STB Issues Final Policy Statement on Demurrage and Accessorial Rules and Charges
Client Alert
On April 30, 2020, the Surface Transportation Board (Board or STB) culminated a process that began in the Fall of 2018 with the issuance of a final policy statement that provides shippers, receivers, and railroads with information on the principles the Board will consider when evaluating the reasonableness of demurrage and accessorial rules and charges in formal complaint cases. In general, the Policy Statement provides much needed guidance in key areas where disputes have arisen. The Board’s involvement in this area was prompted in large part by its receipt of a significant number of complaints from rail shippers and receivers of unfair and onerous practices and charges being imposed by the Class I railroads as part of their implementation of “precision scheduled railroading,” a strategy that requires major changes to rail operations and reductions in equipment and personnel to achieve its goals of lower operating ratios and achieving efficiencies. These complaints resulted in the Board instituting EP 754, Oversight Hearing on Demurrage and Accessorial Charges, where the Board received input from dozens of industry stakeholders on railroad practices and suggestions for changing the status quo.
The Board declined to make any binding determinations as to the reasonableness of any particular rule, practice or charge, and the Policy Statement does not require uniformity from Class I rail carriers with respect to their demurrage and accessorial rules and charges. Moreover, the Policy Statement does not provide any guidance on how the reasonableness of the level of a demurrage or accessorial charge would be determined, only whether the charge should be imposed at all. Rather, the twin purposes of the Policy Statement are to provide guidance to parties to reach commercial resolutions to such disputes, and to inform stakeholders of the principles the Board will apply in a formal case while examining the particular facts of the dispute.
Shippers and receivers should carefully review the demurrage and accessorial rules and charges in the tariffs of the Class I carriers they deal with, as well as the billing and dispute resolution practices of such carriers, in light of the principles set out in the final Policy Statement. These principles are summarized herein.
The overarching principles of the policy statement, issued in Docket No. EP 757, Policy Statement on Demurrage and Accessorial Rules and Charges are that in order for demurrage and accessorial rules and charges to be reasonable they must (1) serve to incentivize shippers and receivers to encourage the efficient use of rail assets and (2) promote “transparency, timeliness, and mutual accountability” by both rail carriers and the shippers and receivers they serve. Although the Board recognized that a rail carrier is entitled to assess demurrage charges on a shipper when it uses equipment or track beyond a specified period, a railroad is not entitled to compensation for delays attributable to the railroad and outside of a shipper’s control. The key aspects of the Policy Statement implementing these main principles are as follows:
1. The Policy Statement applies to accessorial charges and rules.
A significant clarification in the final Policy Statement sought by rail shippers and receivers is that its principles apply to “accessorial” charges and rules “that are designed or intended to encourage the efficient use of rail assets.” Accessorial charges are not defined in any statute or regulation, but are generally defined to be charges other than linehaul charges. This clarification is important for many rail shippers, such as unit train shippers, who do not typically incur demurrage charges but are assessed similar accessorial charges for not having trains ready when required by a railroad’s tariff, or when locomotives are removed from trains while they are being loaded or unloaded.
2. Charges may not be assessed for circumstances beyond the shipper’s or receiver’s reasonable control.
A critical aspect of the Policy Statement favorable to rail shippers and receivers is that it proceeds from the fundamental premise that the purpose and objective of demurrage and comparable accessorial charges is to incentivize behavior to encourage efficiency. As such, if a charge is imposed in circumstances where the shipper’s or receiver’s behavior cannot be incentivized because the circumstances are out of its reasonable control, then the charge may not be assessed. In making this decision the STB rejected arguments from the Association of American Railroads and its Class I railroad members that railroads should always be paid the “compensation” portion of a charge regardless of shipper fault.
3. Free time must take into account railroad service variability.
In the policy statement, the Board declined to establish a minimum amount of “free time,” which is the time period a rail car could be in the possession of a shipper or receiver before a charge may be assessed. However, the free time provided by the rail carrier must be reasonable and consistent with the overarching objective and purpose of demurrage stated above. Accordingly, reductions in free time that do not serve to incentivize the behavior of shippers are likely to be found unreasonable. Significantly, the Board stated it “continues to have serious concerns about the adverse impacts of reductions in free time … if rail carriers do not have reasonable rules and practices for dealing with, among other things, variability in service and carrier caused-bunching, and for ensuring that rail users have a reasonable opportunity to evaluate their circumstances and order incoming cars before demurrage begins to accrue.”
Examples of unreasonable free time and free time reductions include: missed switches, charging demurrage to move cars from “constructive placement” (cars stopped short of the shipper’s facility) from remote locations, carrier-caused bunching of railcars, and sudden changes to historical practices, such as reduced switch days or delivery frequency. The Board recognized in some instances a reduction in free time may be justified. However, in those instances, the rail carrier must be able to produce evidence that those reductions are warranted.
4. Railroad demurrage policies must take into account the actions of upstream carriers.
The Board acknowledged that bunching (the practice of a railroad delivering to a facility or interchange point many more cars than a facility can physically handle) is a significant problem in the industry today, and it stated that disputes over the assessment of charges where bunching occurs will continue to be considered on a case-by-case basis. Significantly, however, the Board stated, “it is the Board’s view that carriers should consider the actions of upstream carriers when administering their demurrage rules and charges.” This view is in reaction to the testimony of numerous shippers that bunching is often caused by the Class I railroads who interchange cars with the railroad who ultimately delivers the cars to the shipper’s facility. In adopting this view, the STB rejected Class I railroad arguments that they have no legal obligation to deal with bunching by upstream carriers. The strong implication in Policy Statement is that railroads should attempt to resolve bunching issues between themselves before trying to foist all the costs from bunching onto the party ultimately receiving the railcars. The Board also encouraged railroads to ensure that their automatic billing processes and dispute resolution procedures account for carrier-caused bunching, implying that the failure to do so would be considered an unreasonable practice.
5. Invoicing and dispute resolution practices must be transparent and timely, and there must be mutual accountability.
The Policy Statement responds to the complaints from shippers and receivers about the billing and dispute resolution practices of many Class I railroads, concluding, among other things, that “demurrage charges are difficult, time-consuming, and costly to dispute and that invoices are often inaccurate or lack information needed to assess the validity of the charges.” In general, the Board articulated a policy that “if carrier rules and practices effectively preclude a rail user from determining what occurred with respect to a particular demurrage charge, then the user would not be able to determine whether it was responsible for the delay; the responsible party would not be incentivized to modify its behavior; and the demurrage charges would not achieve their purpose.”
To encourage more transparency the Board encouraged all Class I carriers, at a minimum and on a car-specific basis, include the following in its invoices: the unique identifying information of each car, the waybill date, the status of each car as loaded or empty, the commodity being shipped, the identity of the shipper, consignee, and/or care-of party, the origin station and state of the shipment, the dates and times of actual placement, constructive placement (if applicable), and notification of constructive placement (if applicable). The Board also indicated that it expects rail carriers to bill for demurrage only when the charges are warranted, and to send invoices on a regular and timely basis.
As to providing guidance or prescriptive action on appropriate time frames to dispute demurrage charges, the Policy Statement makes it clear the Board will have serious concerns about dispute resolution processes that impose a short deadline to dispute charges or a process that places no meaningful restriction on the time carriers can take to respond. With respect to comments calling for the establishment of streamlined dispute resolution procedures, the Board responded that formal mechanisms already exist, both within and outside of the Board’s purview, and that arbitration could be a means to resolve some demurrage disputes.
6. Rail users should be paid the value of unused demurrage credits.
The Policy Statement also addresses a disputed area in the Class I carriers’ demurrage programs by which demurrage credits are awarded for meeting free time requirements and debits are assessed for exceeding free time. Specifically, under most Class I demurrage programs, earned credits that are not used to offset debits expire at the end of the month, thereby reducing their value. In the Policy Statement, the Board confirmed its proposal in the draft policy statement that rail users should be compensated for the value of unused credits at the end of the month. The Board clarified that it is not suggesting credits should never expire. However, it believes that compensating rail users for unused credits may hold rail carriers accountable for service failures and make rail users less likely to incur future demurrage charges that could be offset by the credits.
7. Overlapping charges likely to be found unreasonable.
The Board indicated that when adjudicating specific cases, it would have significant concerns about a tariff provision that imposed a charge that was intended to serve the same purpose as demurrage, or a charge arising from the assessment of demurrage for congestion and delay that is not within the reasonable control of the rail user to avoid. Such “overlapping” charges would likely be found to be unreasonable.
8. Railroads encouraged to provide sufficient notice of major tariff changes.
Finally, the Policy Statement encourages railroads to provide “sufficient notice of major changes to demurrage and accessorial tariffs …,” recognizing that 49 U.S.C. §11101(c) only requires carriers to provide 20 days’ notice. The Board noted that some carriers testified they generally provide between 45-60 days’ notice of changes, and that these timeframes might still not be sufficient for some tariff changes.
The policy statement will go into effect on May 30, 2020.