECTIVE DATE: These rules are effective May 21, 1998.

FOR FURTHER INFORMATION CONTACT: Beryl Gordon, (202) 565-1600. [TDD for 
the hearing impaired: (202) 565-1695.]

SUPPLEMENTARY INFORMATION: In a notice of proposed rulemaking served 
May 5, 1997, and published in the Federal Register on May 16, 1997 (62 
FR 27003) ('97 NPR), we sought comments on whether to exempt from 
regulatory oversight rail transportation of 29 nonferrous recyclable 
commodity groups listed at the end of this document. Comments were 
filed by the Association of American Railroads (AAR), the American 
Forest and Paper Association (AF&PA), the Institute of Scrap Recycling 
Industries, Inc. (ISRI), and Joseph C. Szabo, for and on behalf of 
United Transportation Union-Illinois Legislative Board (UTU-IL). 
Replies were filed by the AAR and UTU-IL.
    Based on the record, we conclude that the proposed exemption is 
warranted.

Background

    In Rail General Exemption Authority--Exemption of Nonferrous 
Recyclables and Railroad Rates on Recyclable Commodities, Ex Parte No. 
346 (Sub-No. 36), served August 23, 1994, and published in the Federal 
Register on August 24, 1994 (59 FR 43529) ('94 NPR), the Interstate 
Commerce Commission proposed to exempt, from all regulation except the 
special maximum rate cap of former 49 U.S.C. 10731(e),1 the 
rail transportation of 28 nonferrous recyclable commodity groups. The 
'94 NPR was issued in response to an April 1994 petition filed

[[Page 19664]]

by the AAR, various individual railroads, and ISRI.
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    \1\ Former section 10731(e) provided that ``[n]otwithstanding 
any other provision of this subtitle or any other law,'' including 
the agency's exemption authority, rates for the transportation of 
nonferrous recyclable or recycled materials had to be set at or 
below levels that would permit the rail industry to recover its 
fully allocated costs.
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    Petitioners argued that, by freeing carriers from regulatory 
requirements, an exemption would ``reduc[e] administrative costs and 
increas[e] railroad ratemaking flexibility.'' Before the rulemaking was 
concluded, however, the ICC Termination Act of 1995 (ICCTA) repealed 
the special recyclables rate cap provision of former section 10731(e).
    With the repeal of former section 10731(e), there was no need to 
consider only a partial exemption. Thus, we instituted this proceeding 
2 and solicited comments on a full exemption for 29 
recyclable commodity groups.3 We also observed that, in 
Removal of Obsolete Recyclables Regulations, 1 S.T.B. 7 (1996), in 
which we had repealed the regulations at former 49 CFR 1145 designed to 
implement former 49 U.S.C. 10731(e), we had inadvertently removed from 
the Code of Federal Regulations the list of 11 of the 29 recyclables 
under consideration here (at 49 CFR 1145.9) that previously had been 
partially exempted from regulation. We explained that, during the 
pendency of this proceeding, these commodity groups would be exempt 
from all regulation except the maximum rate provisions of 49 U.S.C. 
10701 et seq.
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    \2\ In a decision served May 5, 1997, and published in the 
Federal Register on May 16, 1997 (62 FR 27002), the Ex Parte No. 346 
(Sub-No. 36) proceeding was discontinued and the comments filed in 
that proceeding were incorporated into the record of this 
proceeding.
    \3\ As discussed in detail in the '97 NPR at 4-5, in proposing 
to exempt 29 commodity groups, we retained 26 of the 28 commodity 
groups included in the '94 NPR, expanded two commodity groups to a 
broader Standard Transportation Commodity Code (STCC) classification 
(STCCs 20511 and 41115), and added a 29th commodity (STCC 40241 
scrap paper).
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Positions of the Parties

    The AAR contends that the market for transportation of recyclables 
is highly competitive and characterized by declining rates, shrinking 
market shares, and low revenue-to-variable cost (r/vc) percentages. It 
notes that, based on revenues per ton-mile (r/tm), there has been a 
long-term decline in average recyclable rail rates. On average, r/tm in 
current dollars has fallen from 3.9 cents in 1981 to 3.1 cents in 1995. 
AAR also computes the 1995 market share for 18 of the recyclable 
commodity groups under consideration here.4 With one 
exception,5 the railroads' market share for those commodity 
groups ranged from 0.7% to 25.1%. Finally, AAR points out that the 1995 
composite r/vc percentages for the 29 recyclable commodity groups was 
98.9%, well below the 180% level at which our jurisdiction to evaluate 
the reasonableness of rail rates begins.
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    \4\ Total tonnage figures used to compute market shares were not 
available for the other 11 commodity groups.
    \5\ Based on a limited sample, the railroads appeared to have a 
91.9% market share for tin scrap. However, AAR notes that tin scrap 
was sparsely sampled in the 1995 waybill, with only seven waybills 
representing 280 expanded carloads, and therefore the market share 
calculation could be inaccurate. In any event, the 1995 r/vc 
percentage for tin scrap is only 106.4%. Furthermore, all of the tin 
scrap traffic sampled moved less than 600 miles, a length of haul 
where movements are generally vulnerable to truck competition. V.S. 
Posey at 11-12.
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    ISRI, which had joined in the 1994 petition to partially exempt 
recyclables from regulation, filed separate comments in response to the 
'97 NPR. ISRI notes that ICCTA's elimination of the tariff filing 
requirements and reduction of rail contract regulation relieve carriers 
of most pre-ICCTA regulatory burdens. Although it does not oppose the 
exemption, ISRI expresses concern that the ongoing restructuring of the 
rail industry may, in the future, require the Board to reconsider the 
exemption and to resume regulatory oversight to protect shippers and 
receivers of nonferrous recyclables.
    UTU-IL opposes the exemption, arguing that it would be harmful both 
to the public interest and to railroad employees. It contends that 
deregulation would allow carriers not to compete for business, and that 
there is no evidence that regulation has unduly restricted the movement 
of nonferrous recyclables. It also submits that the value of this 
proceeding is questionable because of the significant changes brought 
about by the ICCTA.
    AF&PA limited its comments to the issue of exempting scrap paper. 
It supports a total exemption for that commodity.

Discussion and Conclusions

    Section 10502 requires that an exemption be granted when (1) 
regulation is not necessary to carry out the rail transportation policy 
of 49 U.S.C. 10101 (RTP) and (2) either (a) the transaction or service 
is of limited scope, or (b) application of the provision in whole or in 
part is not needed to protect shippers from an abuse of market power. 
We find that regulation of rail transportation of the 29 commodity 
groups under consideration is not necessary to advance the RTP or to 
protect shippers from abuse of market power, and we accordingly grant 
the exemption.6 In reaching this conclusion, we have 
considered the provisions of the RTP that bear on the appropriateness 
of this exemption.7 See Illinois Commerce Com'n v. ICC, 787 
F.2d 616, 627 (D.C. Cir. 1986).
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    \6\ Because we are satisfied that the continued regulation of 
the transportation of these 29 commodity groups is not necessary to 
carry out the RTP or to protect shippers from abuse of market power, 
we need not determine whether the transportation of these commodity 
groups is of limited scope.
    \7\ Sections 10101 (1), (2), (4), (5), (6), (9), and (14) are 
the RTP provisions that are particularly relevant to our analysis 
here.
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    The transportation of nonferrous recyclables is very competitive, 
as evidenced by the overall r/vc percentage of 98.9 in 1995, the 
decline in r/tm from 3.9 cents in 1981 to 3.1 cents in 1995, and the 
general decline in rail market shares. The record also indicates that 
motor carriers play a significant role in the transportation of these 
commodity groups. Generally, motor carriers possess advantages of 
access and speed, and they have become more cost effective as motor 
trailer capacities have grown. Under these circumstances, we find no 
evidence that rail carriers possess sufficient market power to abuse 
shippers and, indeed, must operate efficiently to compete for this 
traffic. Thus, current transportation of these commodity groups is 
consistent with 49 U.S.C. 10101 (1), (4), (5) and (9), which favor 
reliance on competition in the marketplace and encourage efficiency in 
rail operations.
    Furthermore, because of the highly competitive nature of the 
recyclables transportation market and the overall low level of rates, 
regulation is not needed to carry out the policy of section 10101(6) 
(protecting shippers from unreasonable rates). Indeed, we do not have 
jurisdiction to evaluate the reasonableness of a rate that results in a 
revenue-variable cost percentage of less than 180.8 
Moreover, these same factors suggest that recyclables moving by rail 
are being effectively transported and that regulation is not necessary 
to carry out the policy of section 10101(14) (energy conservation). 
Finally, given this evidence of a heavily competitive environment, we 
find that the goal of section 10101(2) of minimizing regulatory control 
over rail transportation is best met by granting the exemption.
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    \8\ 49 U.S.C. 10707.
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    We note that ISRI, while not opposing the exemption, has asked us 
to ``be receptive to petitions to revoke the exemption.'' Under 49 
U.S.C. 10502(d), the Board can revoke an exemption if it finds that 
application of a statutory provision is necessary to carry out the RTP. 
As has been our practice, we will carefully consider any revocation 
request. The main effect of our

[[Page 19665]]

exemption is to suspend our jurisdiction to examine the reasonableness 
of a rate, jurisdiction we believe is unnecessary given the overall low 
level of rates. However, a particular shipper paying a rate that is 
more than 180% of the railroad's variable costs that believes that its 
rate is unreasonable may file a petition for revocation of the 
exemption and a rate complaint simultaneously. If we conclude that the 
carrier is market dominant, we will revoke the exemption as it relates 
to the complaining shipper's movements and evaluate the reasonableness 
of the rate.
    UTU-IL was the only party opposing the exemption. Without offering 
any explanation or support for that assertion, UTU-IL baldly asserts 
that the exemption will allow railroads not to compete for business. We 
do not expect the railroads to discourage movement of this traffic. 
Indeed, UTU-IL acknowledges that rail movements of nonferrous 
recyclables increased substantially during the 1992-95 period when 
revenue per ton declined from $24.64 to $22.92.9
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    \9\ UTU-IL contends that r/tm does not measure rail rates 
because rail rates taper downward with distance and that average 
length of haul for all rail traffic rose from 615.8 miles in 1980 to 
842.6 miles in 1995. UTU-IL's argument is misplaced because the 
average length of haul for nonferrous recyclables declined from 1992 
to 1995 while the r/tm also declined from 3.9 cents in 1981 to 3.1 
cents in 1995. UTU-IL's argument that the average length of haul 
increased from 1980 to 1995 is based on all rail traffic, rather 
than on only nonferrous recyclables.
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    Finally, we reject UTU-IL's remaining arguments. The 
nonparticipation of Huron Valley and Star (which responded in 
opposition to the '94 NPR) in this rulemaking suggests that shipper 
opposition has lessened. We have examined Huron Valley's and Star's 
comments filed in response to the '94 NPR and have found that the 
concerns raised there have been mooted by the passage of the ICCTA or 
do not demonstrate that regulation is needed to protect shippers from 
the abuse of market power by the railroads.10 UTU-IL, 
moreover, does not specify how the exemption would be harmful to the 
public interest or railroad employees. Under these circumstances, and 
given the fact that, consistent with 49 U.S.C. 10502, regulation is not 
needed to carry out the RTP or to protect shippers from abuse of market 
power, the record supports exempting the 29 commodity groups.
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    \10\ In their 1994 comments, both Star and Huron Valley argued 
that, because of the special status accorded recyclables under 
former section 10731, an exemption should not be issued. These 
arguments are now moot. Further, both parties contended that they 
lacked effective competitive alternatives and that continued 
regulation was needed to protect them from an abuse of market power. 
However, Star's comments indicated that its recyclable commodity 
group (municipal solid waste) moved at rates that produce revenue-
variable cost percentages below 180. Likewise, the rates Huron 
Valley had been assessed for moving its automobile shredder residue 
produced r/vc percentages below 180. Huron Valley Steel Co. v. CSX 
Transp., Inc., No. 40385 (ICC served Oct. 6, 1992). While former 
section 10731 limited recyclables rates to levels significantly less 
than 180% of variable cost, the current statute precludes a finding 
of an abuse of market power for traffic moving at r/vc percentages 
below the 180% level.
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    Our final rules are shown at the end of this document.11
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    \11\ In addition to adding the 29 commodity groups to the list 
of exempted commodity groups in 49 CFR 1039.11(a), we have revised 
the first sentence of paragraph (a) to eliminate specific reference 
to recyclables because there is no longer any prohibition to a full 
exemption for these commodity groups. Furthermore, we have 
eliminated as unnecessary the language that suggests that a 
commodity group cannot qualify for more than one exemption. We see 
no reason why a commodity group could not qualify for more than one 
exemption. However, we have retained the language that the exemption 
is not applicable to any movement where a finding of market 
dominance previously has been made.
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Environmental and Energy Considerations

    We conclude that granting this exemption will not significantly 
affect either the quality of the human environment or the conservation 
of energy resources.

Regulatory Flexibility Analysis

    Pursuant to 5 U.S.C. 605(b), we conclude that this exemption will 
not have a significant economic impact on a substantial number of small 
entities. No new regulatory requirements are imposed, directly or 
indirectly, on such entities. The impact, if any, will be to reduce the 
amount of paperwork and regulation. This exemption is based, at least 
in part, on a finding that regulation of this transportation is not 
necessary to protect shippers (including small shippers) from abuse of 
market power. See 49 U.S.C. 10502. Such a finding indicates that a 
substantial number of small entities will not be significantly affected 
by a lifting of regulation.

List of Subjects in 49 CFR Part 1039

    Agricultural commodities, Intermodal transportation, Manufactured 
commodities, Railroads.

    Decided: April 10, 1998.

    By the Board, Chairman Morgan and Vice Chairman Owen.
Vernon A. Williams,
Secretary.

    For the reasons set forth in the preamble, Title 49, Chapter X, 
Part 1039 of the Code of Federal Regulations is amended as follows:

PART 1039--EXEMPTIONS

    1. The authority citation for Part 1039 continues to read as 
follows:

    Authority: 5 U.S.C. 553; and 49 U.S.C. 10502.

    2. In Sec. 1039.11, paragraph (a) is amended by adding the 
following entries in numerical order to the table and by revising the 
first sentence to the text following the table to read as follows:


Sec. 1039.11  Miscellaneous commodities exemptions.

    (a) * * *

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            STCC No.                               STCC tariff                              Commodity           
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*                  *                  *                  *                  *                  *                
                                                        *                                                       
20511...........................  6001-X, eff., 1-1-96.........................  Bread or other bakery products 
                                                                                  exc. biscuits, crackers,      
                                                                                  pretzels or other dry bakery  
                                                                                  products. See 20521-20529.    
22941...........................  ......do.....................................  Textile waste, garnetted,      
                                                                                  processed, or recovered or    
                                                                                  recovered fibres or flock exc.
                                                                                  packing or wiping cloths or   
                                                                                  rags. See 22994.              
22973...........................  ......do.....................................  Textile fibres, laps, noils,   
                                                                                  nubs, roving, sliver or slubs,
                                                                                  prepared for spinning, combed 
                                                                                  or converted.                 
22994...........................  ......do.....................................  Packing or wiping cloths or    
                                                                                  rags (processed textile       
                                                                                  wastes).                      
24293...........................  ......do.....................................  Shavings or sawdust.           
30311...........................  ......do.....................................  Reclaimed rubber.              
3229924.........................  ......do.....................................  Cullet (broken glass).         
33312...........................  ......do.....................................  Copper matte, speiss, flue     
                                                                                  dust, or residues, etc.       
33322...........................  ......do.....................................  Lead matte, speiss, flue dust, 
                                                                                  dross, slag, skimmings, etc.  
33332...........................  ......do.....................................  Zinc dross, residues, ashes,   
                                                                                  etc.                          

[[Page 19666]]

                                                                                                                
33342...........................  ......do.....................................  Aluminum residues, etc.        
33398...........................  ......do.....................................  Misc. nonferrous metal         
                                                                                  residues, including solder    
                                                                                  babbitt or type metal         
                                                                                  residues.                     
40112...........................  ......do.....................................  Ashes.                         
40212...........................  ......do.....................................  Brass, bronze, copper or alloy 
                                                                                  scrap, tailings, or wastes.   
40213...........................  ......do.....................................  Lead, zinc, or alloy scrap,    
                                                                                  tailings or wastes.           
40214...........................  ......do.....................................  Aluminum or alloy scrap,       
                                                                                  tailings or wastes.           
4021960.........................  ......do.....................................  Tin scrap, consisting of scraps
                                                                                  or pieces of metallic tin,    
                                                                                  clippings, drippings,         
                                                                                  shavings, turnings, or old    
                                                                                  worn-out block tin pipe having
                                                                                  value for remelting purposes  
                                                                                  only.                         
40221...........................  ......do.....................................  Textile waste, scrap or        
                                                                                  sweepings.                    
40231...........................  ......do.....................................  Wood scrap or waste.           
40241...........................  ......do.....................................  Paper waste or scrap.          
40251...........................  ......do.....................................  Chemical or petroleum waste,   
                                                                                  including spent.              
40261...........................  ......do.....................................  Rubber or plastic scrap or     
                                                                                  waste.                        
4029114.........................  ......do.....................................  Municipal garbage waste, solid,
                                                                                  digested and ground, other    
                                                                                  than sewage waste or          
                                                                                  fertilizer.                   
4029176.........................  ......do.....................................  Automobile shredder residue.   
4111434.........................  ......do.....................................  Bags, old, burlap, gunny, istle
                                                                                  (ixtle), jute, or sisal, NEC. 
41115...........................  ......do.....................................  Articles, used, returned for   
                                                                                  repair or reconditioning.     
42111...........................  ......do.....................................  Nonrevenue movement of         
                                                                                  containers, bags, barrels,    
                                                                                  bottles, boxes, crates, cores,
                                                                                  drums, kegs, reels, tubes, or 
                                                                                  carriers, NEC, empty,         
                                                                                  returning in reverse of route 
                                                                                  used in loaded movement, and  
                                                                                  so certified.                 
42112...........................  ......do.....................................  Nonrevenue movement of shipping
                                                                                  devices, consisting of        
                                                                                  blocking, bolsters, cradles,  
                                                                                  pallets, racks, skids, etc.,  
                                                                                  empty, returning in reverse of
                                                                                  route used in loaded movement,
                                                                                  and so certified.             
42311...........................  ......do.....................................  Revenue movement of containers,
                                                                                  bags, barrels, bottles, boxes,
                                                                                  crates, cores, drums, kegs,   
                                                                                  reels, tubes, or carriers,    
                                                                                  NEC., empty, returning in     
                                                                                  reverse of route used in      
                                                                                  loaded movement and so        
                                                                                  certified.                    
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    Excluded from this exemption are any movements for which a finding 
of market dominance has been made.
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[FR Doc. 98-10526 Filed 4-20-98; 8:45 am]
BILLING CODE 4915-00-P