STB Action Creates More Equitable Demurrage Approach

Written by Rob Benedict, Vice President of Petrochemicals and Midstream, American Fuel and Petrochemical Manufacturers
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Image courtesy Railcar Tracking Co., a Division of Savage Services Corp.

Picture a customer who receives a hefty invoice from an auto repair shop with several additional charges and no details regarding the nature of these fees. The customer is left facing the question of whether to dispute the bill, and if so, how. Such has been the experience of U.S. rail shippers in recent decades when receiving invoices from the railroads for demurrage charges, which are applied by railroads for costs incurred when shipments are held up beyond a reasonable time.

However, a new rule finalized by the Surface Transportation Board (STB) in April 2021 has brought a welcome change for U.S. freight rail shippers, who previously had been subject to frequent and ambiguous demurrage charges from the railroads amounting to billions of dollars. In 2020 alone, Class I rail carriers levied almost $1.4 billion in demurrage fees on rail shippers.

The railroad industry has dramatically changed in the past few decades, with massive consolidation of major railroads and a shift in ownership of rail assets such as tank cars from the railroads to rail shippers (either direct ownership or through lessors). This has led to a less-competitive U.S. freight rail system, and rail shippers have increasingly been subject to increasing fees from the railroads. Since the last major railroad merger, which took place more than two decades ago, rail shippers have seen a spike in demurrage fees levied—an increase of more than 200%—and rail shippers often were left with little recourse to challenge any charges that may have been improperly applied.

Fortunately for rail shippers and for the rail system at large, the STB has steadily taken a more active role in modernizing freight rail policy, and recently has begun to address the demurrage fee issues. In May 2019, the STB held an oversight hearing on railroad demurrage and accessorial charges; it was followed by a series of rulemakings promulgated to address the issues raised in the earlier hearing. In May 2020, the STB issued a “Demurrage Policy Statement” outlining the principles it would consider in evaluating the reasonableness of demurrage charges. And in April 2021, the Board issued a final rule updating demurrage invoicing policies after reviewing comments in response to the NPRM from the entire U.S. freight rail community. 

One of the key requirements of the new rule is for a greater level of detail and transparency in demurrage invoices issued by the railroads to shippers, which allows rail shippers to more efficiently audit demurrage charges and gives them recourse to dispute improper demurrage fees when appropriate. The additional requirement of “machine-readable data” on these invoices offers users the ability to more easily analyze the data and will decrease the incidence of erroneous or unwarranted demurrage charges. The Board anticipates that these changes will facilitate more effective private negotiations and problem solving between rail carriers and shippers on issues concerning demurrage and accessorial rules and charges, preventing unnecessary disputes and helping to resolve them more quickly and cost-effectively when they do occur.

Rob Benedict, Vice President of
Petrochemicals and Midstream, AFPM

As did other shippers, American Fuel and Petrochemical Manufacturers (AFPM)—the trade group representing U.S. refiners and petrochemical manufacturers—welcomed the announcement by the Board. The additional information the new rule requires on demurrage billing statements will ensure demurrage is applied for its intended purposes: to promote an efficient rail network, and to eliminate, or at least reduce, unwarranted demurrage fees.

By taking action to update this practice, the STB has shown leadership on an important transportation issue. We look forward to the Board’s future work to further modernize U.S. freight rail policy, which will no doubt lead to a stronger, efficient and more competitive rail system—ultimately to the benefit of the economy and American consumers. 

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