STB issues decisions on rail demurrage rules and charges

Late last week, the Surface Transportation Board (STB) rolled out multiple decisions related to railroad demurrage and accessorial rules and charges, with multiple takeaways for rail carriers and shipper, including promoting transparency, timeliness, and mutual accountability by rail carriers, shippers, and receivers they serve.

This follows a late April announcement by the STB, in which it formally adopted a final rule clarifying the regulation of demurrage that took effect on April 3, 2020. Some industry stakeholders view railroads’ accessorial charges and demurrage as a way to change customer behavior, which some railroads maintain have taken longer than expected, in some cases. Demurrage charges compensate rail carriers when railroad leased or owned cars are detained by shippers, as stated in an online primer by RSI Logistics.

The final rule amends regulations that govern class exemptions for certain miscellaneous commodities like paper products and steel scrap, and boxcar transportation to clearly state the demurrage continues to be subject to STB regulation, with this modification reflecting longstanding court and agency rulings that these exemptions do not apply to the regulation of demurrage. And they added that this rule partially revokes the class exemption that currently covers certain agricultural commodities so that the exemption will not apply to the regulation of demurrage. STB also said that the agricultural commodities exemption will be consistent with similar class exemptions that cover non-intermodal rail transportation.

The demurrage rules and decisions issued by the STB last week include:

• a final policy statement providing the public with information on principles the Board would consider in evaluating the reasonableness of demurrage and accessorial rules and charges and is geared towards facilitating more effective private negotiations and problem solving between rail carriers and shippers and receivers, to help prevent disputes from arising, and to help resolve disputes more efficiently and cost-effectively;
• demurrage Billing Requirements in a final rule requiring Class I carriers to directly bill the shipper for demurrage when the shipper and warehouseman agree to that arrangement and notify the carrier.  The Board intends the rule to help ensure the responsibility for demurrage is placed on the party in the best position to expedite the loading or unloading of rail cars; and
• a supplemental notice of proposed rulemaking (SNPRM) inviting parties to comment on certain modifications and additions to the proposed requirements for minimum information to be included on or with Class I carriers’ demurrage invoices

STB officials said that the final policy statement will go into effect on May 30, 2020, with the final rule in Demurrage Billing Requirements set to take effect on June 20, 2020, with comments on the (SNPRM) in Demurrage Billing Requirements due by June 5, 2020, and replies due by July 6, 2020.

The American Chemistry Council (ACC) soundly endorsed these recent moves by the STB, noting that they provide greater clarity and accountability as it relates to railroad demurrage practices usage.

“We commend the Board for carefully considering everyone’s input and taking action on an issue that has harmed many manufacturers across the country,” said Chris Jahn, ACC president and CEO, in a statement. “Demurrage charges are supposed to create incentives to keep the rail network running efficiently, not create a new profit center for the railroads. In its new Policy Statement, the Board has sent a strong message that rail carriers may not simply use demurrage charges as another revenue stream. The policies announced by the STB set clear guidelines for the appropriate use of these charges, which should help prevent rail customers from being subjected to unreasonable and excessive charges that penalize them for circumstances beyond their control.”

Jahn added that the ACC looks forward to providing comments on potential additional requirements for demurrage invoices, and working with the commissioners and their staff on the STB’s new demurrage policies.

In October 2019, STB issued a notice of proposed rulemaking (NPRM) on demurrage and accessorial rules and changes, in an ongoing effort to improve dispute resolution processes, promote transparency and make the STB more accessible.

At that time, the STB issued three decisions, including:

• a proposed policy statement to facilitate more effective problem solving between railroads, shippers, and receivers by providing information on principles the Board would consider in evaluating the reasonableness of demurrage and accessorial rules and charges;
• a proposed rule to enhance the transparency and accuracy of demurrage invoices; and
• a proposed rule to make unambiguous that the regulation of demurrage is not excluded for exempt miscellaneous commodities and boxcar transportation, and to treat the exemption for certain agricultural commodities similarly

These decisions stemmed from a May 2019 STB public hearing on railroad demurrage and accessorial charges, entitled “Oversight Hearing on Demurrage and Accessorial Charges, Docket No. EP 754,” that was held in response to various changes in demurrage and accessorial rules and charges that were implemented by some Class I railroads. In this hearing, shippers, receivers and other parties comments on concerns relating to the commercial fairness, reciprocity, and feasibility of changes to demurrage and accessorial rules implemented by the Class I railroads.

Prior to the May 2019 STB hearing, STB officials said that railroads, shippers, third-party logistics providers, and other interested parties “will be invited to speak at the hearing and report their experience with demurrage and accessorial charges, including matters such as reciprocity, commercial fairness, operational and capacity issues, and effects on network fluidity.” And they added that this hearing comes on the heels of letter requests sent by the STB to each Class I railroad, which requested information on quarterly revenue from demurrage and accessorial charges for 2018 and 2019.

Industry stakeholders say these charges are being incurred, due to a push to Precision Scheduled Railroading (PSR) being implemented by the majority of Class I freight railroad carriers. PSR, which was created by the late E. Hunter Harrison, requires cargo to be ready when rail cars arrive for loading or risk being left behind.

Class I railroads have a different take on the application of demurrage and accessorial charges.

CSX President and CEO Jim Foote made that clear in a May 2019 letter to the STB, explaining that accessorial and demurrage tariffs are not considered a key revenue driver, as it only represented 3% of total 2018 revenues, with the caveat that around 95% of CSX traffic moves under mutually agreed upon transportation contracts that adopt relevant tariff items.  

“Accessorial and demurrage tariff items relate to ancillary functions where something more is required from the railroad than the straightforward linehaul movement of freight,” wrote Foote. “Accessorial charges can take a variety of forms, but examples include customer requests for the railroad to perform switch work at their plant location beyond the customary release and pull of a rail car at origin/destination (intra-plant switch). Another example is the customer request to divert rail cars from the destination originally requested on the shipping instructions to an alternative location (diversion). Demurrage is assessed, for example, when a customer exceeds the ‘free time’ available to load or unload the rail car after CSX has released the car to them.”

What’s more, Foote noted that these charges have a long history within the rail sector, as well as other modes such as motor carriers, port terminals and steamship lines, with the purpose of these charges being to further the efficient management of assets and also promote a fluid transportation pipeline.

At the RailTrends conference in late 2018, STB Chairwoman Ann Begeman commented that the STB wants to make sure railroads “are being commercially fair to the shippers they’re serving.”

A freight rail observer told LM that this has been a thorn in everyone’s side for years.

“One thing that will help the situation will be smart cars/visibility through sensors that track actual constructive placement/spotting/tapping/loading/unloading/releases and pulls as well as secondary switching,” he said. “It’s coming. Just a question of how fast.”