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May 24, 2019 |
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NGFA Urges Development of Guidance For Fair Rail Charges

Believes that current practices exemplify the market power of railroads

 The National Grain and Feed Association (NGFA) urged the federal Surface Transportation Board (STB) to develop policy principles or guidance to discipline Class I rail carrier demurrage and accessorial charges and practices during a two-day public hearing conducted by the agency that concludes today.

The NGFA said an outcome of the oversight hearing should be the agency directing the Class I railroads to modify their tariffs and practices to comply with policy principles or guidance that ensure rail carrier tariffs implementing demurrage and accessorial charges are commercially fair, commercially practicable and reciprocal in nature, imposing comparable penalties on railroads if they fail to perform. The NGFA also urged the STB to retain oversight to monitor changes in railroads’ tariffs in accordance with the agency’s directives.

“We believe that in far too many cases, current demurrage and accessorial charges and practices are egregious and merely exemplify the market power of today’s Class I railroads, reflecting their ability to unilaterally impose one-sided terms and conditions on their customers,” testified NGFA President and Chief Executive Officer Randy Gordon. “Frankly, NGFA members in some segments of our industry believe they are at a ‘tipping point’ in their relationship with Class I rail carriers” because of these and other practices, particularly with the increased adoption of the so-called precision scheduled railroad operating model.

NGFA’s testimony, as well as a 43-page written statement submitted previously to the agency, highlighted numerous specific examples of railroad demurrage and accessorial tariffs that are not commercially fair, practicable or reciprocal, and result in individual rail customers incurring millions of dollars in charges even when operating efficiently. Data submitted to the STB by the seven U.S. Class I railroads showed that they generated more than $1.43 billion in demurrage and accessorial charges from rail customers in 2018 alone, and are on a pace to exceed that level in 2019 based upon first-quarter filings.

“At a minimum, to be reasonable, demurrage and accessorial tariff provisions should clearly establish the conditions for when a rail customer is not liable for such charges, either because the carrier is at fault or because of other circumstances beyond the rail customer’s control,” the NGFA said. “But true reciprocity and commercial fairness goes a step beyond waiver or non-payment of charges because the harm to rail customers extends beyond the amount of the charge to the harm to their investment in railcars and other facility assets, as well as disruptions to their business operations, including plant shutdowns or slowdowns, the need to use alternative transportation modes, the need to source commodities on an emergency basis and disruptions to their supply chains and customers.”

Demurrage historically has referred to charges imposed by railroads that are intended to encourage the efficient utilization of rail assets, including railcars and locomotives. Meanwhile, accessorial charges are not defined by any statute or regulation, but generally refer to a wide array of rail services and activities not included in demurrage or the line-haul freight charge.

The NGFA said the majority of complaints received from its members about commercially unfair and non-reciprocal demurrage and accessorial charges were associated with the Union Pacific (UP) and Norfolk Southern (NS) Railways. But NGFA noted it also received multiple complaints involving the BNSF, Canadian Pacific (CP), Canadian National and CSX railroads.

Among other things, the NGFA cited several railroads’ practice of reducing the so-called “free-time” for loading and unloading cars to as little as zero days from the previous 48 to 72 hours.  “Such tariffs should be ruled to be presumptively unreasonable,” the NGFA said, with a minimum of 24 to 48 hours of free time provided to a rail customer to load or unload railcars once the train actually is placed at the customer’s facility.

NGFA also referenced the absence of language in railroad tariffs regarding equitable reciprocal penalties that should apply to railroads if they are the cause for delays in loading or unloading railcars or efficient utilization of rail assets. One such example involves a UP tariff that imposes a “not-prepared for service” charge on rail customers but does not adequately address commensurate penalties when the UP does not deliver trains on schedule or does not provide adequate notification time to customers. Another UP tariff imposes a $10,000-per-occurrence charge on a unit train customer if it cancels the order within 48 hours of the forecasted date of release of the train.  But there is no reciprocal penalty on UP when its locomotives and crews do not arrive to pick up a loaded train within that same timeframe, which can congest a facility’s track space and prevent it from receiving or shipping other trains. 

NGFA also cited the NS for having a flawed and commercially unfair demurrage debit-and-credit system – including providing zero credits for loading or unloading privately owned or leased cars and unfair storage charges for railcars sitting in its serving yards, yet not committing to serve the facility within a specific time frame. NGFA also informed the STB of numerous unfair and unreasonable CP tariff provisions, including those that impose a $500-per-car fee on rail customers for diverting a car, even if CP is responsible; a $125-per-mile charge for special train service even if CP is at fault, and a $110 fee assessed on rail customers that successfully challenge the accuracy of a CP invoice.

In this regard, NGFA also expressed concerns about the Class I railroads’ generally cumbersome and tedious processes for resolving disputes when rail customers challenge an inaccurate demurrage or accessorial charge invoice. In essence, Class I railroads have placed the entire burden on their customers to prove the charges are not valid, and given themselves sole discretion to reject or modify an invoice that is subject to a rail customer challenge, NGFA said.

NGFA also called out the phenomenon of “bunching” of railcars at a customer’s facility, i.e., when railroads deliver more cars for loading or unloading than the shipper or receiver has ordered or whose facility can handle, while still imposing demurrage or accessorial charges on the customer for those cars. Railroad tariffs should be required to contain language that specifically states when charges will be waived because of bunching, NGFA said, as well as whether penalties should apply to the railroad if bunching results in congestion at the rail customer’s facility.

NGFA stressed that the lack of reciprocity in railroad tariffs – imposing the same penalties on railroads for failure to perform as those imposed on their customers – is particularly important now that more than 70 percent of the nation’s railcar fleet is owned or leased by rail customers, rather than the railroads, a marked departure over the last several decades. In the agricultural sector, rail shippers and receivers now own or lease 100 percent of the tank cars and nearly 80 percent of grain hopper cars. 

In addition, NGFA said, many rail customers have invested tens of millions of dollars at individual facilities to acquire, expand, operate and maintain track and other physical loading and unloading assets, as well as hired additional personnel to perform tasks previously done by the railroads. These activities include loading and unloading cars, inspecting cars and trains prior to departure, switching cars between tracks within a plant, assembling unit and manifest trains, and building side tracks for railcar storage.

“NGFA believes it is very clear that the STB needs to step in and take action to provide policy and guidance to restore balance to demurrage and accessorial practices, and it has the authority to do so as an outcome of this proceeding,” NGFA concluded.

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