Late last week, the Surface Transportation Board (STB) said it is formally adopting a final rule that clarifies the regulation of demurrage, which will take effect on April 3, 2020.
Some industry stakeholders view railroads’ accessorial charges and demurrage as a way to change customer behavior, which some railroads maintain have taken longer than expected, in some cases. Demurrage charges compensate rail carriers when railroad leased or owned cars are detained by shippers, as stated in an online primer by RSI Logistics.
STB officials said that this rule amends regulations that govern class exemptions for certain miscellaneous commodities like paper products and steel scrap, and boxcar transportation to clearly state the demurrage continues to be subject to STB regulation, with this modification reflecting longstanding court and agency rulings that these exemptions do not apply to the regulation of demurrage. And they added that this rule partially revokes the class exemption that currently covers certain agricultural commodities so that the exemption will not apply to the regulation of demurrage. STB also said that the agricultural commodities exemption will be consistent with similar class exemptions that cover non-intermodal rail transportation.
In October 2019, STB issued a notice of proposed rulemaking (NPRM) on demurrage and accessorial rules and changes, in an ongoing effort to improve dispute resolution processes, promote transparency and make the STB more accessible.
At that time, the STB issued three decisions, including:
- a proposed policy statement to facilitate more effective problem solving between railroads, shippers, and receivers by providing information on principles the Board would consider in evaluating the reasonableness of demurrage and accessorial rules and charges;
- a proposed rule to enhance the transparency and accuracy of demurrage invoices; and
- a proposed rule to make unambiguous that the regulation of demurrage is not excluded for exempt miscellaneous commodities and boxcar transportation, and to treat the exemption for certain agricultural commodities similarly
These decisions stemmed from a May 2019 STB public hearing on railroad demurrage and accessorial charges, entitled “Oversight Hearing on Demurrage and Accessorial Charges, Docket No. EP 754,” that was held in response to various changes in demurrage and accessorial rules and charges that were implemented by some Class I railroads. In this hearing, shippers, receivers and other parties comments on concerns relating to the commercial fairness, reciprocity, and feasibility of changes to demurrage and accessorial rules implemented by the Class I railroads.
Prior to the May 2019 STB hearing, STB officials said that railroads, shippers, third-party logistics providers, and other interested parties “will be invited to speak at the hearing and report their experience with demurrage and accessorial charges, including matters such as reciprocity, commercial fairness, operational and capacity issues, and effects on network fluidity.” And they added that this hearing comes on the heels of letter requests sent by the STB to each Class I railroad, which requested information on quarterly revenue from demurrage and accessorial charges for 2018 and 2019.
Industry stakeholders say these charges are being incurred, due to a push to Precision Scheduled Railroading (PSR) being implemented by the majority of Class I freight railroad carriers. PSR, which was created by the late E. Hunter Harrison, requires cargo to be ready when rail cars arrive for loading or risk being left behind.
In a March 6, 2019 letter to STB leadership, Benjamin Abrams, president and CEO of Harrisburg, Penn.-based Consolidated Scrap Resources, a privately-held scrap steel, metal, paper, and plastic recycling company, called increases in demurrage charges “a revenue grab” by the railroads, specifically Norfolk Southern, citing a January 2019 letter to the STB from NS, which showed that its revenue from demurrage and accessorial charges for each quarter in 2018 rising dramatically.
“CSR’s demurrage costs it has paid to NS have increased dramatically as well over the lasts several years,” wrote Abrams. “Looking at our monthly demurrage costs, we paid 560% per month more in 2018 than we did in 2017. Our average per month demurrage cost through the first two months of 2019 is 80% greater than our average per month cost in 2017. Normally, when one pays more for a service one would expect some benefit in return. That is the most frustrating thing in all of this-we have not had any benefit from paying these huge costs increases from the demurrage tariff.”
Class I railroads have a different take on the application of demurrage and accessorial charges.
CSX President and CEO Jim Foote made that clear in a May 2019 letter to the STB, explaining that accessorial and demurrage tariffs are not considered a key revenue driver, as it only represented 3% of total 2018 revenues, with the caveat that around 95% of CSX traffic moves under mutually agreed upon transportation contracts that adopt relevant tariff items.
“Accessorial and demurrage tariff items relate to ancillary functions where something more is required from the railroad than the straightforward linehaul movement of freight,” wrote Foote. “Accessorial charges can take a variety of forms, but examples include customer requests for the railroad to perform switch work at their plant location beyond the customary release and pull of a rail car at origin/destination (intra-plant switch). Another example is the customer request to divert rail cars from the destination originally requested on the shipping instructions to an alternative location (diversion). Demurrage is assessed, for example, when a customer exceeds the ‘free time’ available to load or unload the rail car after CSX has released the car to them.”
What’s more, Foote noted that these charges have a long history within the rail sector, as well as other modes such as motor carriers, port terminals and steamship lines, with the purpose of these charges being to further the efficient management of assets and also promote a fluid transportation pipeline.
At the RailTrends conference in late 2018, STB Chairwoman Ann Begeman commented that the STB wants to make sure railroads “are being commercially fair to the shippers they’re serving.”
A freight rail observer told LM that this has been a thorn in everyone’s side for years.
“One thing that will help the situation will be smart cars/visibility through sensors that track actual constructive placement/spotting/tapping/loading/unloading/releases and pulls as well as secondary switching," he said. "It’s coming. Just a question of how fast."