The Surface Transportation Board (STB) is seeking to clarify how it should guide the rail industry in assessing demurrage and accessorial charges on shippers, based on the questions board members asked on the second day of a two-day hearing on those charges.
“The board has the authority to define reasonable practices. If you were in our shoes, what would you do?” said board vice chairman Patrick Fuchs to a panel representing BNSF (NYSE: BRK), Canadian National (NYSE: CNI) and Canadian Pacific (NYSE: CP).
On Day One of the May 22-23 hearing, shippers complained about how the railroads levy the charges, while the railroads defended their actions. Demurrage is issued when cargo exceeds time allotted sitting at a terminal. Accessorial charges are charges made for performing freight services beyond normal pickup and delivery.
On Day Two, two themes appeared to play out in the STB’s line of questioning. One theme was how the railroads and shippers can relieve the bunching of railcars, which occurs when railcar deliveries by the railroad to the shipper aren’t spaced out properly. Bunching can lead to demurrage and accessorial charges because they can prevent shippers from moving the cars out in a timely fashion.
The second theme was if and how the Board should define when it’s appropriate for the railroads to administer those charges.
“How do you define what is the behavioral change? I guess I’m just missing the criteria” and the actual measurements that warrant a railroad to apply those charges on shippers, Fuchs said.
The railroads claim that the fees – knowns as demurrage and accessorial charges – are necessary to incentivize shippers to help railroads carry out precision scheduled railroading (PSR), a cost-cutting operational strategy that almost all of the major railroads have rolled out in some form.
But shippers in oral and written testimony have argued that the railroads can penalize shippers in situations where the railroad is the cause for the delay and not the shipper. This can occur when the railroads bunch deliveries of railcars.
The railroads have also shortened the timeframe of how long a shipper can hold the railcars in an effort to reduce the dwell time of railcars and move the railcars out faster. But shippers say it’s challenging to comply with those modified timeframes, especially when railcar bunching occurs.
Shippers’ written testimonies can be found by searching here and using proceeding number Ex Parte (EP) 754.
Shippers recommended that the Board develop a policy statement establishing standards that would evaluate the reasonableness of the railroads’ practices on demurrage and accessorial charges. Shippers also want the STB to initiate a rulemaking proceeding on how to dispute demurrage and storage charges, and they want the Board be willing to use its investigative authority in specific situations.
Terminal operators want the Board to reconsider how it should modify a prior 2014 STB ruling in which terminal operators, acting as co-signees for shipments, became liable for demurrage.
Steve DeHaan, chief executive officer of the International Warehouse Logistics Association, said the STB should define demurrage as occurring at least 48 hours after the actual placement of a railcar. The Board should also collect data that would track the time and dates for when shipments are released and received.
“There’s nothing our receivers can do” to prevent getting levied with demurrage because we don’t actually control the railcars, DeHaan said. “Without control of the cars, we can do nothing.”
Meanwhile, the railroads laid out why developing guidance for the fees would be challenging.
The rules governing when Kansas City Southern (NYSE: KSU) applies those fees are made on a case-by-case basis, said chief marketing officer Mike Naatz.
“The rules in the system are designed to create efficiency,” Naatz said. Implementing technology could help, but so many factors contribute to bunching, such as problems occurring with other railroads, which can impede interchanging shipments, or issues happening upstream or downstream, he said.
The railroads also rely on shippers to provide them with accurate volume forecasts, which can help ensure adequate track capacity and storage. Shippers can also more closely align with a railroad’s 24/7 loading and unloading schedule and utilize tools for managing invoices and ordering from the company’s supply chain pipeline, said Pam Arpin, CP assistant vice president for customer and corporate services.
“I don’t want demurrage. From an operational point of view, we don’t want to collect that,” said Derek Taylor, CN vice president of the southern region.
Forecasting customer demand is “a huge part of what we do. We want to be nimble and customer-centric, but we can’t always be as nimble,” he said. Some commodities have had some pretty significant swings over the past decade, Taylor said, and that can affect service.