U.S.-based Class I railroads get welcome news in fuel surcharge case

The four United States-based Class I railroads received good news late last week, when the United States Court of Appeals for the District of Columbia Circuit dismissed a June 2012 decision by a U.S. District judge in the District of Columbia that maintained Burlington Northern Santa Fe, Union Pacific, Norfolk Southern, and CSX worked together—or colluded—on fuel surcharges assessed to shippers.

By ·

The four United States-based Class I railroads received good news late last week, when the United States Court of Appeals for the District of Columbia Circuit dismissed a June 2012 decision by a U.S. District judge in the District of Columbia that maintained Burlington Northern Santa Fe, Union Pacific, Norfolk Southern, and CSX worked together—or colluded—on fuel surcharges assessed to shippers.

When that decision was issued last year, a Bloomberg report stated that the railroads asked the U.S. Court of Appeals to reverse the ruling, explaining that it could lead to a cumulative $10 billion or more in potential damages for roughly 30,000 shippers.

While the case may not have gone away completely for the railroads, the United States Court of Appeals for the District of Columbia Circuit in its decision last week remitted the case back to a federal district court in Washington to reconsider its decision following a recent Supreme Court decision centered on class-decertification.

“While this obviously was not our preferred outcome, we are gratified that the case was remanded,” said Stephen R. Neuwirth of Quinn, Emanuel, Urquhart & Sullivan, co-lead counsel for the plaintiffs, in a statement. “We are confident that we will be able to demonstrate that the damages model in fact satisfies the highest standards that have been set by the courts, and that ultimately the case will move forward as a class action.”
In the court’s decision last week, it was pointed out that the lower court underestimated the potential harm to railroads, and the method for calculating prospective damages was flawed.  And due to the “the pressure to settle posed by the threat to the defendants’ market capitalization, and the identified defect in the damages model, we grant the defendants’ interlocutory appeal,” Judge Janice Rogers Brown, wrote in the court’s findings, according to a recent Bloomberg report.
Union Pacific Director of Corporate Communications Tom Lange told LM that
the Omaha-based carrier is “pleased with the court’s ruling and looks forward to the opportunity to reaffirm that Union Pacific’s fuel surcharge program complied with the applicable legal requirements.”

Various reports indicated that the plaintiffs maintain that the railroads, which control roughly 90 percent of U.S.-based freight rail volume, collaborated to maintain prices through fuel surcharges that were part of shippers’ bills and they also contend that this fuel surcharges had no direct correlation to actual fuel cost increases.

This case centers on what a Reuters report described as “an endless string of rate increases” between 2003-2008 which generated billions of dollars in extra revenues for the four railroads. What’s more, it added that the eight shipper plaintiffs say that the railroads took advantage of a concentrated market, tight capacity, and coordinated pricing.

Reuters also noted that overcharge claims are being presented as evidence and are under a seal, adding that a study by the American Chemistry Council indicated that fuel surcharges imposed by all major freight railroads topped fuel cost increases by $6.4 billion between 2003-2007.

Issues between railroads and shippers regarding how fuel surcharges are applied are far from new. In January 2007, the Surface Transportation Board issued a final rule focused on how railroads calculate and apply fuel surcharges.

In that ruling, the STB declared that computing fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments was an “unreasonable practice.” Toward that end, the agency said, it said it would prohibit railroads from assessing fuel surcharges that are based on a percentage of the base rate charged to customers. Instead, carriers were required 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.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Latest Whitepaper
How Lean is your Lean Quality Program?
Avoid quality program bureaucracy that can sap logistics productivity and increase costs
Download Today!
Hub Group Resources
Not Your Grandfather's Intermodal Transportation of freight in containers was first recorded around 1780 to move coal along England’s Bridgewater Canal. However, "modern" intermodal rail service by a major U.S. railroad only dates back to 1936. Malcom McLean’s Sea-Land Service significantly advanced intermodalism, showing how freight could be loaded into a “container” and moved by two or more modes economically and conveniently. As with all new technologies, there were problems that slowed the growth, which influenced many potential customers to shy away from moving intermodal.
Click Here to Download.
From the September 2016 Issue
Indecision revolving around three complex supply chain elements—transportation, technology and organizational structure—finds many companies waiting to commit to a strategic path. However, waiting too long will only result in a competitive disadvantage that will be difficult to overcome in today’s fast-paced, global economy.
Time for Asia’s ports to rebuild
Is the freight recession upon us…again?
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Supply Chain Best Practices: Visibility to In-Transit Inventory
During this webcast you'll learn on how various organizations have gained instant access to in-transit parcels and given access to this information to stakeholders.
Register Today!
EDITORS' PICKS
25th Annual Masters of Logistics
Indecision revolving around three complex supply chain elements—transportation, technology and...
2016 Quest for Quality: Winners Take the Spotlight
Which carriers, third-party logistics providers and U.S. ports have crossed the service-excellence...

Regional ports concentrate on growth and connectivity
With the Panama Canal expansion complete, ocean cargo gateways in the Caribbean are investing to...
Digital Reality Check
Just how close are we to the ideal digital supply network? Not as close as we might like to think....