Major Surface Transportation Board captive-shipper decision draws “line in sand” on rates
The door is now wide open for increased shipper/carrier negotiations as the STB orders rate relief for DuPont in case against CSX.
By John D. Schulz, Contributing Editor -- Logistics Management, 8/1/2008
WASHINGTON — 
WASHINGTON—In a rare win for shippers at the Surface Transportation Board (STB), the three-person rail regulatory agency recently ordered rate relief for chemical maker DuPont in a captive-shipper rate case involving CSX Transportation. The case was one of the first decided under the STB’s new small-rate dispute resolution process.
Although the ruling is not unprecedented, railroad attorneys and analysts called it “rather stunning” due to the long history of the STB (and its preceding agency, the now-ceased Interstate Commerce Commission) backing the rails in rate disputes.
DuPont is eligible for rate relief up to $3 million over a five-year period. While hardly a record-breaking fine for CSX, the decision leaves the door open for other captive shippers to craft similar cases against the nation’s Class 1 railroads to obtain similar rate relief.
At issue were the rates CSX was charging chemical giant DuPont in six lanes it was operating in a captive-shipper situation. According to STB Chairman Charles D. Nottingham, “The unanimous decisions demonstrate the Board’s dedication to resolving disputes between railroads and their customers in an accessible, affordable, and expeditious manner. Freight-rail customers can rest assured that the Board will take effective action to strike down unreasonably high rail rates.”
Jay Roman, president of Escalation Consultants, said it’s the biggest STB decision for non-unit train shippers in many years and has far-reaching repercussions. Roman called it a “very big deal,” giving many rail shippers additional leverage in rate negotiations, if not legal proceedings.
“It’s essentially providing a process for establishing a ceiling price on where shippers and carriers can go to war,” Roman said. “Whether it creates a stampede to the STB to file similar cases depends on how railroads react. So many shippers say they have no leverage, but this decision at least has drawn a line in the sand that if rates go above a certain level, shippers can cause a lot of grief for railroads in administrative costs—instead of doing things that can provide more revenue,” he adds.
Roman predicted that many rail shippers will be analyzing whether their movements fit the DuPont-CSX mold. “It’s more fodder for negotiations,” Roman said. “This establishes a level the rails cannot go above. Shippers are going to have to look at their movements to see if they have shipments that might be candidates for such a case.”
JP Morgan rail analyst Tom Wadewitz said this decision opens the door for other rate challenges against North American railroads, notably the Union Pacific, the largest Class 1 North American railroad. But Wadewitz said the overall impact on rails would be “insignificant,” although there could be some changes in how rates are formulated for captive shippers, especially in chemicals. The American Chemistry Council estimates that two-thirds of rail chemical shipments are from captive shippers, so that is the industry that might see the most legal activity.
CSX is not giving up without a fight, claiming that the STB ruling was “clearly erroneous, arbitrary, and capricious.” On July 15, CSX appealed the decision to the U.S. Court of Appeals for the District of Columbia, a CSX spokesman confirmed.
In its submission to the court, CSX called the STB’s decision “an abuse of discretion” that was “not supported by substantial evidence.” A decision is not expected before the end of the year.
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