At a recent two-day hearing, members of the Surface Transportation Board heard outrage from rail shippers over skyrocketing railroad demurrage and accessorial fees, some of which stem from rail carriers’ own service failures.
The shippers targeted the behavior of three Class 1 railroads – CSX, Union Pacific and Norfolk Southern – all of which have embraced an operating model called Precision Scheduled Railroading (PSR) that makes cost-cutting and driving up payouts to investors their top priority.
CSX grabbed headlines when it succeeded in significantly increasing its stock price after adopting the PSR model imposed on it by hedge fund managers who forced the company to accept the leadership of E. Hunter Harrison in early 2017.
Although he was seriously ill and died by the end of the year, in just six months he had eviscerated CSX rail operations, firing thousands of employees, sidelining rail equipment and closing railyards in an all-consuming quest to reduce the railroad’s operating ratio and boost its stock price.
Harrison’s haste and volatile manner of dismissing any and all criticism angered shippers, as did the resulting service failures throughout the CSX system. This drew the attention of the STB and Congress prior to his death from a still-unexplained chronic illness in December 2017.
His successors in leadership roles at CSX have shown themselves to be equally committed to implementing PSR. In 2018 two other carriers – NS and UP – also embraced the PSR operating model.
Since then, all three railroads imposed a new schedule of much higher demurrage and accessorial fees that shippers say are impossible to avoid. They have driven shippers’ costs so high that at least one company told the STB that they will go out of business by the end of this year if the demurrage fees remain at their current level.
“Presently, the railroads appear to be calculating demurrage as a revenue source while ignoring reduced or missed service days, bunching and unreasonable constructive placement practices which all play a huge role in causing demurrage,” observed W. Paul Delp, president of Lansdale Warehouses and president of ACWI.
All three railroads reduced the period they allow for a receiving customer to unload a car from the previous 48 hours to 24 hours or less. In many cases, it is technically impossible for the customer to unload a train in that time.
In other situations, the STB heard about the railroad cutting back service to a location from five trains a week, with weekend days excluded from demurrage, to three days a week and weekend days counted towards demurrage, although none of the customer’s staff is available to do the unloading.
In some cases, the receiver is suddenly faced with unloading many more railcars than it has planned for or handle that are delivered without warning because of “bunching” further up the rail line.
Bunching is a euphemism for service failures that create congestion on the railroads embracing PSR. It results in more cars being delivered at time than it is possible for the shipper to unload during the 24- hour period before the new higher demurrage rates begin to be charged.
Dwell time also stays the same when rail service failures mean the cars arrive late, said Carol Keup, CEO of ACWI member Valley Distributing & Storage Co. “It is inequitable for us to be financially responsible for events out of our control.”
Demurrage is assessed when scheduled rail service is not available or is interrupted by “constructive placement” (another service failure euphemism), when more cars are delivered than the facility has physical capacity to handle, she noted.
“The internal and legal cost in disputing rail demurrage charges providing loading and unloading services can now quickly outweigh the benefit of providing rail freight services,” Keup said.
Shippers offered a variety of solutions at the STB hearing, including forcing the railroads to supply cost justifications for the fee increases. Others seek better data, charging that railroads withholding data makes it impossible to appeal the fees imposed.
“We believe that an actual placement of a car in a position to be unloaded and being given 48 business hours – Monday through Friday – to be unloaded would resolve 75%-plus of businesses demurrage issues,” stated Steve DeHaan, president of the International Warehouse Logistics Association.
“The insanity must stop,” he declared. “Please, put an end to it. The answer is actual placement with 48 hours to unload Monday-Friday, and stop all the arguing, proving, documenting, STB assistance, hearings, and worst of all, blaming.”
Although the STB members expressed concerns and were sympathetic to shippers’ suggested solutions, it remains to be seen what actions they will take.
CA IC Test Bill Passes Assembly
The California Assembly passed a bill that would codify into law a state Supreme Court decision from last year that makes it nearly impossible for independent contractors to be classified as anything other than employees.
Although the decision is being appealed in a federal appeals court, other courts have upheld it and made it retroactive (AA, 5-15-19, P. 3)
The state Supreme Court created a new three-part “ABC” test holding that to be an independent contractor, a worker must perform work outside of the usual course of the hiring entity’s business.
One result is that truck driver owner-operators who lease themselves and their trucks to trucking fleets are no longer considered independent contractors.
Because of this, the change is seen as a boon for the Teamsters union’s ongoing campaign seeking to organize Uber and Lyft drivers, as well as port drayage truckers.
The Assembly bill would incorporate the Supreme Court’s holding into state law, rendering irrelevent current court challenges to its decision.
Assembly member Lorena Gonzalez Fletcher, who introduced the legislation, stated that inserting the decision into law “offers a quicker resolution than fighting in court for years over its implications for issues like workers’ compensation and unemployment insurance.”
The Assembly bill would exempt doctors, dentists, lawyers, architects, accountants, engineers, insurance agents, investment advisers, direct sellers, real estate agents, hairstylists and barbers who rent booths at salons, and marketers (such as Amway representatives), along with human-resources professionals with advanced degrees.
Business groups are hoping that as the Assembly bill is deliberated by the state Senate, it will add other exemptions, inlcuding workers performing short-term projects or those people who control their own schedules, which describes many workers in the new gig economy.
