Seeking to end the abuse of shippers by major railroads through unreasonable demurrage charges and fees, the Surface Transportation Board opened three compliance proceedings to target the problem.
The board firmly asserted that it will not tolerate such exploitive practices in the future. The actions follow of two other proposed rules aimed at limiting the rails unilateral ability to make rates (AA, 10-15-19, P. 1).
In a proposed governing policy statement, the board stressed two fundamental principles it wants all rail carriers, shippers and receivers to keep in mind. First, demurrage rules and charges are not reasonable when they do not serve to incentivize customers return of railcars without unnecessary delays.
“In other words, charges should not be assessed in circumstances beyond the shipper’s or receiver’s reasonable control. It follows, then, that revenue from demurrage charges should reflect reasonable financial incentives to advance the overarching purpose of demurrage and that revenue is not itself the purpose,” the board stated.
Secondly, the STB says, “transparency and mutual accountability by both rail carriers and the shippers and receivers they serve are important factors in the establishment and administration of reasonable demurrage and accessorial rules and charges.”
The proposed policy statement addresses key concerns raised by shippers during a hearing held earlier this year which included problems associated with free time, bunching, overlapping charges, invoicing and dispute resolution, credits, notice of major tariff changes and warehouseman liability.
The three new proceedings issued on Oct. 6 are in addition to others proposing to apply new standards to railroad costing and tariff increase approvals. The flurry of proceedings were issued in less than a month, quite a change from the STB’s normally glacial pace.
The practices it addresses cost businesses dependent on rail transportation tens of millions of dollars and arose from troubling changes in how several major railroads choose to manage their operations.
The demurrage fee abuse followed adoption of a rail operations model called Precision Scheduled Railroading. In the past two years CSX, Union Pacific, Norfolk Southern and Kansas City Southern adopted PSR, designed to slash costs and raising rates and fees in order to lower Operating Ratios, impressing investors and boosting their stock prices.
The cost reductions were achieved by sidelining cars and engines, laying off thousands of employees, shutting down railyards, lengthening trains, eliminating some lines and abandoning spur service to be performed by short line railroads, and reducing service quality to the point where assembly lines shut down from lack of deliveries.
Another side of the PSR revolution has involved generating new and substantial revenues by hiking demurrage and other fees, while redesigning billing practices to make it nearly impossible for shippers to avoid the demurrage fees they are assessed.
As a result, these fees have become prime source of income for the railroads to boost their bottom lines – in spite of the fact that the railroads’ original justification was for them to act as incentives for the prompt return of their equipment.
Since the problems arising from PSR reached crisis proportions in 2017, just months after CSX began implementing the operating model, the STB and Congress have held a series of hearings where they heard horror stories about the damage done to businesses by the fees.
Examples include an 800% increase in demurrage charges in six years, charging for time lost to “constructive placement” (a euphemism for a train stuck up the line the railroad is unable to move), and due to the fact that “free time” when detention charges are not assessed, shrank to the point that it is physically impossible for customers to turn the equipment around in time to avoid fees.
The STB closely listened to the evidence presented by dozens of shippers at the hearings, which is shown by the extensive references to abuse cited by shippers included in the recent proposals.
<h3>‘The board is deeply troubled’</h3>
“The board is deeply troubled by these reports, which came from shippers and receivers in a broad range of industries that are highly dependent on rail service,” the STB declared.
“The board expects to take all of the principles discussed in this proposed policy statement into consideration, together with all of the evidence and argument that is before it, in evaluating the reasonableness of demurrage and accessorial rules and charges in future cases.”
The proposed policy statement addresses a number of key areas of concern raised during this summer’s hearing on demurrage, including overlapping fees which result in shippers being charged twice for demurrage charges, and the bunching of shipments so the cars arrive in unpredictable numbers.
(Bunching occurs when cars shipped at different times are consolidated into one train, which overburdens shipper sidings and staff resources, causing increased demurrage charges.)
Other issues addressed by the policy include: invoice and dispute resolution processes that are designed to make it impossible for shippers to appeal charges, railroads’ failure to grant credits when they mistakenly charge fees, lack of adequate notice of fee changes, and warehouseman liability, where third parties are charged fees on shipments they handle but don’t own.
One of the proposed rules, Demurrage Billing Requirements, would require Class I railroads to include on or with their demurrage invoices specific, minimum information to help shippers and receivers verify charges, determine who is responsible for delays and evaluate whether and how they can expedite their handling of railcars.
The board even spells out in detail exactly what minimum information should be included with the invoice, and it is extensive.
Included are all unique identifying information (e.g., reporting marks and number) of each car involved. Also, shipment information, including date the waybill was created; status of each car as loaded or empty; commodity shipped (if the car is loaded); identity of the shipper, consignee or care-of party, and the origin station and state.
Demurrage invoices also must include dates and times of the actual placement and constructive placement of each car, if different from actual placement; notification of constructive placement to the shipper, consignee or third-party intermediary; and release of each car; and the number of credits and debits attributable to each car.
In addition, if adopted the new rule would require that Class I railroads send demurrage invoices directly to the shipper instead of the warehouseman, if the shipper and warehouseman agree to such an arrangement and notify the railroad.
The second change, Exclusion of Demurrage Regulation From Certain Class Exemptions, clarifies rules governing exemptions for certain commodities, such as paper products and steel scrap, and boxcar transportation. The STB says this should ensure the regulations clearly reflect its position is that exemptions do not apply to regulation of demurrage practices and fees.