- The Surface Transportation Board has adopted new regulations requiring railroads to assess demurrage against beneficial owners of freight when that owner and a warehouse agree to transfer that responsibility by contract.
- The agency issues a notice of proposed rulemaking on what information a railroad must include in a demurrage bill.
- Most importantly, the agency issues guidance on the criteria it will apply in determining the lawfulness of carrier demurrage tariffs.
Transportation companies often have high capital investment, and using those assets efficiently is a key to profitability. Yet, utilization is often controlled in part by customers and third parties such as warehouses, ports or terminals. This makes tariffs designed to create incentives to avoid delaying equipment (demurrage or detention charges) a central part of any carrier's business model and a frequent point of contention with its customers or third parties. These kinds of issues are encountered across transportation modes.
The Federal Maritime Commission (FMC) has just addressed some of these issues in a new interpretive rule. (See Holland & Knight's alert, "FMC Issues Final Interpretive Rule on Demurrage and Detention," May 20, 2020.)
Similarly, the Surface Transportation Board (STB) has addressed demurrage issues numerous times in recent years and recently released three decisions that, taken together, reflect a balancing of regulatory mandate and free market flexibility for carriers, customers and other stakeholders.
The STB's decision in Demurrage Billing Requirements, EP 759 (STB served Apr. 30, 2020) is an interesting use of regulation to constrain carriers in a context that allows warehouses and their customers to contract into those constraints. The decision addresses a frequent point of contention: warehouses control the loading and unloading of freight cars, yet the warehouseman is seldom the beneficial owner of the freight. Its commercial interest is limited to the narrow (albeit valuable) services that it provides to the buyer or seller of the goods (the shipper). From the warehouseman's perspective, it is unfair to require it to pay demurrage on cars that are sent to it by the shipper as part of the carrier-shipper transportation arrangement to which the warehouse has no part. From the railroad's perspective, the warehouseman controls when cars are loaded and unloaded, and delay in release of cars must be charged to the warehouse. Most shippers share the carrier's perspective that the efficient loading and unloading of freight at the warehouse is the warehouseman's responsibility. The STB's solution: the warehouse and the shipper can allocate the responsibility for demurrage between themselves. If they do that and then jointly notify the railroad, the railroad will, by the new regulation, be required to honor that allocation. If the shipper and warehouse tell the railroad to bill the shipper, the railroad will have to devise a system to separate out the demurrage for that particular shipper from all other cars held at that warehouse and look solely to that particular shipper for its subset of cars.1 In the absence of such an arrangement between warehouse and shipper, the railroad will bill the warehouse, which will be responsible to the carrier for the tariff charges. By imposing a regulatory obligation on the railroad, the agency has created a commercial option for the shipper and warehouse.
In a second decision in that same docket, the STB has proposed to mandate the information that must be included in demurrage bills. Some of the information proposed seems fundamental to calculation of demurrage: the unique identifying alpha-numeric for each car, the date and time placed, and the date and time released. These are obviously part of any demurrage calculation. Other proposed information seems tangential at best and irrelevant at worst: the commodity in each car has nothing to do with calculating detention of the car, and the originating carrier's estimate of arrival date when the car is shipped has little to do with the date the destination carrier placed the car. Still, the STB suggests a very reasonable compromise in the form of an alternative requirement that would have carriers provide some of this tangentially relevant information upon reasonable request – but only in the event of a bona fide dispute over demurrage bills.
In the most important of the recent demurrage decisions, Policy Statement on Demurrage and Accessorial Rules and Charges, EP 757 (STB served Apr. 30, 2020), the STB issued a policy statement to provide stakeholders with information on principles it will consider in evaluating the reasonableness of demurrage and accessorial rules and charges. The agency's power to adjudge the reasonableness of individual carrier tariffs has long been the core of its regulatory oversight. Regardless of administration, the STB has always preferred to leave demurrage and so-called "accessorial charges" to the commercial initiative of each railroad rather than prescribing demurrage terms through regulation. By standing ready to address individual customer complaints about the terms or application of demurrage tariffs, the regulator has made governmental oversight available to shippers while leaving railroads free to be creative. This approach to regulation has served railroads and their customers well for over a century.
The agency repeats some of the fundamental policies it has followed since at least the first quarter of the 20th century.
- A customer is entitled to detain a car without charge for a reasonable time.
- There is no single appropriate way to structure a demurrage tariff.
- Disputes over demurrage should be resolved by the regulator on a case-by-case basis rather than with a one-size-fits-all regulation.
- It is unreasonable to require a customer to pay demurrage for delays caused by the railroad or caused by no fault of the customer.
The STB then proceeds to discuss a number of considerations and give stakeholders guidance in areas of potential controversy.
- Demurrage time that accrues after a car has been requested by the customer but is delayed by operating failure by the railroad
- Changes in historical practices on which the customer has long relied
- "Bunching" of car deliveries that overwhelms the customer's ability to unload within free time
- "Overlapping" charges that serve the same purpose as demurrage – incentivizing efficient car handling by customers.
- Demurrage tariffs should allow customers a reasonable time to challenge bills and provide for a carrier response in a reasonable time.
- Giving customers sufficient lead time (greater than the statutory 20 days advance notice) for significant changes will require customers to plan and implement changes that will be required to avoid or mitigate increased demurrage charges.
A recurring theme in all three decisions is the STB's strong admonition to parties to work out their disagreements, enter into individually tailored contracts and use the agency's informal and formal alternative dispute resolution processes when all else fails.
1 Presumably, it will be lawful for the carrier to require the party to be billed to establish credit or to make other reasonable arrangements to ensure payment.
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