By Randy Gordon, President and Chief Executive Officer
Class I freight railroads pushed back strongly against the Surface Transportation Board (STB) pursuing any policies, guidance or investigation of carriers’ demurrage and accessorial charges and practices following the agency’s robust, informative and eye-popping May 22-23 public hearing in Washington.
The carriers voiced their objections in supplemental comments submitted to the agency last week in the aftermath of the public hearing, during which the NGFA and several other diverse rail customer organizations and companies presented specific evidence of commercially unfair, commercially unachievable and non-reciprocal demurrage and accessorial practices implemented by the majority of Class I railroads.
As noted later in this article, two additional carriers – the Canadian National Railway (CN) and CSX Transportation Inc. (CSXT) – announced they would agree to arbitrate demurrage disputes through the STB’s voluntary arbitration program. CSXT also referenced its commitment to use NGFA’s Rail Arbitration System, while CN did not. Further, CN said it only would agree to use STB arbitration for demurrage claims of $200,000 or less.
Here is a sampling of the railroads’ statements contained in their supplemental comments:
- BNSF Railway: “We believe our program is reasonable from a commercial and legal perspective….The vast majority of our customers pursue their business and plan their railroad service in a manner that incurs minimal or no demurrage charges,” BNSF said in a two-page statement. “We are also concerned about the consequences of significant rule modifications to the majority of our customers who routinely comply with, and rely on, our demurrage program to obtain the efficiencies that support the service they expect from BNSF.” BNSF’s statement also alluded to “potential unintended consequences” of any STB demurrage and accessorial rules “for those customers who do not have repeat demurrage issues and may see commercial and operational risk themselves from blanket changes in our rules of general applicability.”
- Canadian National Railway: In perhaps the most strident filing, the Canadian National Railway (CN) accused several of its customers of misleading the STB, admonished the agency that its regulatory jurisdiction is limited, and asserted that Congress, in CN’s view, has “made clear that railroads need to be given the freedom to set their own demurrage policies.” CN argued in its 42-page statement that the STB’s role is “not to define what demurrage policies are the ‘best’ – it is rather to provide a forum for shippers to challenge aspects of a carrier’s demurrage policies or applications that shippers believe are unreasonable” on a case-by-case basis by filing unreasonable practice complaints.
CN also stated that, “[r]ailroads already have strong incentives to improve asset utilization….But customers do not have those natural incentives, since a customer’s primary interest is in its own traffic – not the overall network.” At another point, CN wrote that “railroads are regulated and disciplined by the…highly competitive transportation markets that govern the vast majority of our traffic….” (and) [t]he true divide is between the vast majority of customers who depend on reliable rail service and who manage their own operations efficiently and a minority of customers and their trade associations who seek to impose inefficiencies on others without consequence.” CN repeatedly argued that 80 percent of its customers typically do not “receive a single demurrage invoice,” which it maintained demonstrates that its demurrage program “is balanced and well-calibrated.” Further, CN stated that, “[n]o one would suggest in 2019 that a railroad and customer could not agree between themselves that a particular demurrage charge should be waived or refunded….In short, the hypothetical example of a customer who has no ability to avoid demurrage charges remains, in CN’s experience, just a hypothetical.”
- Canadian Pacific Railroad: The Canadian National Railway (CP), in a three-page statement, reiterated its oral testimony that its demurrage revenues as a percentage of its overall revenue have been trending down, with the exception of charges attributable to container storage. Container storage revenues represented more than $12.4 million of CP’s $30.2 million of demurrage revenues in calendar 2018, it said, while its overall U.S. revenues, carloads and gross ton miles increased. CP said its demurrage and accessorial program has remained “largely unchanged” since 2015, although NGFA’s analysis presented to the STB showed that CP’s charges for some categories of demurrage have escalated significantly – in some cases by as much as 280 percent – something CP did not refute in its supplemental comments.
- CSX Transportation Inc.: In a 15-page statement, CSX Transportation Inc. (CSXT) also said the STB should limit itself to adjudicating individually filed complaints on demurrage and accessorial charges, and “not” be a “top-down regulator that attempts to promulgate government-designed” demurrage policies. “Congress envisioned a minimal role for the agency in regulating demurrage,” and that [r]equests at the hearing that the (STB) enact sweeping new rules for demurrage policies would be a sharp break from Congress’s intent, from sound economic and public policy and from the (agency’s) own stated commitment to improving rail service and protecting the fluidity of the network,” CSXT wrote. “Instead, the (STB) should continue to encourage private sector solutions, while making clear it is available to adjudicate complaints where necessary.”
However, CSXT did state that henceforth, it will: 1) provide customers with 60 days’ notice of material changes to its demurrage program; 2) “further its communications” with customers that “may have unique circumstances associated with a demurrage policy change;” 3) provide an additional credit for demurrage on “specified holidays” where customers may have reduced personnel available – on top of the 24 hours of “free time” for loading/unloading cars already provided; 4) “update and enhance” publication of its customer demurrage guide to provide “greater insights” into its demurrage fees and “their actual application in practice;” and 5) “explore new technology enhancements” to improve the visibility and pre-screening” of demurrage and accessorial invoices to customers.
CSXT also stated that it “does not tolerate any form of customer retaliation,” in response to a suggestion during the public hearing that it may. “CSXT will never and has never pressured customers not to testify before the STB….Engaging with customers to help solve their problems is not retaliation by any definition.”
- Kansas City Southern Railway: The Kansas City Southern Railway (KCS), in a two-page statement, said in response to customer concerns it will amend its current KCS 6000-F Item 60 demurrage tariff to eliminate “disputes claimed…which are not found to be valid will be subject to a processing fee of $50 for each incorrectly disputed car” to “eliminate even the appearance of a disincentive for customers to challenge demurrage that they believe is improper.” KCS said it had not generated fees from such a charge. In addition, KCS said its demurrage tariff provides for credits to shippers/receivers, but that it also “may accord shippers/receivers (with) additional or extended credits in specific situations to remedy problems that KCS and the customer believe are due to KCS’s actions.”
- Norfolk Southern Railway: In a one-page statement, the Norfolk Southern Railway (NS) mostly avoided discussion on its demurrage and accessorial policies, instead pivoting to its service metrics. “…[C]ustomer-facing service metrics are on target for a 40 percent improvement” since 2018, NS said, while its first-mile/last-mile service performance is at “near record levels.” NS reiterated its oral testimony that it provides credits to customers when it fails to meet its original estimated-time-of-arrival within 24 hours for its manifest traffic.
Arbitration of Demurrage, Accessorial Disputes: In their supplemental comments to the STB, two new railroads pledged to some degree to participate in the STB’s voluntary arbitration process to resolve demurrage-related disputes with customers – something they had not done previously. CSXT, on page 13 of its 15-page statement to the STB, said it “will participate in (STB) arbitration proceedings for demurrage-related disputes within (the agency’s) jurisdiction, except where disputes are already subject to potential NGFA arbitration.” CSXT said its participation “will be more fully explained in a separate filing” with the agency later this month. Meanwhile, the Canadian National Railway on page five of its 42-page statement, said it was “committing to join the STB’s arbitration program for demurrage disputes under $200,000,” but made no reference to using NGFA’s Rail Arbitration System.
Prior to the hearing, the Union Pacific Railroad (UP) in a May 1 filing with the STB stated it, too, “has agreed to arbitrate contested demurrage and accessorial charges using a number of commodity or mode-specific rules (e.g., the NGFA’s Rail Arbitration Rules, the Association of American Railroads’ Interchange Rules), as well as the STB’s arbitration program.” However, the NGFA has yet to be notified by UP of its agreement to do so. Nor has NGFA been able to uncover language in any related UP tariff under which it commits to arbitrate such disputes. By contrast, BNSF Railway in its tariffs has included an arbitration provision for many years under which it commits to resolve “all disputes, claims, questions or controversies arising out of any charges assessed under the provisions of (its tariff book) in the transportation of grain or grain products” utilizing binding NGFA arbitration “unless the parties agree to some other arbitration procedure.”
Importantly, however, as NGFA pointed out during the public hearing and again in its supplemental comments to the STB, it is important for the STB to establish policy principles and guidance for demurrage and accessorial practices since NGFA’s Rail Arbitration Rules currently only require arbitrating disputes “involving the application of a railroad’s demurrage rule(s) or term(s).” (Emphasis added.). Thus, NGFA noted, the commercial fairness, practicability or reciprocity of a given railroad’s demurrage or accessorial tariff is not subject to compulsory NGFA arbitration – only how those tariffs are “applied.” In fact, NGFA railroad-member companies consistently have resisted having the commercial fairness of their demurrage and accessorial practices being adjudicated through NGFA arbitration.