STB Takes Action to Prevent Rail Carriers From Penalizing Shippers with Unreasonable, Excessive Demurrage Charges

featured image

When it took a proactive approach to addressing excessive and questionable demurrage charges, the Surface Transportation Board (STB) sent a clear message that business as usual was no longer acceptable. As Logistics Management observed, the Board’s new policies will promote greater “transparency, timeliness, and mutual accountability” when it comes to demurrage charges.

Demurrage charges are supposed to create incentives to keep the rail network running efficiently. But in practice, it has recently become just another revenue stream and profit center for rail carriers. In 2019 alone, shippers paid nearly $1.5 Billion in demurrage and related fees. That’s on top of all the other costs shippers pay to move goods and products.

Last year during a hearing before the STB, many customers testified that “they have no option but to pay the fees.” The CEO of a Pennsylvania scrap recycler said at the hearing that his company saw a 560 percent increase in demurrage fees in 2018 and through April of 2019, those fees had already tripled. The supply chain director for a food processing giant said railroads told him their terms were “the price of admission for you to be on our railroad.” A vice president of the world’s largest chlorine manufacturer said his company has seen “no benefit and only added costs” from demurrage fees. And the head of the nation’s Corn Refiners Association said current charges only “create new revenue streams for the railroads.”

It wasn’t just shippers who were critical of the railroad practices. Board member Martin Oberman wondered aloud, “I’m trying to understand if this makes sense for each shipper.”

The existence of demurrage charges is not inherently bad. These charges can provide legitimate compensation to carriers when shippers fail to unload rail cars when they’re supposed to. The problem arises when well-intended rail customers are subjected to unreasonable and excessive charges that penalize them for circumstances beyond their control.

In April, the STB issued a Policy Statement outlining the principles it will consider in evaluating the reasonableness of demurrage and accessorial rules and charges. The statement emphasizes that charges generally should not be assessed in circumstances beyond the shipper’s reasonable control. The Board’s action should help keep the rail network running efficiently while at the same time preventing the abuse of demurrage charges.