Railroad shipping: U.S. Supreme Court upholds decision in favor of utility shippers over BNSF

Earlier this week, the United States Supreme Court upheld a ruling in which it ordered $345 million in reparations and reductions from Class I railroad Burlington Northern Santa Fe (BNSF) to two shippers, Western Fuels Association Inc. and Basin Electric Cooperative Inc.

By ·

Earlier this week, the United States Supreme Court upheld a ruling in which it ordered $345 million in reparations and reductions from Class I railroad Burlington Northern Santa Fe (BNSF) to two shippers, Western Fuels Association Inc. and Basin Electric Cooperative Inc.

According to a Bloomberg report, Supreme Court justices rejected an appeal from BNSF, which stemmed from proceedings before the Surface Transportation Board, who ordered that BNSF make refunds to both shippers. Other reports said BNSF has paid $120 million to date.

The case had to do with a pricing challenge from the utility shippers. In 2007, the STB initially issued a decision in favor of BNSF but reversed course in early 2009.

Western Fuels Association Inc. and Basin Electric Cooperative Inc. had initially challenged the railroad transportation rates charged by BNSF to haul 8 million tons of coal each year from mines in Wyoming’s Powder River Basin to their electric-generating plant in Moba Junction, Wyo., said STB officials. The STB noted that this utility plant is captive to BNSF and provides electricity into grids serving customers in nine Western states.

The STB said in 2009 it found “the transportation rates BNSF charged the Utilities…to be unlawfully high.” The decision also stated that BNSF was ordered to lower its transportation rates by approximately 60 percent. The STB stated that this represents the single largest award to a captive shipper, with BNSF obligated to reimburse the shippers for approximately $100 million in overcharges from 2004–2008.

BNSF said at the time it “strongly opposes the STB decision on its merits and believes the process used to arrive at this result is unfair.” The company added that the case is a manipulation of the new rule and represents an outcome-oriented decision in favor of these shippers and maintains that the rates charged to the shippers are reasonable from both a market and regulatory perspective.

A noted railroad analyst told LM this decision may ultimately do more harm than good for railroad carriers and shippers.

“It is a bad decision that comes at a time when rail transportation is being encouraged, as well as [a push] to take trucks off the highways,” a railroad expert told LM. “The potential implications of this are horrendous, because the minute you start regulating what somebody can charge for a line of service, you limit your ability to provide that service.”

Morgan Stanley analyst William Greene wrote in a research note that the while the STB’s decision is not a game changer for rail rate regulation, it demonstrates that there are political pressures to curb rail pricing, and the STB is sensitive to these concerns.

“The more the STB demonstrates a balanced approach to rate regulation, the more likely calls to re-regulate railroads lose urgency in Congress,” wrote Greene. “That said, as captive rates move higher, shipper wins in rate cases could become more common leading more rails to settle at regulatory limits rather than face the cost of litigating a rate case.”

Click here for more articles on railroad shipping.


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
Face security threats head-on. Protect data beyond perimeter.
Traditional Data Loss Protection (DLP) solutions present a number of serious shortcomings and challenges for companies deploying them, creating a clear gap in the market.
Download Today!
From the January 2018 Logistics Management Magazine Issue
Industry experts agree that costs across all sectors worldwide will continue to rise in 2018, and the most successful shippers will be those that are able to mitigate their impact on profitability. And, the right technology will play an increasingly vital role in driving efficiencies across the global logistics network.
The Future of Retail Distribution
Navigating the Reverse Supply Chain for Connected Devices
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Securing IoT data across the connected supply chain
Learn why a holistic approach to IAM is the most effective way to govern access to your systems and information requested by your partners, vendors, customers, and connected devices.
Register Today!
EDITORS' PICKS
State of Global Logistics: Delivering above and beyond
Industry experts agree that costs across all sectors worldwide will continue to rise in 2018, and...
2018 Rate Outlook: Economic Expansion, Pushing Rates Skyward
Trade and transport analysts see rates rising across all modes in accordance with continued...

Building the NextGen Supply Chain: Keeping pace with the digital economy
Peerless Media’s 2017 Virtual Summit shows how creating a data-rich ecosystem can eliminate...
2017 NASSTRAC Shipper of the Year: Mallinckrodt; Mastering and managing complexity
An inside look at how a large pharmaceutical firm transformed its vendor and supplier relationships...