What is "reciprocal switching" and why is it "bad"

[Falcon48]

I would add only one thing to PNWRMNM's thorough note on reciprocal switching.

One thing that makes this seem more confusing than it should be is the name "reciprocal switching".  After all, if the name refers to a practice where one carrier in a switching district does switching for a line haul carrier that provides service to and from that district, what's "reciprocal" about it?

What's "reciprocal" about it is the way this kind of switching was usually established.  Carrier A would agree to provide switching for Carrier B in a switching district (i.e,. Carrier A "opened" one of more of its industries to reciprocal switching) in return for Carrier B opening one or more of its industries to Carrier A (either in the same switching district, or in another one).  That was the "reciprocity", in the grand old railroad tradition of "tit for tat".  

There's also another confusing term often used in connection with reciprocal switching called "absorption".  In my example of Carrier A doing switching for Carrier B,  Carrier B (rather than the customer) will normally pay carrier A for the switching service.  Here's where the diffference between "absorbed" and"non-absorbed" charges comes into play.  If Carrier B is "absorbing" the switching charges, it will pay Carrier A, but will not pass the charges on to its line haul customer - it eats them (i.e., it "absorbs" them).  if the charges are "non-absorbed". Carrier B will still pay carrier A, but Carrier B will then pass the non-absorbed switching charges onto the customer as an addtional charge on the customer's freight bill.   

[overall]

Thanks for the reply Mr McCulloch. That helps me to understand what this is all about.

[PNWRMNM]

Overall,

Reciprocal switching is the practice by which two or more railroads serving the same station each "opens" industries on its line to service by the other. The owning line spots the other lines cars to the customer for loading/unloading, pulls the car and interchanges it back to the other carrier. The owning line, or switching line, charges the line haul carrier a switching fee. For competitive reasons the line haul carrier typically absolbs (pays) the switching fee. In general reciprocal switching gives the customer more ability to play the carriers off against each other, or as the customer would say increases competition.

The basic rule is that if railroad A serves a customer then railroad A "owns" that customer and will do all possible to maximize A's length of haul, and thus revenue for each shipment. Reciprocal switching constrains that natural tendancy.

To illustrate with a real example the Northern Pacific and Union Pacific both served Yakima Washington. The main crop in Yakima has long been apples, so lets talk just about apples. NP and UP each serve specific apple shippers. Apple buyers can buy from any packer. The buyer controlls the destination and has the "right of routing". We will assume this is pre Staggers Act so rates are regulated so as to be equal from Yakima to any destination. Competitioin is thus a matter of service in terms of car supply and elapsed time, slightly modified by personal relationships between the railroad's marketing man and the buyer's transportation guy.

In general, the best service from Yakima will NOT involve reciprocal switching because it introduces the extra step of interchange to the other carrier which takes time which may mean that the car will not make the first available train out. This is a big deal for perishables, like apples, but no so much for non-perishables, AKA dead freight.

A sort of necessary use of reciprocal switching is if the buyer wants a load of apples from an NP served packing plant that goes to a UP served customer in Cheyene WY that is not open to reciprocal switch. Here UP interchanges the car to the NP, the NP spots it, packer loads car and releases it to NP, NP pulls car and interchanges it. UP pulls interchange, switches it out, and gets car on its one train a day out of town.

The item about not open at Cheyene is important, since if the customer was open, then NP would want the line haul to Laurel Montana then CBQ to Cheyene, UP switch. If Cheyene is open then the customer, by choosing the route favors either NP or UP with the business, which is entierely competive under these conditions.

Now lets assume a load to Chicago with the customer physically served by the Milwaukee. This could reasonably move NP Minneapolis CBQ, or UP (with reciprocal switch) CNW to Chicago. At Chicago MILW would spot to customer under reciprocal switch. There is another route that would give the MILW a peice of the line haul, NP Minneapolis MILW. If the MILW is on the ball and provides good service they are very likely to get the car in Minneapolis because they should be able to spot the car quicker themselves than would be the case receiving it in Chicago from either the CBQ or CNW.

Now deregulate rates. This enables NP (now BNSF) and UP to quote different rates. BNSF has probably also closed the Minneapolis gateway to the SOO/CP, either directly or by a higher combination rate over that route.

If rates are different, and if the lower rate carrier will absorb the reciprocal switch charge, the customer now has a rate incentive to favor the low rate carrier. This is the customer's fondest hope. The low rate carrier will get all the business and the high rate carrier will be doing a lot of reciprocal switching.

Shippers are now agitating for manditory reciprocal switching over an extended distance, like 40 miles, from the interchange point. They belive that the railroad now serving them is charging rates that are "too high" and figure that if another carrier has access to the traffic they will offer lower rates to get the traffic. Of course I forget to mention that switch charges are still regulated by the STB, so shippers are assuming they can get "too low" switch charges imposed by the STB and either the low rate railroad will absorb the charges or if not the combination of the low rate railroad's rate plus the switching carrier's switch charges will be less than what they are paying now. That is what the shippers want and why they are agitating for expanded and manditory reciprocal swithing limits. They are assuming that the railroads are generally stupid enough to buy the business from the other carrier, and do not care that the serving carrier will have to spend more resources than would have otherwise been required to provide reciprocal switching to the competitor.

My opinion is that with the railroads generally 'busy enough' their incentive to play the shipper's game and cherry pick the other guy, thus driving rates down as the shippers want, is very low. The shippers are remembering the bad old days when traffic was so light that carriers would do anything they could to steal the other guy's business. Having said that, the best thing for the railroads is to not test their marketing discipline.

Mac McCulloch 

[Euclid]

overall

I have read about reciprocal switching...

Can someone give the cliff notes version as to what it is and why it would be bad for the railroad industry.

 

I would be surprised if somebody could.  There has been more than one thread on the topic here.  If we had a search function, we could find them.

 

[overall]

I have read about reciprocal switching in the railroad trade press, but I don't really understand it. I know that the AAR is against it and the traffic league wants it, but that is the extint of my knowledge. Can someone give the cliff notes version as to what it is and why it would be bad for the railroad industry.