Rail Fuel Surcharges Update

Date: January 31, 2007

Overview

On January 26, the STB issued its decision in the Rail Fuel Surcharges proceeding, Ex Parte No. 661. It adopted many, but not all, of the provisions included in its August 3, 2006 decision:

  1. Linkage Requirement: Fuel surcharge programs must be based on attributes of a movement that directly affect the amount of fuel consumed (i.e., miles or miles plus weight). Rate-based fuel surcharges are held to be an unreasonable practice. Carriers will have 90 days to implement new programs.
  2. Double Dipping: The application of both an escalation index with a fuel component (e.g., RCAF) and a fuel surcharge is held to be an unreasonable practice.
  3. Fuel Index: The STB did not mandate a specific index, though it encouraged use of the EIA index proposed in August.
  4. Exempt Traffic: The STB rejected its earlier proposal to partially revoke the existing class exemptions, which would have extended the new fuel surcharge rules to exempted categories of rail traffic.
  5. Contract Traffic: The STB found that it has no authority to regulate contract rail rates. The application of the STB’s decision to contract movements will be determined by the contract.
  6. Retroactivity: The findings in today's decision are not retroactive and only apply only for the future. A shipper would need to bring an individual complaint if it wanted to challenge the application of a fuel surcharge for the past. The STB did indicate that there has been a long history of rate-based fuel surcharges in the rail industry, and that in the 1970s the ICC specifically declined to require carriers to tie their fuel surcharges to mileage.

The Board rejected all other suggestions, and began a separate proceeding on rail carrier fuel reporting.

How the Decision Affects Your Rail Frieght Expenses

Because the STB’s decision does not apply to contract or exempt traffic, if you ship under contract or if your traffic is exempt from regulation, you should carefully review the terms of your contract or exempt circular to see whether and how the decision will apply to you. If you ship under a tariff, you should consider whether the tariff rate includes both a fuel surcharge and an escalation index (i.e., the RCAF). If so, your rail carrier may be improperly "double-dipping." You should also carefully monitor the carrier’s revisions to its fuel surcharge methodology, to be sure that the carrier is correctly implementing the Board’s decision. It has 90 days to do so.

As noted above, the decision does not apply retroactively. Though the Board does not rule out a challenge to past practices, it indicates that it was reasonable for rail carriers to rely on past precedent approving rate-based fuel surcharges. A remedy for past action against a specific railroad can only be awarded through a formal complaint proceeding.