For many chemical distributors, freight rail provides an essential avenue to deliver the products Americans rely on every day. This National Transportation Week, as our supply chains adjust to accommodate new demand amid the coronavirus pandemic, it has never been so important for rail customers — many of which are NACD members — to be able to rely on efficient and affordable rail services in order to run their businesses successfully and serve their customers.
Unfortunately, certain Class I railroads have engaged in activities that handicap the viability and affordability of these delivery methods. Several factors — including a lack of competition in the freight rail space and outdated regulations — have made it harder for chemical distributors to depend on freight rail.
Chief among these is questionable demurrage policies that reduce the amount of time allowed to accept rail cars before being subject to fees. While demurrage is intended to serve the public interest by facilitating the flow of commerce through the prompt loading and unloading of cargo, it has instead turned into a cash cow for Class I railroads, which provide no opportunity to negotiate the terms of delivery with customer service.
This problem is widespread. New data from our latest membership survey on rail usage revealed that 44.4% of respondents using rail services reported they were assessed a demurrage and/or accessorial charge in the last six months of 2019. Just over half of the charges imposed were successfully disputed. The success rate for disputes stayed about the same as the prior year — suggesting these charges are not being applied properly across the board.
Thankfully, the U.S. Surface Transportation Board (STB) has taken a number of steps to address these concerns. Last week, STB issued a final policy statement outlining that demurrage rules and charges may be unreasonable when they do not serve to encourage the efficient use of rail assets and that transparency, timeliness, and mutual accountability by both railroads and their customers are important factors for reasonable rules and charges. They are also seeking comments on potential changes to Demurrage Billing Requirements in areas such as adding to the minimum information requirements for rail invoices, including more accurate information about the date and time cars are received at interchange and ordered into a rail customer’s facility, and to require railroads to provide data files that can be easily processed by a computer.
That said, there’s still more that can be done to create a more favorable rail service environment. To provide incentives for both customers and railroads to move product and rail cars more efficiently, STB should implement reciprocal demurrage — an arrangement in which the shipper or receiver would charge the same demurrage rate per day to the railroads when they fail to pick up or deliver rail cars. This provides railroads with a reason to move product and rail cars more efficiently and would help rail customers to recoup some of the costs of lost business to provide a platform for competitive switching so that single-sourced locations can enjoy appropriate pricing for their rail service.
This National Transportation Week, these reforms have never been so important as we all do our part to keep America moving and deliver the products our communities need most.