Railroad shipping: Archers, Daniel, Midland files lawsuit against rail carriers over fuel surcharges

Jeff Berman, Senior Editor -- Logistics Management, 3/31/2008

DECATUR, Ill.—Global agricultural processor Archers Daniel Midland Company (ADM) filed a lawsuit in Minnesota District Court last week against five Class I railroads, whom ADM claims collaborated to fix fuel surcharges, according to various media reports.

The Class I railroads involved in the lawsuit are Burlington Northern Santa Fe Corp., CSX Corp., Kansas City Southern, Norfolk Southern Corp., and Union Pacific Corp. ADM said that these companies have “conspired to inflate and coordinate fuel surcharges since 2003,” according to a Dow Jones report. The report added that ADM says it has paid $250 million in fuel surcharges since 2003.

The topic of shippers overpaying for fuel surcharges is far from new. In January 2007, the Surface Transportation Board (STB) issued a final ruling regarding railroad fuel surcharges, saying that it is an unreasonable practice for railroads to compute fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments. The ruling also declared that it will prohibit railroads from assessing fuel surcharges that are based on a percentage of the base rate charged to customers. Instead, railroad carriers now are supposed to develop a fuel surcharge computation that is more closely linked to the portion of their fuel costs that is attributable to a specific shipment along with other factors.

This is not the first time a shipper has called out railroad carriers on fuel surcharge practices. In May 2007, Phoenix-based Dust Pro Inc. and other shippers filed an antitrust suit that seeks class-action status on behalf of parties that shipped goods on various Class I railroads that allegedly fixed prices for fuel surcharges that did not relate to actual fuel costs. LM reported at this time that these fuel surcharges were the result of rail carriers imposing fuel surcharges on regulated freight under private contracts. And Quinn Emmanuel, a New York-based law firm representing Dust Pro and other shippers said in an interview that “the ultimate relief we’re seeking is for the shippers who were victims of these fuel surcharges to get back the amount they overpaid.

The Wall Street Journal reported that along with ADM and Dust Pro more than 25 suits against the rail companies have been consolidated into a single case being heard before the district court in the District of Columbia. The WSJ report said that this case was first heard in February and an amended suit is expected to be filed in April. 

While the STB’s rule has been in effect for nearly a year, there is still a lot of acrimony regarding railroad fuel surcharge issues as evidenced by these recent developments.

Going back to the STB’s May 2006 hearing on fuel surcharges—Ex Parte no. 661—the common compliant of rail shippers was that there wasn’t enough transparency in how carriers assess fuel surcharges, explained Jay Roman, president of Escalation Consultants, an energy and railroad consultancy, in an interview. And he added that until there is more transparency, these types of lawsuits are likely to continue.

“Whenever the railroads have previously presented information on fuel surcharges, they have not tied it into any numbers that were auditable in a public forum [before the STB ruling],” said Roman. “There are requirements [with the new rule] for them to be submitting initial information now, but these filings are from 2003 to the present and until the railroads clear up the transparency problem this is going to continue to be a major problem for them to deal with. Until the railroads clear up the lack of transparency…this is probably going to get worse for them—not better. They are going to have to reveal more information about the accuracy of their fuel surcharges than they have come out with before, and until they do that it is going to be something that is going to continue to fester out there. It makes a lot of sense for railroads to release this information retroactively based upon audible records. If they don’t do that, I think it is a mistake.” 

Another factor that Roman stressed needs to be addresses is that there needs to be a mechanism to include transparency for fuel surcharges going back to the 2002-2003 timeframe, as opposed to the current rule which does not apply to past fuel surcharges prior to the ruling.

Burlington Northern Santa Fe Corp., CSX Corp., Kansas City Southern, Norfolk Southern Corp., and Union Pacific Corp. did not issue statements on ADM’s lawsuit.