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More transparency coming on rail charges for ag sector

More transparency coming on rail charges for ag sector
STB issues final rule on rail demurrage charges to improve data on justification of costs imposed to rail customers.

The Surface Transportation Board announced the adoption of a final rule in demurrage billing requirements, a move welcomed by the agriculture sector which has been calling for changes in how the rail industry accesses charges. The final rule establishes certain minimum information requirements for demurrage bills from Class I railroads, including among other things, billing cycle, shipment, car placement and credit and debit information. 

Demurrage is a penalty charge assessed by railroads for the detention of cars by shippers or receivers of freight beyond a specified free time. Demurrage charges are an incentive to load/unload cars promptly and are also a tool used to prevent over-accumulation of railcars in yards and industrial sidings. The Agricultural Retailers Association says that excessive freight rates and demurrage charges impose higher price on retailers, farmers and consumers.

STB held a two-day public hearing in May 2019 to allow rail users to express their concerns about changes made by Class I railroads in assessing demurrage and accessorial charges and to permit the railroads to respond.  A common theme expressed during the hearing and in related comments was that Class I railroad demurrage invoices were confusing, difficult to verify and lacking in basic information about the shipments covered. 

Rail users suggested that the Board consider setting basic standards for invoices to promote uniformity and transparency. The requirements set forth in the final rule, adopted following two rounds of public notice and comment, and with substantial input from Class I railroads and rail users alike, will improve the transparency, clarity, uniformity and accessibility of demurrage invoices, STB says.

In adopting the final rule, Chairman Martin J. Oberman notes,  the rule, which the Board members adopted unanimously, represents a significant step toward ensuring basic transparency in demurrage bills and thereby helps to eliminate a source of unnecessary conflict between railroads and their customers. 

“In this regard, I anticipate that the rule will reduce the need for litigation or further regulatory intervention related to what should be fairly straightforward and routine commercial interactions,” Oberman says. “I further expect that the new rule will promote more productive dialogue between Class I railroads and rail users to either avoid unnecessary disputes over demurrage charges or hasten their resolution.”

National Grain and Feed Association Vice President of Economics and Government Relations Max Fisher, agrees. “The increased transparency required by this rule should help, at least somewhat, in rail shippers and receivers being able to validate the accuracy of the demurrage charges assessed by Class I railroads, which frequently are inaccurate and put a costly burden on rail customers to research and contest such charges.”

The minimum information adopted in the final rule represents what the Board has determined will have the greatest impact on the ability of rail users to review and verify the accuracy of demurrage charges and facilitate the resolution of disputes between railroads and their customers, STB says. 

In addition, the final rule establishes a machine-readable data requirement to ensure that rail users have the option to access machine-readable data containing the minimum information. In the decision issuing the final rule, the Board reiterated its expectation that all carriers take reasonable actions to ensure the accuracy of their invoicing processes and that their demurrage charges are warranted.

“The STB’s final rule will ensure greater transparency to Class I demurrage invoices by requiring the reporting of information used to determine the charges. NGFA commends the agency for rejecting the carriers’ arguments that no such requirements were warranted,” Fisher adds.

ARA President and CEO Daren Coppock says ARA has worked on this issue for quite some time and was pleased that the STB has finally released the final rule that it is sensible and practical.

"Assuring that rail service is dependable and provides consistent delivery to agricultural retail operations plays a critical role in an efficient and complex distribution system due to the large volume of product, the distance it must travel to get to a location, and the restricted seasonal time frame this must occur,” Coppock notes.

Agricultural retailers use railroads to transport crop input materials such as fertilizers and crop protection products because it's the safest, most secure and efficient mode of transportation of these chemicals.

Voluntary, not mandatory

As noted in NGFA’s June 2020 statement to the STB, NGFA did request that the STB go further than it did in its final rule by requiring carriers to provide additional information that would be useful to rail customers in determining the accuracy of demurrage invoices, including the date and time car orders are placed with the carrier, as well as the date and time that cars are actually spotted at or pulled from the facility for loading or unloading.

“Instead, the STB in its final rule encouraged railroads to provide this information on a voluntary basis,” Fisher says. “The NGFA also had advocated that the STB make its final rules applicable to invoices for accessorial charges that are designed to serve the same purpose as demurrage in encouraging the efficient use of rail assets.”

ARA also says it was pleased that STB took its testimony and comments seriously and “are hopeful they will continue to move other issues in the right direction for ag retailers to continue to serve their customers," Coppock says.

In testimony offer in 2019, ARA said its members estimated the adding shipping investment could cost roughly $800,000 or significantly more per facility. Many ARA member facilities do not have the physical room to expand in-house storage track installation to minimize demurrage costs, their testimony added.

“An ARA member informed us that in the first month of the new demurrage rules they experienced railroad charges from yard storage exceeding $130,000 and forcing them to try to source materials in subsequent months utilizing barge and truck transportation which increased product costs.”

TAGS: Policy
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