Transport Board Limits Rail Fuel Surcharges | Chemical & Engineering News
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Web Date: January 29, 2007

Transport Board Limits Rail Fuel Surcharges

Federal regulators agree with chemical shippers' claim that current surcharge practices are unfair
Department: Government & Policy

The chemical industry says it welcomes a decision by federal regulators banning excessive fuel surcharges by freight railroads and imposing strict rules on the extra fees rail carriers have been collecting in recent years to offset rising fuel costs.

"We are pleased that the Surface Transportation Board (STB) affirmed our position about the need for fairness in rail fuel surcharge practices," says Thomas E. Schick, the American Chemistry Council's (ACC) senior director for distribution. "We and other petitioners argued that current surcharge practices were unreasonable, and the STB agreed."

On Jan. 26, STB issued a final rule declaring it an unreasonable practice for railroads to compute fuel surcharges in a manner that does not directly correlate with actual fuel costs for specific rail shipments. The rule prohibits the assessment of fuel surcharges according to a percentage calculation of the base rate charged to shippers.

It also prohibits "double-dipping," which is the practice of applying to the same traffic both a fuel surcharge and a rate increase based on a cost index that includes a fuel component.

"Our decision brings common sense and fairness to the railroads' implementation of fuel surcharges," says STB Chairman Charles D. Nottingham. "This new rule will preclude them from selectively imposing surcharges in a manner that bears little relationship to actual fuel use."

At a hearing convened by STB in May 2006, ACC released the results of an economic analysis it commissioned that concluded the revenue generated by the rail fuel surcharges "greatly exceeds" actual fuel costs because of flaws in the methodologies used to calculate the surcharges.

The analysis, prepared by the economic consulting firm Snavely King Majoros O'Connor & Lee, estimated that rail fuel surcharges cost shippers—including the chemistry sector—roughly $1 billion in overcharges during 2005.

"Unfortunately, fuel surcharges are just the tip of the iceberg when it comes to unfair railroad business practices," Schick contends. "We will continue to press Congress and all appropriate regulatory agencies for fairness in every aspect of our relationship with the railroads."

Chemical & Engineering News
ISSN 0009-2347
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