Major STB captive-shipper decision draws “line in sand” on rates
John D. Schulz, Contributing Editor -- Logistics Management, 7/15/2008
WASHINGTON—In a rare win for shippers at the Surface Transportation Board, the three-person rail regulatory agency recently ordered rate relief for chemical maker DuPont in a captive shipper rate case involving CSX Transportation.
Although the ruling is not unprecedented, railroad attorneys and analysts called it rather stunning. That is because of the long history of the STB (and its preceding agency, the now-closed Interstate Commerce Commission), to back 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 open the door that other captive shippers (and their creative attorneys) could craft similar cases against the nation’s four other Class 1 railroads to obtain similar rate relief.
At issue was the rates CSX was charging chemicals giant DuPont in six lanes it was operating in a captive shipper case. DuPont will be eligible for reparations totaling as much as $3 million over a five-year period, the STB ordered. The exact size of the award will depend on the actual number of shipments DuPont made along the routes in dispute.
The case was one of the first decided under the STB’s new small rate dispute resolution process.
The unanimous decisions “demonstrate the Board's dedication to resolving disputes between railroads and their customers in an accessible, affordable, and expeditious manner,” STB Chairman Charles D. Nottingham said in issuing the ruling. “Freight-rail customers can rest assured that the Board will take effective action to strike down unreasonably high rail rates."
Maybe rail customers can rest assured. But first you're going to have to wake them up after they all fainted after learning of this unanimous 3-0 STB decision.
Jay Roman, president of Escalation Consultants,
“It is essentially providing a process for providing 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. 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.”
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 that says 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 roads. 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.
Before every shipper runs out to file an unreasonable rate case at the STB, one ought to be aware of the specific wrinkles in this DuPont case.
First off, this was not truly a captive shipper case. There was nominal truck competition in some of these lanes. But as the STB said in its ruling, "Although trucks are used occasionally to move the plastic powder to this origin and destination, the record evidence leads us to conclude that trucking does not provide effective competition for this movement."
The specific routes in question where rate reductions of between 5-to-40 percent may be in order, are mostly in the East where CSX operates. This was hardly a case involving massive amounts of coal moving out of the
The Board's decisions will mandate reduced rates charged by CSX to DuPont for rail shipments along six specific routes. The rate reductions vary by route, but range from approximately 5-to-40 percent of the challenged rates. Relief was awarded on challenges to CSX rates paid by DuPont for the movement of chemicals along the following routes: Heyden, N.J. to Washington, W. Va.; Heyden, N.J. to Duart, N.C.; Ampthill, Va. to Wyandotte, Mich.; Niagara Falls, N.Y. to New Johnsonville, Tenn.; Niagara Falls, N.Y. to Carney's Point, N.J.; and Pascagoula, Miss. to Neuse, N.C..
Analyst Wadewitz estimated that captive, small shipments comprise between 8 and 16 percent of all
The board issued its ruling in STB Case Nos. 42099, 42100 and 42101. They are available at www.stb.gov., under "Decisions and Notices," beneath the date 6/30/08.
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