Federal Register, Volume 63 Issue 76 (Tuesday, April 21, 1998)

[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