RAILROADS: The Board Issues Three Demurrage Decisions

On October 7, 2019, the Board concurrently served three decisions related to demurrage.  These decisions arose, at least in part, as a result of the testimony and comments provided in Oversight Hearing on Demurrage & Accessorial Charges, Ex Parte 754.  Comments on all three of these proposals were due on November 6, 2019, and reply comments were due on December 6, 2019. 


1.         Demurrage Policy Statement


The Board issued a proposed policy statement on demurrage and accessorial rules and charges.  Policy Statement on Demurrage & Accessorial Rules & Charges, Ex Parte 757 (STB served Oct. 7, 2019).  Specifically, the proposed policy statement sets forth certain principles the Board would consider in evaluating the reasonableness of demurrage and accessorial rules and charges.  Id., slip op. at 2.  The general principles of the proposed policy are described below.


Free Time: Free time is “the period of time allowed for a shipper or receiver to finish using rail assets and return them to the railroad before demurrage charges are assessed.”  Id., slip op. at 7.  The Board expressed concern over the reasonableness of railroads’ reductions in free time “that make it more difficult for shippers and receivers to contend with variations in rail service . . . .”  Id., slip op. at 12.  According to the Board, such reductions may be “incompatible” with the purpose of demurrage—encouraging “the efficient use of equipment by penalizing the undue detention of cars.” Id. (emphasis in original).  The Board recognized that reductions in free time might be justified by evidence showing, for example, that technological or productivity advances have made “compliance with the shorter time frames reasonable to achieve.”  Id., slip op. at 13.


Bunching: The Board stated that demurrage disputes over bunching, which occurs when rail car deliveries “are not reasonably timed or spaced,” are “best addressed in the context of case-specific facts.”  Id., slip op. at 4 n. 13, 14.  The Board explained, “Where rail carriers’ operating decisions or actions result in bunched deliveries and demurrage charges that are not within the reasonable control of the shipper or receiver to avoid, the purpose of demurrage is not fulfilled.”  Id., slip op. at 14.  The Board encouraged rail carriers to consider this principle in administering demurrage going forward.  Id. 


Overlapping Charges: The Board explained that, when adjudicating a specific case, the Board “would have significant concerns about the reasonableness of any tariff provision that sought to impose a charge, in addition to the otherwise applicable demurrage charge, for congestion or delay that is not within the reasonable control of the shipper or receiver to avoid.”  Id., slip op. at 15.


Invoicing and Dispute Resolution: The Board stated that it was “deeply troubled” by shipper and receiver reports that certain rail carriers’ demurrage invoicing processes are “difficult, time-consuming, and costly to dispute.”  Id., slip op. at 16.  The Board explained that “[t]ransparency and mutual accountability” are important aspects of establishing and administering reasonable demurrage and accessorial rules and charges.  Id.  The policy statement encourages Class I carriers to provide in demurrage invoices certain kinds of information at a car-specific basis, such as the waybill date, the status of each car (loaded or empty), and the commodity being shipped.  Id., slip op. at 16-17.  And the Board explained that it “expects rail carriers to bill for demurrage only when the charges are accurate and warranted . . . .”  Id., slip op. at 17.


Credits: The Board expressed concern over a “lack of reciprocity” regarding credits, “particularly where the expiration date of a credit, in effect, undermines the value of a credit or credits that were allocated for a problem or delay that was not within the reasonable control of a shipper or receiver.”  Id., slip op. at 18.  The Board also recognized that “credits issued for carrier-caused problems” serve a different purpose than “credits that function as a proxy for free time,” and that different expiration time frames might apply to different types of credits.  Id.  The Board explained that, in evaluating reasonableness, it would “evaluate how credit rules and practices are administered . . ., including, in particular, whether the shipper or receiver has been afforded a reasonable opportunity to make use of the credits in question . . . .”  Id.  The Board would also consider “the credits’ purpose and function.”  Id.  A system of compensating customers for the value of unused credits, rather than simply allowing them to expire, would allay the Board’s concerns.  Id.


Notice of Major Tariff Changes: The Board explained, “As a matter of commercial fairness, . . . railroads should provide sufficient notice of major changes to demurrage and accessorial tariffs to enable shippers and receivers to evaluate, plan, and undertake any feasible, reasonable actions to avoid or mitigate new resulting charges.”  Id., slip op. at 19.  The Board acknowledged that 49 U.S.C. § 11101(c) prescribes a 20-day notice period for changes to common carrier rates and service terms.  Id.


Demurrage Billing to Shippers Instead of Warehouseman: The Board stated that it concurrently was initiating a rulemaking proceeding, Ex Parte 759, to address this issue (discussed below).  Id., slip op. at 21.  The Board further encouraged railroads to collaborate with warehouseman and shippers on this issue.  Id.


The Board concluded by reiterating the following two principles: (1) “demurrage rules and charges are not reasonable when they do not serve to incentivize the behavior of shippers and receivers to encourage the efficient use of rail assets,” and (2) “transparency and mutual accountability by both rail carriers and the shippers and receivers they serve are important factors in the establishment and administration of reasonable demurrage and accessorial rules and charges.”  Id.  The Board further noted that it may revise this proposed policy statement after considering the comments received.


2.         Demurrage Billing Requirements


            The Board also issued a notice of proposed rulemaking regarding the Board’s demurrage liability rules.  Demurrage Billing Requirements, Ex Parte 759 (STB served Oct. 7, 2019).  In broad terms, the proposed rule consists of: “(1) certain requirements regarding Class I carriers’ demurrage invoices, such as minimum information to be included on or with those invoices, and (2) a requirement that Class I carriers send any demurrage invoice related to transportation involving a warehouseman to the shipper if the shipper and warehouseman have agreed to that arrangement and have so notified the rail carrier.”  Id., slip op. at 2.


3.         Exclusion of Demurrage Regulation from Certain Class Exemptions


            The Board proposed to clarify its regulations governing exemptions for certain miscellaneous commodities and boxcar transportation to clarify that demurrage continues to be subject to Board regulation.  Exclusion of Demurrage Regulation from Certain Class Exemptions, Ex Parte 760 (STB served Oct. 7, 2019).  The Board explained, “Although the regulations for these class exemptions have already been interpreted to effectively exclude the regulation of demurrage, the Board finds these regulations would be more easily understood by more clearly stating the demurrage exclusion.”  Id., slip op. at 1.  This decision also proposed to partly revoke the exemption covering certain agricultural commodities “to provide that the exemption does not apply to the regulation of demurrage related to the non-intermodal transportation of these commodities.”  Id., slip op. at 2.  The Board proposed this partial revocation based on its finding that “regulation of demurrage related to the non-intermodal transportation of these agricultural commodities is necessary to carry out the rail transportation policy of 49 U.S.C. § 10101.”  Id.

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