Surcharges for higher energy costs have rattled U.S. rail shippers over the past year. "There's a groundswell developing as to just how reasonable some of these surcharges are," says railroad industry analyst Jay Roman, whose research firm, Escalation Consultants, recently published a report on those assessments.

Rail shippers pay extra fees to cover fuel-cost increases on top of their regular rates for moving boxcar or intermodal freight. Those surcharges are swiftly rising at a time when rail traffic volumes are picking up. The Association of American Railroads (AAR) reports that last year, rail carriers originated nearly 29 million carloads. Coal shipments represented nearly half (46 percent) of the 1.7 billion tons of rail freight moved in 2003. The second-largest commodity group was chemicals and allied products, which accounted for 9.1 percent. Next in volume was farm products with 7.9 percent of the total.

This year is shaping up in similar fashion. More than 4.9 million carloads moved during the first 15 weeks of 2004, an increase of 3.2 percent over the same period last year. During that same period, railroads handled just under 3 million intermodal trailers and containers, a 7.6-percent increase over last year. Intermodal shipments, in fact, have now surpassed carload commodities as the industry's largest source of revenue.

Most of that traffic will get hit with fuel surcharges under provisions contained in most tariffs and contracts. Prior to last year, those charges ranged between 2 and 4 percent, Roman says. But starting late last year, they began to rise and now average between 5 and 6 percent.

This spring's record-high oil prices were a factor in the rising surcharges, but a change in the calculation method also has affected shippers' costs. Roman says that most surcharges are triggered by an increase in the average price for a barrel of West Texas Intermediate crude oil. Until last year, railroads raised the fee for every $1 dollar increase above the threshold price of $28 per barrel. Now, however, many railroads have lowered the trigger point to $23 a barrel.

Last July, the price for a 42-gallon barrel of West Texas Intermediate crude oil stood at just below $31. Last month, that price reached the high-water mark of $42.35 per barrel, but at press time it had fallen to $38.73.

The railroads also used to wait until the higher per-barrel price held steady for 30 days before imposing a surcharge. Now that charge is based on the average price for a barrel of oil that month.

Escalation Consultants' analysis found that rail shippers on average pay 5.6 percent above their current rates under the new calculation system. The study also contends that the amount the Class I railroads collect for fuel costs exceeds the actual amount of fuel expense per car.

The railroads dispute Roman's analysis. Says CSX Transportation spokesperson Adam Hollingsworth: "We are trying to recover fuel costs just as others in transportation do, and we're still not recovering our full cost."

Union Pacific (UP) spokesperson John Bromley says the surcharges his company has imposed are "way below" the 15-percent fuel-price increases that the Omaha, Neb.-based carrier has experienced. He also notes that the UP now uses the U.S. Department of Energy's highway diesel price as a surcharge benchmark rather than the West Texas Crude price. "We used to say fuel prices were volatile," he says. "Now it's just steadily rising."

Roman believes that more rail shippers are growing concerned about overcharges, and that will continue if oil prices remain high throughout the summer. "You're going to start hearing shippers raising hell," he predicts. "When you start getting increases of this magnitude, upper management starts asking lots of questions and people had better be prepared to have answers."