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

Transportation Update

Date: May 01, 2020

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.

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.

Policy Statement

In docket EP 757, the Board issued a policy statement 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:

  • Free time. The Board expressed concerns about free time reductions where a railroad does not adequately address service variability or carrier-caused bunching or provide an opportunity for rail users to order incoming cars. In these circumstances, free time reductions may not encourage the efficient use of rail assets.
  • Bunching. The Board stated that the purpose of demurrage is not fulfilled where railroad operating decisions or actions by the delivering carrier or an upstream carrier cause bunched deliveries that make demurrage charges unavoidable. But it also recognized that bunching must be addressed on a case-by-case basis because of the various circumstances in which it may arise.
  • Accessorial charges. The Board explained that accessorial charges are subject to the policy statement to the extent their purpose is to promote the efficient use of rail assets.
  • Overlapping charges. The Board clarified that it would have concerns with overlapping charges intended to serve the same purpose as demurrage. It would also have concerns about a charge that applies in addition to demurrage for congestion or delay that a rail customer cannot reasonably avoid.
  • Invoicing and dispute resolution. The Board stated that invoices should provide certain minimum information to enable rail users to efficiently review and dispute demurrage charges. It also stated that railroads should provide reasonable and balanced time periods for a rail customer to seek information about and dispute a demurrage charge and for a railroad to respond to a dispute. According to the Board, a demurrage charge would not incentivize efficient use of rail assets if the rail customer cannot determine why the charge arose or if it was not responsible for the use.
  • Credits. The Board stated that a lack of reciprocity between demurrage credits and charges is troubling, especially where credits expire before they can be used to address the problem or delay for which they were awarded. It suggested that compensating rail users for these credits at the end of each month would address this concern and make rail carriers more accountable for the service failures that often result in demurrage charges in the first place.
  • Notice of major tariff changes. The Board stated that railroads should provide adequate notice of major changes to their demurrage and accessorial tariffs to enable rail users to take reasonable actions to avoid or mitigate resulting demurrage charges. This may require longer notice than the 20 days required by statute for tariff changes.

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.

Direct Billing Shippers Final Rule

In docket EP 759, the Board issued a final rule 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.

Billing Requirements SNPRM

In docket EP 759, the Board issued an SNPRM 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:

  • Billing cycle information. The Board would require demurrage invoices to include the date range covered by the invoice. This would enable recipients to better correlate charges to their own records.
  • Original ETA and the date and time cars are received at interchange. The Board is evaluating whether to require invoices to include the original estimated date and time of arrival (ETA) of each car, as established by the invoicing carrier (Original ETA), and the date and time the delivering carrier received each car at interchange. This information may help rail users identify delays and carrier-caused bunching that resulted in invalid demurrage charges. The Board requests general comments on requiring this data and specific comments on whether the date and time cars were received at interchange should be limited to the last interchange with the invoicing carrier and whether the invoicing carrier should be required to provide this data only upon reasonable request.
  • Ordered-in date and time. The Board proposes requiring invoices to contain the date and time cars were ordered into a rail user’s facility. This could be valuable information for both calculating demurrage charges and verifying that they are appropriate.

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:

  • Ways to ensure that machine-readable invoicing information would not be in a format that renders it inaccessible to rail users who do not have the resources for coding or upfront costs necessary to make the information useable.
  • Issues pertaining to small rail users’ accessibility of machine-readable data and whether machine-readable data would provide them with greater access to information.
  • How to define “machine-readable.”

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.

FOR MORE INFORMATION

For more information, please contact:

Karyn A. Booth
202.263.4108
Karyn.Booth@ThompsonHine.com

Sandra L. Brown
202.263.4101
Sandra.Brown@ThompsonHine.com

Jeff Moreno
202.263.4107
Jeff.Moreno@ThompsonHine.com

David E. Benz
202.263.4116
David.Benz@ThompsonHine.com

Jason D. Tutrone
202.263.4143
Jason.Tutrone@ThompsonHine.com

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