Grain shippers beg to differ.
“Many Class I carriers increasingly are using demurrage and accessorial charges as a significant additional revenue source to reward shareholders and impress Wall Street investors,” Randall Gordon, president of the National Grain and Feed Association, wrote in a letter to federal regulators this week.
The charges totaled $3.2 billion last year for the Class I systems and “far exceed what is necessary to achieve the stated purpose of encouraging the efficient use of rail assets,” Gordon wrote.
The Surface Transportation Board has questioned the fairness of the increased charges, which have been imposed as the industry shifts to operating models based on the principles of Precision Scheduled Railroading.
Harsh winter weather in the Midwest has delayed delivery of empty grain hoppers to local elevators. Railroads will catch up, but that likely means demurrage bills for grain shippers who cannot quickly load a glut of empties that arrive around the same time.
“I can understand the need for demurrage, especially when my company is at fault. What I can’t understand is why we would be liable for someone else’s mistake or a weather issue,” Grain Craft, the nation’s third-largest grain miller, wrote to the STB this week.
Class I chief executives have told federal regulators that the new charges apply to a small percentage of carloads that don’t move under contracts. The railroads also say they hope the charges will change customer behavior rather than be a source of revenue.
Faster loading and unloading of freight cars can reduce congestion and improve service because the number of cars online decreases, freeing up space in yards, railroads say.
They also say that customers receive credits when a railroad’s own service failure would otherwise result in demurrage penalties from cars spending more time at a customer’s facility or in a local serving yard.
Norfolk Southern CEO Jim Squires and Union Pacific CEO Lance Fritz were asked about the charges and their potential regulatory impact during an investor conference on Wednesday.
Squires says NS increased its charges in January but also increased credits for shippers if the railroad doesn’t hold up its end of the bargain by delivering cars as scheduled. NS also is working closely with customers, he says.
Fritz said he’d be happy if customer behavior changed immediately and the railroad didn’t collect an additional dime from the higher charges.
“The end game isn’t to collect the revenue, right? The end game is to change behavior, because those behavioral changes support consistent and reliable service, which is what customers want,” Fritz says.
UP says its policies are also balanced.
“If we screw up, there’s offsets,” Fritz explains.
