Fuel surcharge lawsuits, antitrust fines growing

John D. Schulz, Contributing Editor -- Logistics Management, 6/26/2008

WASHINGTON—Fuel surcharge lawsuits are increasing almost at the dizzying rate of the hikes in the cost of crude oil and diesel fuel, attorneys and carriers say.

Four years ago, when the first class-action lawsuit was filed against a group of LTL trucking companies, crude oil was around $50 a barrel and a cost of a gallon of diesel was under $2.50. That lawsuit, still pending, was filed by a small California irrigation and agricultural supply company called Water Tech and it affected only a handful of large LTL carriers.

Now, similar lawsuits have been filed in virtually every transportation mode. Large chemical and agricultural shippers have complained to the Surface Transportation Board about the way railroads collect fuel surcharges. As a result, the STB has ordered the rails to change the methodology in the way they collect fuel charges.

Now, instead of being collected as a percentage of the freight bill—the way truckers and air freight carriers do—railroads assess their fuel surcharges on per-mile basis. But with nearly everything the STB does, there is a small catch.

The STB ruling only applies to regulated bulk commodities (such as coal, grain and chemicals) moving under tariff rates. So-called “exempt” commodities moving under contract rates (such as automobiles and trucking containers) are not covered by the STB decision. Surcharges on that freight still are being calculated as a percentage of the shippers’ bill.

In addition to the class action lawsuits, individual shippers are filing antitrust lawsuits against railroads and other modes. In a case being closely watched, Archer Daniels Midland has filed an antitrust suit against major Class 1 railroads, alleging violations in the fuel surcharge mechanism.

The exposure is great. Union Pacific is alleged to have overcharged as much as $1.16 billion in fuel surcharges. Burlington Northern’s overcharges are $925 million with CSX ($842 million), Norfolk Southern ($890 million) and Kansas City Southern ($790 million) close behind, according to figures compiled by Supply Chain Digest Research.

Experts say these lawsuits are a longshot. That’s because the Supreme Court ruled two years ago that there must be “prima facie” evidence alleging antitrust violations. It’s no longer enough for shippers to just say there have been violations of the Sherman Antitrust Act. Rather, antitrust experts say, there must be actual evidence the railroads (and other carriers in competing modes) actually conspired to fix their surcharge levels.

“It was a natural act of the rising cost of diesel fuel,” said Fritz Kahn, a Washington lawsuit and former member of the Interstate Commerce Commission and an expert in antitrust law. “One railroad did it. Others copied. There’s nothing wrong with copying as long as there is no collusion, in my opinion.”

While the railroads and truckers may ultimately win their class-action defenses, the air freight sector already is paying for what the Justice Department and others are saying is a worldwide price-fixing conspiracy.

Nearly $1 billion in fines have been collected already as law enforcement agencies around the world stiffen enforcement of air freight carriers. The action started four years ago with raids on air cargo company offices around the world. At least one freight executive is going to jail as a result of the surcharge-fixing conspiracy. There might be more.

There have been heavy fines as well. Last year, British Airways and Korean Air were both ordered to pay up to $300 million in criminal fines. Smaller penalties have been levied against Japan Airlines and Qantas.

So far, no individual air freight shipper has won any significant lawsuit over fuel surcharges. But experts say that it might only be a matter of time before a savvy lawyer breaks that streak by opting out of a class action suit in favor of individual action.