STB proposes major changes in railroads' fuel surcharges

Shipper-friendly rules aim to provide transparency, prevent overcharging

By Jeff Berman, Senior Editor -- Logistics Management, 11/1/2006

WASHINGTON—Shippers may finally receive some much-needed assistance if the Surface Transportation Board (STB) adopts proposed regulations concerning how railroads calculate and apply fuel surcharges.

The STB developed the proposed changes following its May 2006 public hearing, STB Ex Parte No. 661. The agency published its proposals in August, and railroads and shippers submitted comments in October.

At the May hearing, shippers and carriers expressed widely differing opinions. Shippers contended that fuel-surcharge revenues collected by railroads exceeded the railroads' actual costs. They also complained that fuel surcharges applied on top of escalating base rates had caused their own costs to increase excessively.

Railroads responded that while they have raised fuel surcharge rates since they were introduced in 2001, they have not overcharged shippers. Several carriers attending the hearing showed data that they said proved that the fuel surcharges collected did not cover their actual fuel expenses.

The proposed regulations released in August include these provisions:

• Railroads would be required to develop a fuel-surcharge computation that is directly linked to actual fuel costs for a specific freight movement;
• Railroads would be prohibited from “double dipping”—that is, covering fuel-cost increases by applying both a fuel surcharge and a rate escalator based on an index, such as the STB's Railroad Cost Adjustment Factor (RCAF), to the same shipment;
• Railroads would be required to use the U.S. Energy Information Administration's weekly “U.S. No. 2 Diesel Retail Sales by All Sellers” index for measuring fuel-cost increases; and
• Class I railroads would be required to submit a monthly report showing actual fuel costs, fuel consumption, and fuel-surcharge revenues, as well as how much of those revenues they shared with their short-line partners.

Some industry observers were encouraged by the proposed changes. “I am pleasantly surprised with what the STB released and did not expect them to go as far as they did, because they have a history of not going very far in helping shippers,” said Jay Roman, president of Escalation Consultants, an energy and railroad consultancy. “Shippers continue to say that more transparency is needed [in how carriers assess fuel surcharges], and the STB is trying to grant them that transparency with these proposed requirements.”

In its October comments, CEMEX, a Houston-based cement shipper, asked the STB to order the railroads to “immediately desist with their unreasonable fuel-surcharge practices.” The shipper also urged the STB to require railroads to separate out the fuel and non-fuel components of the total freight rate and only permit a fuel surcharge—if needed—to be applied on the fuel portion of the rate.

While some railroads, such as BNSF, are now deploying a per-mile fuel-surcharge assessment, not all carriers are convinced that this method is the way to go. In its comments, Canadian National Railway Company (CN) said that the STB needs to be cautious with these proposals because “no particular fuel-surcharge approach for recovering the increases in fuel expenses that carriers experience in today's volatile fuel markets is necessarily optimal.”

CN also said that if the STB does rule that surcharges must be more closely tied to a specific movement's fuel consumption, carriers will need sufficient time to comply because it will require a significant amount of time and money for them to “efficiently and fairly” develop and apply such a formula.

An STB official told Logistics Management that comments are still being reviewed, and that no official date had been set for when the proposed regulations would go into effect.