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On April 30, the Surface Transportation Board (Board) issued three decisions addressing railroad demurrage and accessorial rules and charges, which have raised significant concerns among freight rail users and the Board over the past year. The decisions include a policy statement that clarifies the principles the Board would consider when evaluating the reasonableness of these items; a final rule directing Class I railroads to bill demurrage charges to the shipper when a shipper and third-party intermediary (e.g., warehouseman or terminal operator) so agree and notify the carrier; and a supplemental notice of proposed rulemaking (SNPRM) inviting comments on modifications to the Board’s proposed demurrage billing requirements. The policy statement will be effective on May 30, 2020; the final rule on June 20, 2020. Comments on the SNPRM are due June 5, 2020; replies on July 6, 2020.

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The decisions follow controversial changes many large freight railroads have made to their demurrage and accessorial rules and charges in recent years as they were implementing lean operating plans that employed a concept known as precision scheduled railroading. With little notice, railroads had substantially reduced free time allowed for the receipt, loading and unloading of railcars and implemented new arbitrary charges for customer caused delay and congestion. In May 2019, the Board held a two-day hearing to receive information about rail transportation stakeholders’ experiences with demurrage and accessorial charges. Many rail users expressed concern about the recent changes to railroad demurrage and accessorial rules and charges, insufficient information to audit demurrage and accessorial charges, and insufficient opportunities to challenge these charges. In October 2019, the Board issued a proposed policy statement and billing rule to address several of these issues.

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In docket EP 757, the Board issued a <a href="https://dcms-external.s3.amazonaws.com/DCMS_External_PROD/1588285448256/50166.pdf" target="_blank" rel="noopener">policy statement</a> identifying the general principles it would consider when evaluating the reasonableness of demurrage and accessorial rules and charges. It expects that the policy statement will facilitate efficient private resolution of disputes and help eliminate unnecessary future disputes.

The statement articulates two fundamental principles pertaining to the reasonableness of demurrage and accessorial rules and charges. First, demurrage is unreasonable when it does not incentivize the efficient use of rail assets (e.g., railcars and track). Under this principle, assessing demurrage charges when a rail user cannot avoid them due to circumstances beyond its reasonable control would generally be unreasonable. Second, transparency, timeliness and mutual accountability are important factors in establishing reasonable demurrage and accessorial charges.

The statement applies the general principles to the following key demurrage and accessorial issues:

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The policy statement also suggests that demurrage would be unreasonable where it arises from a missed switch, transit days to move cars from constructive placement in remote locations, bunched deliveries or changes in historical railroad practices on which the user has long relied. In these circumstances, a rail customer likely will not be able to reasonably avoid the charges.

The Board’s use of guiding principles in the policy statement provides railroads with flexibility to determine how they implement and administer reasonable demurrage and accessorial rules and charges. The use of guiding principles also reflects that the Board will evaluate these rules and charges on a case-by-case basis, considering all facts and arguments presented.

In docket EP 759, the Board issued a <a href="https://dcms-external.s3.amazonaws.com/DCMS_External_PROD/1588285483477/50217.pdf" target="_blank" rel="noopener">final rule</a> requiring Class I railroads to bill the shipper for demurrage arising on rail cars delivered to a third-party intermediary (e.g., warehouseman or terminal operator) if the shipper and third-party intermediary jointly notify the carrier that they agreed the shipper will be responsible for payment. This rule addresses concerns expressed by third-party intermediaries that carriers were billing them for demurrage in circumstances where the shipper was in the best position to avoid it. It also promotes the efficient use of rail assets by enabling shippers and warehousemen to enter direct-billing arrangements reflecting their determination of who is best able to avoid demurrage.

Under the rule, shippers and third-party intermediaries can require carriers to direct bill the shipper by providing joint written notice (electronic or hard copy) to the carrier that they have agreed to the direct-billing arrangement. The notice must be provided at least 20 days before the direct billing will begin and must contain the shipper’s contact information. A shipper or third-party intermediary may end the carrier’s direct-billing obligation by notifying the carrier that the underlying direct-billing arrangement has been terminated.

A railroad may not require a third-party intermediary to guarantee shipper payment as a condition of direct billing the shipper. Also, although a shipper who agrees to direct billing is responsible to the railroad for payment of demurrage charges, the shipper may seek reimbursement of the charges from the third-party intermediary to the extent permitted under their agreement.

In docket EP 759, the Board issued an <a href="https://dcms-external.s3.amazonaws.com/DCMS_External_PROD/1588285506237/50165.pdf" target="_blank" rel="noopener">SNPRM</a> inviting comments on modifications to the minimum demurrage billing information requirements the Board proposed in its October 7, 2019 notice of proposed rulemaking (NPRM) on demurrage billing. These modifications would require additional information in demurrage bills and access to demurrage data in machine-readable format. They also address the Board’s proposed requirement that railroads take appropriate action to ensure demurrage charges are accurate and warranted.

The Board proposes the following additional invoice information:

The Board’s proposal to require railroads to provide demurrage data in machine-readable format reflects comments to the NPRM indicating that machine-readable invoicing may make the process of verifying charges less burdensome. In addition to general comments on this proposed requirement, the Board seeks specific comments on:

Concerning the NPRM proposal that carriers take appropriate action to ensure demurrage charges are accurate and warranted before sending demurrage invoices, the Board is seeking additional information regarding what would constitute appropriate action. Although the Board recognizes that whether an action is appropriate is a fact-specific inquiry, it seeks comments from all freight rail stakeholders on the actions Class I carriers reasonably should be required to take to ensure demurrage invoices are accurate and warranted.

Karyn A. Booth 202.263.4108 <a href="mailto:Karyn.Booth@ThompsonHine.com">Karyn.Booth@ThompsonHine.com</a>

Sandra L. Brown 202.263.4101 <a href="mailto:Sandra.Brown@ThompsonHine.com">Sandra.Brown@ThompsonHine.com</a>

Jeff Moreno 202.263.4107 <a href="mailto:Jeff.Moreno@ThompsonHine.com">Jeff.Moreno@ThompsonHine.com</a>

David E. Benz 202.263.4116 <a href="mailto:David.Benz@ThompsonHine.com">David.Benz@ThompsonHine.com</a>

Jason D. Tutrone 202.263.4143 <a href="mailto:Jason.Tutrone@ThompsonHine.com">Jason.Tutrone@ThompsonHine.com</a>

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STB Issues Demurrage Policy and Direct-Billing Rule; Proposes Billing Requirement Modifications

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