[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Proposed Rules]
[Pages 76946-76949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30967]


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DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

49 CFR Parts 1030-1039

[Docket No. EP 707]


Demurrage Liability

AGENCY: Surface Transportation Board (Board or STB).

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: Through this Advance Notice of Proposed Rulemaking (ANPR), the 
Board is instituting a proceeding regarding demurrage, i.e., charges 
for holding rail cars. The agency's intent is to adopt a rule or policy 
statement addressing when parties should be responsible for demurrage 
in light of current commercial practices followed by rail carriers, 
shippers, and receivers.

DATES: Comments are due by January 24, 2011. Reply comments are due by 
February 23, 2011.

ADDRESSES: Comments and replies may be submitted either via the Board's 
e-filing format or in the traditional paper format. Any person using e-
filing should attach a document and otherwise comply with the 
instructions at the E-FILING link on the Board's Web site, at http://www.stb.dot.gov. Any person submitting a filing in the traditional 
paper format should send an original and 10 copies to: Surface 
Transportation

[[Page 76947]]

Board, Attn: STB Ex Parte No. 707, 395 E Street, SW., Washington, DC 
20423-0001. Copies of written comments and replies will be available 
for viewing and self-copying at the Board's Public Docket Room, Room 
131, and will be posted to the Board's Web site.

FOR FURTHER INFORMATION CONTACT: Craig Keats at 202-245-0260. 
(Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.)

SUPPLEMENTARY INFORMATION: Demurrage--the assessment of charges for 
holding railroad-owned rail freight cars for loading or unloading 
beyond a specified amount of time--has compensatory and penalty 
functions. It compensates car owners for the use of their equipment, 
and by penalizing those who hold cars too long, it encourages prompt 
return of rail cars into the transportation network. Because of these 
dual roles, demurrage is statutorily recognized as an important tool in 
ensuring the smooth functioning of the rail system.
    Since the earliest days of railroad regulation, there have been 
disputes about who should be responsible for paying demurrage. Certain 
principles for allocating liability for holding carrier equipment 
became well established over time and were reflected in agency and 
court decisions.\1\ Regulatory and technological changes over the 
years, however--such as the elimination of required tariff-filing and 
the advances in electronic commerce--suggest a need to revisit the 
matter to consider whether the Board's policies should be revised to 
account for current statutory provisions and commercial practices.
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    \1\ See Responsibility for Payment of Detention Charges, Eastern 
Cent. States, 335 I.C.C. 537, 541 (1969) (Eastern Central) 
(involving liability of intermediaries for detention, the motor 
carrier equivalent of demurrage), aff'd, Middle Atl. Conference v. 
United States, 353 F.Supp. 1109, 1114-15 (D.D.C. 1972) (3-judge 
court sitting under the then-effective provisions of 28 U.S.C. 2321 
et seq.) (Middle Atlantic).
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    The Board has long been involved in resolving demurrage disputes, 
both as an original matter and on referral from courts hearing railroad 
complaints seeking recovery of charges.\2\ Our attention became focused 
on the possible need to examine our policies, however, when some 
tension developed in the Federal courts of appeals regarding the 
liability of warehousemen and similar third-party car receivers for 
railroad demurrage.\3\ As we reviewed the two lines of analysis, we 
began to consider the possibility that neither court's approach 
produces an optimal outcome given the current statutory and commercial 
environment. We therefore are instituting this proceeding in an effort 
to update our policies regarding responsibility for demurrage liability 
and to promote uniformity in the area.
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    \2\ E.g., Eastern Central; Springfield Terminal Ry.-Petition for 
Declaratory Order, NOR 42108 (STB served June 16, 2010); Capitol 
Materials Inc.-Petition for Declaratory Order-Certain Rates and 
Practices of Norfolk S. Ry., NOR 42068 (STB served Apr. 12, 2004); 
R. Franklin Unger, Trustee of the Indiana Hi-Rail Corp., Debtor-
Petition for Declaratory Order-Assessment and Collection of 
Demurrage and Switching Charges, NOR 42030 (STB served June 14, 
2000); South-Tec Dev. Warehouse, Inc., and R.R. Donnelley & Sons 
Company-Petition for Declaratory Order-Illinois Cent. R.R., NOR 
42050 (STB served Nov. 15, 2000); Ametek, Inc.-Petition for 
Declaratory Order, NOR 40663, et al. (ICC served Jan. 29, 1993), 
aff'd, Union Pac. R.R. v. Ametek, Inc., 104 F.3d 558 (3d Cir. 1997).
    \3\ Compare Norfolk S. Ry. v. Groves, 586 F.3d 1273 (11th Cir. 
2009) (Groves), pet. for cert. pending, No. 08-15418 (filed Apr. 6, 
2010), with CSX Transp. Co. v. Novolog Bucks Cnty., 502 F.3d 247 (3d 
Cir. 2007) (Novolog).
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    The Interstate Commerce Act (IC Act), as amended by the ICC 
Termination Act of 1995 (ICCTA), provides that demurrage is subject to 
Board regulation under 49 U.S.C. 10702, which requires railroads to 
establish reasonable rates and transportation-related rules and 
practices, and under 49 U.S.C. 10746, which requires railroads to 
compute demurrage and to establish demurrage-related rules ``in a way 
that fulfills the national needs related to'' freight car use and 
distribution and that will promote an adequate car supply. In the 
simplest case, demurrage is assessed on the ``consignor'' (the shipper 
of the goods) for delays at origin and on the ``consignee'' (the 
receiver of the goods) for delays at destination.
    An important issue has always been who is liable for demurrage when 
goods are shipped to warehousemen, transloaders, or other 
``intermediate'' stops in the transportation chain before reaching 
their ultimate destination. Notwithstanding the usual common-law 
liability (for both freight charges and demurrage) of a consignee that 
accepted delivery,\4\ the issue was more complicated for warehousemen, 
who typically are not ``owners'' of the property being shipped. The law 
became well accepted that, for a warehouseman to be subject to 
demurrage or detention charges, there had to be some other basis for 
liability outside the mere fact of handling the goods shipped.\5\ And 
what became the most important ``other basis'' was whether the 
warehouseman was shown as the consignee on the bill of lading.\6\ Thus, 
our predecessor, the Interstate Commerce Commission (ICC), held that a 
tariff \7\ may not lawfully assess such charges on a warehouseman who 
is not the beneficial owner of the freight, who is not named as a 
consignor or consignee in the bill of lading, and who is not otherwise 
party to the contract of transportation, ``e.g., a warehouseman who 
receives the freight pursuant to an `in care of' designation.'' \8\
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    \4\ Pittsburgh, Cincinnati, Chicago & St. Louis Ry. v. Fink, 250 
U.S. 577, 581 (1919); Groves, 586 F.3d at 1278.
    \5\ See, e.g., Smokeless Fuel Co. v. Norfolk & W. Ry., 85 I.C.C. 
395, 401 (1923).
    \6\ A bill of lading is the basic transportation contract 
between the shipper and the carrier; its terms and conditions bind 
the shipper, the originating carrier, and all connecting carriers.
    \7\ Historically, carriers gave public notice of their rates and 
general service terms in tariffs that were publicly filed with the 
ICC and that had the force of law under the so-called ``filed rate 
doctrine.'' See Maislin Indus., Inc. v. Primary Steel, Inc., 497 
U.S. 116, 127 (1990). The requirement that rail carriers file rate 
tariffs at the agency was repealed in ICCTA.
    \8\ Eastern Central, 335 I.C.C. at 541. The ``in care of'' 
designation refers to the principle of agency law under which a 
consignee--although presumed to be an owner generally liable for 
freight charges upon acceptance of goods--could be relieved of such 
liability if the carrier were made aware that the receiver of the 
goods was accepting the goods only as an agent for the actual owner. 
The Novolog court, 502 F.3d at 255, found that agency principles 
such as these became incorporated into the IC Act in the 1920s in 
what is now 49 U.S.C. 10743(a). See Novolog, 502 F.3d at 255. That 
statutory provision states that a consignee that informs the 
railroad in writing that it is only an agent is not liable for 
``additional rates that may be found due after delivery.''
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    The absence of any litigation over the matter suggests that the 
accepted rule described above provided some degree of certainty for 
several decades. In recent years, however, a new issue has arisen: what 
is the law when a warehouseman who accepts rail cars and holds them too 
long is named as consignee in the bill of lading, but asserts either 
that it did not know of its consignee status or that it affirmatively 
asked the shipper not to name it consignee? On that issue, the Eleventh 
Circuit in Groves looked to contract principles and found that a party 
shown as a consignee in the bill of lading is not in fact a consignee 
unless it expressly agreed to the terms of the bill describing it as a 
consignee.\9\ On virtually identical facts, the Third Circuit in 
Novolog held that ``recipients of freight who are named as consignees 
on bills of lading are subject to liability for demurrage charges 
arising after they accept delivery unless they act as agents of another 
[party] and comply with the

[[Page 76948]]

notification procedures in [the] consignee-agent liability provision 
[of] 49 U.S.C. 10743(a)(1).'' \10\ That provision relieves certain 
receivers of property from liability for certain rates if it notifies 
the carrier in writing that it is not the owner of the property, but 
rather is only an agent for the owner.
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    \9\ Relying in part on Illinois Cent. R.R. v. South Tec Dev. 
Warehouse, Inc., 337 F.3d 813 (7th Cir. 2003) (South Tec), which did 
not directly decide the issue but that indicated a predilection 
toward such a result, Groves found the warehouseman not to be a 
consignee and thus not liable for demurrage even though the 
warehouse accepted the freight cars as part of its business and held 
them beyond the period of free time.
    \10\ 502 F.3d at 254. Novolog cited Middle Atlantic, the Uniform 
Commercial Code, and the Federal Bills of Lading Act to find (502 
F.3d at 258) that a warehouseman (or, in that case, a transloader) 
could be a ``legal consignee'' even if it was not the ``ultimate 
consignee.'' The court found that a contrary result, such as the one 
suggested in South Tec, would frustrate what it viewed as the plain 
intent of Sec.  10743: ``to facilitate the effective assessment of 
charges by establishing clear rules for liability'' by permitting 
railroads to rely on bills of lading and ``avoid wasteful attempts 
to recover [charges] from the wrong parties.'' 502 F.3d at 258-59. 
The court found warehouseman liability equitable because the 
warehouseman--which otherwise has no incentive to agree to 
liability--can avoid liability under Sec.  10743(a) simply by 
identifying itself as an agent, whereas the rail carrier has no 
option but to deliver to the named consignee. Id. at 259.
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Discussion

    We believe that broad public input would assist us in addressing 
the liability of a warehouseman who accepts rail cars and holds them 
too long, but who asserts either that it did not know that it had been 
designated the consignee on the bill of lading or that it affirmatively 
asked the shipper not to name it consignee. Indeed, even with the 
extensive discussions in Novolog and Groves, the best answer in this 
matter is not readily apparent. Novolog relies on a broad reading of 
section 10743(a)(1) (one that the ICC appeared to share), along with 
policy reasons why a rule requiring that a warehouseman explicitly 
accept potential demurrage liability would not be a good idea. Groves 
relies on contract law principles to support its view that a receiver 
of goods must explicitly agree before it can be a consignee subject to 
liability. But neither approach seems clearly superior, and indeed 
there are shortcomings with each.
    Novolog, for example, cites valid transportation reasons for 
putting liability on the party best able to release the rail cars (the 
warehouseman) or to decline the cars if it knows that its facility is 
already overcrowded. Yet Novolog places dispositive weight on the 
designation given to the warehouseman in the bill of lading, which 
historically was a paper document that was consciously agreed upon by 
the carrier and the shipper (although it did not require any action by 
the consignee). Today, however, transactional paperwork such as the 
bill of lading is largely handled electronically, and the role of the 
railroad, the shipper, and the listed consignee in making the 
designation is evolving. In Groves, for example, it is unexplained why 
some of the bills named the warehouseman as the consignee while others 
did not.
    Groves, for its part, is unsatisfying in various ways. First, it 
overlooks the fact that, because the warehouseman is in the best 
position to deal with returning the equipment or rejecting cars if its 
facility is overcrowded, finding the warehouseman to be responsible for 
demurrage would best advance the intent of 49 U.S.C. 10746 (efficient 
use of freight cars). Moreover, although we share the concern that a 
party might be made liable for charges without its knowledge,\11\ as 
the decision in Novolog points out, it is also true that the 
warehouseman is the one who has the relationship with the shipper, and 
it should not be the carrier's responsibility to investigate whether 
the relationship described in the bill of lading accurately reflects 
the de facto status of the parties.
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    \11\ See West Point Relocation, Inc. & Eli Cohen-Petition for 
Declaratory Order, FD 35290 (STB served Oct. 29, 2010).
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    Finally, notwithstanding the ICC's finding in Eastern Central in 
1969, we are not certain that the provisions of 49 U.S.C. 10743 should 
be interpreted to apply to demurrage. The language of section 10743 
(``[l]iability for rates for transportation'') can be read to focus on 
the shipping charges themselves, and not on accessorial charges such as 
demurrage. As explained in Hub City and Hall,\12\ the statutory 
provision, which was first enacted in the Transportation Act of 1920 as 
an antidiscrimination provision, was modified in 1927 to address the 
liability of a sales agent for freight charges that turned out to be 
higher than those originally paid. It was further modified in 1940 to 
address the liability of an agent vis a vis a beneficial owner for 
additional freight charges resulting when shipments were reconsigned 
and refused at destination. Neither event speaks to application of the 
provision to demurrage. Moreover, because section 10743(b) does not 
apply to a shipment that is prepaid, applying section 10743 to 
demurrage as well as line-haul charges could have the curious effect of 
making the consignee liable for demurrage if the shipment is not 
prepaid, but not liable for the same conduct--holding the cars too 
long--if it is prepaid. That would be in some tension with the historic 
(and statutory, see 49 U.S.C. 10746) purposes of demurrage: to 
compensate the equipment owner and to facilitate prompt return of cars.
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    \12\ Blanchette v. Hub City Terminals, Inc., 683 F.2d 1008 (7th 
Cir. 1981); Union Pac. R.R. v. Hall Lumber Sales, Inc., 419 F.2d 
1009 (7th Cir. 1969).
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    For all of these reasons, we are instituting this proceeding to 
explore whether we should look to a new way of determining the 
liability of warehousemen for demurrage.
    One possible rule would place liability for demurrage on the 
receiver of the rail cars, regardless of the designations in the bill 
of lading, if the carrier has provided the receiver with adequate 
notice of liability. (If the receiver were an agent of another party, 
we assume that the usual principal-agent rules would govern, although 
we request comments on this point.) What constitutes ``adequate 
notice'' could be decided on a case-by-case basis either by the Board 
or the Federal courts in collection actions, or it could be established 
by rule. Given the potential industry-wide implications of such rules, 
broad public input is warranted.
    Accordingly, we seek comment on these matters. In their comments, 
parties may address any relevant matters, but we specifically seek 
comment on the following, which we believe will assist us in developing 
an appropriate way of allocating liability that advances the purposes 
of demurrage and also is consistent with the IC Act, contract law, 
agency law, and principles of notice/fairness:
    <bullet> Describe the circumstances under which intermediaries 
ought to be found liable for demurrage in light of the dual purposes of 
demurrage. Notwithstanding the ICC's decision in Eastern Central, is 
there a reason why we should not presume that a party that accepts 
freight cars ought to be the one that is liable regardless of its 
designation on the bill of lading, so long as it has notice of its 
liability before it accepts cars?
    <bullet> Explain how the paperwork attending a shipment of property 
by rail is processed and how it gives (or does not give) all affected 
parties (rail carriers, shippers, consignee-owners, warehousemen etc.) 
notice of the status they are assigned in the bill of lading. For 
purposes of assessing demurrage, should it be a requirement that 
electronic bills of lading accurately reflect the de facto status of 
each party in relation to other parties involved with the transaction? 
If so, and if electronic bills of lading do not accurately reflect the 
de facto status of each party in relation to other parties involved 
with the transaction, please suggest changes that will ensure that they 
do.
    <bullet> With the repeal of the requirement that carriers file 
publicly available tariffs, how can a warehouseman or

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similar non-owner receiver best be made aware of its status vis a vis 
demurrage liability? Does actual placement of a freight car on the 
track of the shipper or receiver constitute adequate notification to a 
shipper, consignee or agent that a demurrage liability is being 
incurred? What about constructive placement (placement at an 
alternative point when the designated placement point is not 
available)?
    <bullet> Describe how agency principles ought to apply to 
demurrage. Are warehousemen generally agents or non-agents, or are 
their circumstances too varied to permit generalizations? How can a 
rail carrier know whether a warehouseman or similar non-owner receiver 
of freight is acting as an agent or in some other capacity?
    <bullet> Given the discussions in Hub City and Hall, should section 
10743 be read as applicable to demurrage charges at all? The ICC said 
it was in Eastern Central, but it did so with little discussion. Would 
general agency principles apply to demurrage liability even if section 
10743 were found inapplicable?
    <bullet> If section 10743 is applicable, would the Groves analysis 
(finding that liability does not attach unless the receiver agrees to 
accept liability) apply to the underlying shipping rate as well as 
demurrage charges? If it did, how would such a ruling affect industry 
practice?
    <bullet> Because the warehouseman or other receiver can reap 
financial gain by taking on as many cars as possible (and sometimes 
holding them too long), or by serving as a storage facility when the 
ultimate receiver is not ready to accept a car, should liability be 
based on an unjust enrichment theory? The court rejected such an 
approach in Middle Atlantic, 353 F. Supp. at 1124, principally because 
it found no benefit to the warehouseman from holding rail cars. Is that 
finding valid?
    The requirements of section 603 of the Regulatory Flexibility Act 
of 1980, 5 U.S.C. 601, et seq., (RFA) do not apply to this action 
because, at this stage, it is an ANPR and not a ``rule'' as defined in 
section 601 of the RFA. Under the RFA, however, the Board must consider 
whether a proposed rule would have a significant economic impact on a 
substantial number of small entities. ``Small entities'' include small 
businesses, not-for-profit organizations that are independently owned 
and operated and are not dominant in their fields, and governmental 
jurisdictions with populations under 50,000. If adoption of any rule 
likely to result from this ANPR could have a significant economic 
impact on a small entity within the meaning of the RFA, commenters 
should submit as part of their comments an explanation of how the 
business or organization falls within the definition of a small entity, 
and how and to what extent the commenter's business or organization 
could be affected. Following review of the comments received in 
response to this ANPR, if the Board promulgates a notice of proposed 
rulemaking regarding this matter, it will conduct the requisite 
analysis under the RFA.
    This action will not significantly affect either the quality of the 
human environment or the conservation of energy resources.
    It is ordered:
    1. Initial comments are due on January 24, 2011.
    2. Reply comments are due on February 23, 2011.
    3. This decision is effective on its date of service.
    By the Board, Chairman Elliott, Vice Chairman Mulvey, and 
Commissioner Nottingham.


Andrea Pope-Matheson,
Clearance Clerk.
[FR Doc. 2010-30967 Filed 12-9-10; 8:45 am]
BILLING CODE 4915-01-P