ISRI Pushes Back Against Demurrage Charges

ISRI filed its initial (November 6) and reply comments (December 6) to the Surface Transportation Board arguing the demurrage charges imposed by the class 1 railroads at the beginning of 2019 were unreasonable and unjustified.

In April, ISRI tested and met with the Surface Transportation Board to explain the damage these demurrage charges were having on the scrap recycling industry. ISRI also pointed out that the railroads were actually causing most of the service disruptions through their unreliable service then passing along demurrage charges to their customers for their service failures. Specifically, ISRI explained how the railroads failed to complete orders for railcars then later provide too many cars resulting in bunching that resulted in most of the demurrage charges being charged. In the Association of American Railroad’s initial comments, they argued that demurrage is intended to improve the efficiency of the railroad system by incentivizing rail shippers to quickly turn their railcars. However, the railroads refused to acknowledge that in instances when service disruptions were not the fault of the shipper that demurrage would still not be charged.

In ISRI’s reply comments, we agreed demurrage charges are a useful tool to improve rail service but demurrage should work both ways. Since the 19080s, scrap processors have purchased large fleets of private railcars to move ferrous scrap. These large fleets of railcars elevated a significant capital requirement of the railroads helping them improve their bottom line in a time when the class 1 railroads were in finical difficulties. Under today’s rules, railroads have reduced the time to turn a private railcar to zero days thereby having the shipper almost automatically incur demurrage charges. The railroads in the spring STB hearings indicated that shippers could simply expand their facilities to handle more railcars to alleviate these demurrage charges. ISRI explained that expanding a scrap facility to handle more railcars is not practical in many instances since scrapyards are bordered by physical barriers such as rivers or other facilities. Additionally, ISRI argued the shippers should be permitted to charge railroads for the failure to return private railcars in a timely manner. We argued this reciprocal demurrage charge would also improve the performance of the nation’s rail networks which is the primary function of demurrage.

Other points ISRI pressed in our reply comments was that the railroads needed to ensure that their billing was accurate and to remove the appeals charges the railroads charge to contest a charge. We argued that technology made it much easier for the railroads to ensure their billing records were accurate and would not impose additional charges onto the railroads. Moreover, we argued that the railroads should not be permitted to charge its customers to challenge these inaccurate invoices. The STB in April also questioned why the railroads charged its customers to contest inaccurate charges.

Finally, ISRI requested the STB to revoke the commodity exemption for ferrous scrap since the exemptions are outdated and prevent ferrous scrap processors and steel consumers to challenge many rail practices without incurring significant charges just to bring the cases. Earlier, we challenged the market domination determinations used to prevent commodity exempted industries from using a more streamlined approach to challenge rail pricing and service disruptions. Currently the railroads can rely on the significant hurdles to prevent shippers form bring cases.

ISRI has taken a strong position in the last year to challenge the railroad’s monopoly powers as they have imposed precision scheduling railroading that relies on very large demurrage and other assessorial charges on its customers to punish shippers for any problem regardless of whether the shipper had any control over the situation while not taking any responsibility for poor service or inaccurate billing practices.

For more information about this issue contact Billy Johnson at (202)662-8548.


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