STB's Three-Benchmark Rate-Case Approach
- Office Administrator
- Mar 28
- 2 min read
Updated: Apr 2
L.E. Peabody & Associates, Inc. is pleased to have joined Thompson Hine in a webinar in which we discussed the Surface Transportation Board’s (STB) Three-Benchmark (3BM) rate-case approach.
Click the link below to view the webinar:
Below is more information on the 3BM approach.
The STB's 3BM rate-case approach serves as a crucial tool for assessing the reasonableness of railroad rates, particularly in disputes involving smaller shippers. This methodology aims to streamline the rate challenge process, offering a more accessible alternative to complex and costly rate-reasonableness evaluations.
The 3BM approach compares a challenged rate to three distinct benchmarks, all centered on the defendant railroad’s revenues and variable costs.
The first benchmark, known as the Revenue Shortfall Allocation Method (RSAM), calculates the average markup a railroad would need to apply to all its "potentially captive" traffic (traffic with an R/VC ratio above 180%) for the railroad to achieve adequate revenues as measured by the STB.
The second benchmark, R/VC > 180%, identifies the average markup over variable cost a railroad is earning on its potentially captive traffic.
Finally, the Revenue-to-Variable Cost Comparison (R/VC COMP) benchmark compares the markup on the challenged traffic to the average markup on other potentially captive traffic with comparable transportation characteristics.
3BM then utilizes the three ratios in order to determine the maximum rate defendant railroads should be charging a shipper.
The STB releases tables every year which show the RSAM and R/VC > 180% ratios for each Class I railroad, as well as the rolling four-year averages. The R/VC COMP ratio is case specific, which means the ratio is calculated after a 3BM complaint is filed by a shipper. The R/VC COMP ratio is calculated using traffic data from the STB’s Waybill Sample and the STB’s Uniform Rail Costing System (URCS).
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