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May 16, 2006

INDUSTRY

Rail Shippers Decry Fuel Surcharges

Freight customers claim they are being overcharged as railroads add on fuel costs

Glenn Hess

Shippers of chemicals and fertilizers are charging that railroads are profiting unfairly by imposing unnecessarily high surcharges to offset their rising fuel costs.

At a May 11 hearing by the Surface Transportation Board in Washington D.C., shippers complained that recent fuel surcharges collected by railroads are designed to recover amounts over and above increased diesel fuel costs.

The Surface Transportation Board, a part of the Department of Transportation, oversees rail rate and service disputes. Shippers are asking the board to change how railroads calculate and assess fuel surcharges.

Thomas E. Schick, the American Chemistry Council’s senior director for distribution, told the board that shippers are being overcharged because of flaws in the methodologies that railroads use to calculate the add-on fees.

According to an analysis prepared at the request of ACC by the consulting firm Snavely, King, Majoros, O’Connor & Lee, the manner in which fuel surcharges are calculated and applied by the railroads has resulted in an “over-recovery in the range of $1 billion for 2005.”

Judy Gillies, director of transportation for J. R. Simplot Co.’s Agribusiness Group, testified at the hearing that rail customers are typically paying substantially more in fuel surcharges than railroads are incurring for each movement. She also noted that fuel surcharge assessments are changed monthly by the railroads.

“This swing in rail rates makes planning and pricing difficult for each fertilizer season,” said Gillies, who testified on behalf of the Fertilizer Institute. As an example, she said that if the fuel surcharge changes from 10% to 13%, the difference on a $45 per ton rate is $1.35 per ton. “When multiplied by the millions of tons of fertilizer shipped on railroads each year, the impact to the industry is significant,” Gillies pointed out.

Gillies said shippers appreciate the need for railroads to recover incremental fuel costs. “However, we request that the methodologies used to assess fuel surcharges be based upon cost of fuel used for a particular move. Additionally, we ask the board to require full disclosure of fuel costs to the shipper.”

Railroad officials testified that they are not profiting from the surcharges. Burlington Northern Santa Fe Railway Co.’s fuel surcharge program “has not resulted in BNSF’s fully recovering fuel costs above the threshold price at which the surcharge takes effect,” said Thomas N. Hund, BNSF’s executive vice president and chief financial officer.

STB officials did not give any indication how or when they might respond to the concerns expressed at the hearing, which was held for the purposes of gathering information. "I don't know which way the STB is going to go, but there were a lot of calls for change." Schick told C&EN.

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