Why Freight Rail Needs Reform
A lack of competition, outdated regulations, and a handicapped federal agency allow poor delivery service, failure to provide notice of fee changes, and inadequate customer service, making it harder for shippers to depend on freight rail.
Those shippers include a substantial percentage of National Association of Chemical Distributors (NACD) members, such as Univar Solutions, who receive product via rail cars and depend on timely shipments to meet their customers’ needs. Questionable demurrage policies and charges and the move toward Precision Scheduled Railroading (PSR) are making freight rail a less desirable option.
Chemical distributors have been concerned about demurrage charges for years, but in the past 18 months some railroads have worsened the problem by reducing the time allowed to unload rail cars before being subject to demurrage fees.
Demurrage is intended to facilitate the flow of commerce through prompt loading and unloading of cargo. In general, the person liable for the demurrage is the one who assumed the duty to unload the cargo but failed to fulfill the responsibility. However, this process can break down, resulting in demurrage charges for shippers and excessive company staff time attempting to resolve problems, even those on the railroad’s side. As a result, demurrage fees have turned into a cash cow for freight rail operators.
In a recent survey of NACD members, 40% report that they had received wrongful demurrage and/or accessorial charges and in 60% of these cases, the rail carrier failed to provide on-time delivery before the charge was imposed. Most small businesses will not push back because of the big railroads’ lack of concern or fear of retribution, but many NACD members have filed complaints.
Of these companies, 70% were successful in disputing the charges. All—including many small businesses—had to spend valuable staff time disputing charges that the railroads should not have imposed in the first place.
PSR Slows Progress
The advent and implementation of PSR by Class I railroads exacerbates the unfavorable demurrage situation for rail customers. PSR has created cost savings for railroads while imposing enormous delays and service issues for rail customers and restrictive service conditions on shippers. Changes to the system—including establishing and enforcing reciprocal demurrage and a rollback of PSR—would improve the current situation and provide incentives for both customers and railroads to move product and rail cars more efficiently.
Under reciprocal demurrage, when the servicing railroad fails to pick up the rail cars, the shipper or receiver would charge the same daily demurrage rate and in the same time reference after constructive placement to the railroad company.
This reciprocal option would reduce the customer’s shipping charges, especially when they have done everything within their power to meet their end of the contractual agreement. Recent attempts at PSR have proven disastrous, and freight railroads should learn from their mistakes.
It is time for shippers and receivers to invoke a reciprocal demurrage fee structure and even-handed operating policies on the major rail providers that the U.S. Surface Transportation Board and other regulators should enforce.
It is only fair that both sides be motivated to do their part to ensure that shipments arrive as scheduled. This will create more favorable service for shippers and customers who depend on this critical mode to move products and our economy forward.