Transportation Update: STB Proposes Changes to Fuel Surcharge Practices

Date: August 03, 2006

Overview

On Thursday, August 3, 2006, the Surface Transportation Board (“STB”) proposed several measures to improve the accuracy and fairness of railroad fuel surcharge practices. The proposals come after much public criticism levied against railroad industry practices that led to an STB hearing on May 11, 2006. At the hearing, shippers expressed deep dissatisfaction with the methods used by the railroads in assessing fuel surcharges. The measures proposed by the STB address many of the concerns expressed by shippers and require substantial changes in the fuel surcharge practices of the railroad industry.

Proposal Specifics

Under the proposed measures, a railroad wishing to assess a fuel surcharge would be required to develop a computation more closely linked to its increased fuel costs attributable to a particular movement. Although the STB proposal does not prescribe a specific computation, it does require fuel surcharges to be tied to attributes that directly affect the amount of fuel consumed, such as weight and mileage.

Additionally, the STB proposal responds to a number of other shipper concerns:

  • Railroads would be prohibited from “double dipping,” a practice that involves charging for the same fuel-cost increases for the same shipment both through a fuel surcharge and through application of a rate escalator based on an index that already includes fuel, such as the STB’s Railroad Cost Adjustment Factor (RCAF);

     

  • Railroads would be required to use the Energy Information Administration “U.S. No. 2 Diesel Retail Sales by All Sellers (Cents per Gallon)” as an index of fuel-cost increases; and
  • Each Class I railroad would submit a monthly report to the agency showing the railroad’s actual total fuel costs, total fuel consumption and total fuel surcharge revenues, as well as how much of its total fuel surcharge revenues were shared with its shortline connections.

     

The STB rejected railroad industry assertions that a fuel surcharge is a rate and not a practice because the proposed measures do not address the actual amount a railroad can charge, but instead addresses the manner in which fuel surcharges are applied. Thus, the proposed rules would not be limited to cases of market dominance. Moreover, the STB said that it can issue rules of general applicability to address an unreasonable practice.

Lastly, the STB proposed to partially revoke exemptions, under 49 U.S.C. 10502, to the extent necessary to apply the proposed fuel surcharge measures to such traffic. As for contract moves, the impact of this proposal depends upon the provisions of a contract incorporating a fuel surcharge, and shippers would have to review their contract provisions on a case-by-case basis.

For More Information

Public comment on the Rail Fuel Surcharges proposal are due on September 25, 2006.

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