Date: May 8, 2019 

Before the U.S. Surface Transpo1iation Board 

STB Docket No. EP 754 

Oversight Hearing on Demun-age and Accessorial Charges 

Comments of the 

U.S. Department of Agriculture 

Greg Ibach 

Under Secretary 

Marketing and Regulatory Programs 

U.S. Deprutment of Agriculture 

Washington, D.C. 20250 
Authority and Interest 

The Agricultural Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 charge the 

Secretary of Agriculture with the responsibility to represent the interests of agricultural 

producers and shippers in improving transportation services and facilities by, among other 

things, initiating and participating in Surface Transportation Board (STB or Board) proceedings 

involving rates, charges, tariffs, practices, and services. 

Introduction 

The U.S. Department of Agriculture (USDA) appreciates the Board examining the issue of 

demurrage and accessorial charges in its conespondence and in this public hearing. It is an 

imp01tant issue to the agricultural community. Many agricultural shippers are concerned with 

new and increasing charges and their unfair structure, which imposes steep penalties on customer 

performance without reciprocal penalties on railroad perfmmance. These charges are especially 

perturbing during this time of disruptive change as the railroads drastically overhaul their 

operations. 

USDA is concerned many of these charges are being unfairly applied, and that there is a lack of 

clarity and transparency in terms of policy and data. Recent additions to demU11'age and 

accessorial charges raise questions of commercial fairness and reasonableness, over which clarity 

from the Board would be of great value. Additionally, the record for these so1ts of charges is 

incomplete and, other than what the Board has requested for this hearing and through previous 

conespondence, there is limited data available to judge their reasonableness, especially if 

seeking to track changes in these charges over time. These comments elaborate on USDA's 

concerns and conclude by offering several recommendations for the Board's consideration, 

which would add much needed clarity and balance. 

Discussion 

Importance of Commercial Fairness and Reciprocity 

It is wmth stating from the beginning that USDA does not oppose the reasonable application of 

demmrnge and accessorial charges. The rail network is complicated and interconnected. 

Therefore, there are times when delays can cause backups and impose costs on the railroad and 

other shippers. For the good of all, such delays should be discouraged: Thus, in certain 

circumstances there can be good reason to charge evenhanded accessorial and demurrage charges 

to encourage both shippers and railroads to use rail assets efficiently. Everyone benefits if 

shippers and railroads each do their part to facilitate the efficient utilization of rail assets and 

maximize coordination. 

However, the Board has a critical role in ensuring the incentives are right for both caniers and 

shippers. Towards this end, USDA commends the Board for raising the issue ofreciprocity in its 

non-docked public correspondence. While raih-oad documentation on demurrage and accessodal 

charges often provides pages upon pages of charges shippers face under a variety of scenarios, 

there is very little in these tariff documents concerning either the railroad's responsibility or 

financial repercussions from a failure on its part. Thus, the burden is largely put only on the 

shipper's behavior, which is one-sided and counter to the principle of commercial fairness. 

Furthe1more, if left unchecked, this could open a window through which railroads increasingly 

exploit these practices to the detriment of shippers and basic fairness. 

2 
The lack of reciprocity is also contrary to economic efficiency. It is worth recognizing that no 

rail system will ever eliminate all delays and their associated costs, but the relevant question is 

about which party bears the costs of those delays. 

As stated previously, demmrnge and accessorial charges on shippers can be justified, to a degree, 

when the shipper is the party who can most readily minimize the delay, so long as such charges 

are based upon the practical reality of efficiently operating agricultural facilities (i.e., sufficient 

free time to load trains). However, the shipper is not always in that position. For instance, if the 

railroad is in possession of a shipper's grain-filled cars and those cars are late due to the 

railroad's lack of service, then a cost is inflicted on the shipper. The shipper bears the costs of 

time, uncertainty, and shifting markets while he waits for delivery of his grain cars. In this case, 

the railroad should compensate the shipper for his loss through a reciprocal fee. 

It is not only an issue of properly recognizing fault, but also getting the incentives right to 

maximize efficient utilization of assets. As a result of competition, private companies in many 

other industries give refunds for late shipments. In contrast, the one-sidedness is clearly 

demonstrated in the lack of compensation available to shippers when delays in their operations 

are due to railroad inefficiencies as opposed to the heavy-handed penalties shippers face for 

allegedly delaying railroad operations. 

Some language taken directly from one railroad's April 1, 2019 tariff offers an illustrative 

example. A "car day" is defined as the twenty-four-hom period "commencing 0000 hours" after 

the railroad places the car and continuing until the shipper releases it back. Compare that 

"precision" to the definition of the "service window," which is the block of time the railroad 

"anticipates" it will pull a customer's cars, but " these times are not guaranteed and delivery 

· outside of these projected times will not impact the obligation to pay demmrnge and storage 

charges." There is clearly an imbalance here in the flexibility afforded railroads compared to the 

down-to-the-minute strictness expected of shippers. This imbalance and similar ones appearing 

in cmrent railroad tariffs could be corrected by inserting provisions that require the railroad to 

pay a charge, issue a credit, or waive demurrage and storage charges if the railroad does not pull 

the car within a certain time period after it is released. 

In the same tariff, charges are calculated based on car days accrued compared to credits 

earned. It should be favorably noted the railroad cited now gives two credits, instead of one, 

for each day after the original expected time of arrival that loaded cars arrive. However, that 

is the only place in the tariff where the shipper is compensated for the railroad's delays. 

Fmther, "compensated" is too generous a description, at that. On the one hand, shippers are 

billed if car days exceed credit days. On the other hand, charges are only "not assessed" if 

credit days exceed charges. If the penalty for delays was truly reciprocal, the railroad would 

also be credited and debited for its own performance and billed by the shipper when it has 

not earned enough credits that month. In general, "credit days," in many cases, do not begin 

to compensate agricultmal rail users adequately for the actual operational and market impacts 

and costs incurred when carriers fail to deliver or pull loaded trains on time ( e.g., the costs of 

having facility personnel paid overtime to unload trains that do not anive on time; the costs 

of resorting to truck transpo1tation, if available, and replacing commodities for scheduled 

railroad shipments that do not anive on time; the costs of plant slowdowns or shutdowns due 

to late trains; the costs oflost arbitrage opp01tunities and revenues; etc.). 

3 
The Board should continue to emphasize the imp01iance of commercial fairness and practicality 

in railroads' demurrage and accessorial charges. To better achieve that outcome, the railroads 

should clearly spell-out in these tariffs how they will handle issues of their own making (not the 

customer's), such as failure to pick-up or deliver a rail car on time beyond a reasonable time. 

Unclear What Constitutes "Reasonable" 

USDA is also concerned that recent demurrage and accessorial charges may go far beyond just 

getting the incentives right to facilitate efficient utilization of rail assets. It is possible such 

charges are being used by railroads for the purpose of unfairly increasing their revenues in a less 

than transparent manner. In a broad sense, this may be somewhat akin to the revenue 

enhancement measure and "double-dipping" aspects of the railroad industry's computation of 

fuel surcharges as a percentage of the base rates that were detennined to be unreasonable 

practices under the STB decision in Ex Paiie No. 661_. USDA believes STB should investigate 

whether demurrage and access charges are being applied in similarly unreasonable ways, and 

regardless of the outcome, provide guidance to ensure their commercially-fair, reasonable, and 

reciprocal application. 

Railroads have pushed to lower their operating 

ratios for over a decade, purportedly to become 

more efficient while increasing shai·eholder 

FIGURE 1: OPERA TING REVENUES AND EXPENSES 

WlTH TRENDLINES 

$758 - Revenue 

value. These goals are worthy in their own right $658 

but should not be prioritized over other objectives 

such as the railroads' common caiTier obligation, 

customer service and fairness to rail customers. 

Rl data collected by STB shows while both 

revenues and expenses have been increasing over 

time, revenues have increased at a faster rate (See 

Figure 1). New and increasing charges mean an 

increasingly expensive rail system, which 

$558 

$458 

LO <O I'- CO O> 0 ..- N (') '<t LO <D l'- O O O O O ,- ,.... ,.... ,.... ,.... ,.... ,.... ,.... 

0000000000000 

NNNNNNNNNNNNN 

Source: Surface Transportation Board. 

especially affects those with no other transp01iation option, such as many agricultural shippers. 

Railroads argue demunage and access charges are about efficiency. However, in economic 

theory, efficiency is a broader concept than the way railroads often define it, which focuses only 

on reducing raih·oad operating costs. Efficiency in economic theory is about the weighing of 

costs and benefits across both sellers and buyers, firms and their customers, or in this case, 

railroads and shippers. In other industries, competition is the mechanism that balances those 

costs and benefits. In the rail industry, competition is inherently more limited, given the 

duopolies that exist in the Eastern and Western U.S. In recent decades, railroad consolidation, 

pricing power, and rail industry profitability has tipped the scales more and more in favor of 

railroads, with little regai·d for commercial fairness to shippers. As a result, there is much less 

assurance that business decisions adequately account for customer needs. 

In te1ms of net social welfare, unconstrained rail pricing power is beneficial to society only to a 

point. This was recognized in the transportation policy established in the Staggers Act that 

included fairness to shippers as one of the supp01iing pillars of the landmark legislation. 

Differential pricing is the most efficient way for railroads to price above marginal cost and 

recoup their fixed costs. In this way, railroads are able to achieve what is generally lmown as 

revenue adequacy, whereby total costs equal their total revenues, including reasonable profits. 

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However, when railroads have the unconstrained ability to earn revenues beyond their total costs, 

the scales are no longer balanced. Beyond the revenue adequacy point, the benefits of higher 

prices and revenues to railroads are outweighed by the costs they impose upon shippei·s and 

society through more expensive and, ultimately, less available service. 

Multiple railroads are currently well beyond revenue adequacy and have been for years (see 

Figure 2). If railroads are using demurrage and accessorial charges as a mechanism to raise 

additional revenue beyond what the STB defines as revenue adequacy, this would be inefficient 

from an economic standpoint and may push some shippers off rail onto other, less economical 

modes of transport. At worst, especially for remote shippers without alternative options, 

unreasonable demurrage and accessorial charges could put some of them out of business. When 

railroads fail to pass-on efficiency gains in the form of lower prices when already revenue 

adequate, this results in merely lining the pockets of railroad investors who are already earning 

above average rates of return. More imp01iantly, regarding the point of economic inefficiency, 

the benefits to those investors are less than the costs imposed upon shippers and society in 

general, resulting in the few getting rich at the expense of many. 

FIGURE 2: DIFFERENCE BETWEEN RAILROAD RETURN ON INVESTJVIBNT AND COST OF CAPITAL. 

15% • BNSF • CSX • CN • KCS • NS • CP • UP 

5% 

-5% 

-15% 

-25% 

-35% ...... ...... ...... N N N N N N N N N N N N N N N N N N 

c.o c.o c.o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 

c.o c.o c.o 0 0 0 0 0 0 0 0 0 0 ...... ...... ...... ...... ...... ...... ...... ...... ~ co c.o 0 ...... N (..v ~ u, 0) ~ co c.o 0 ...... N (..v ~ u, 0) ~ 

Source: Surface Transportation Board. Note: CP 2015 value removed 

To summarize, the issue is not that all demmrnge and accessorial charges are unreasonable. With 

reciprocity, these types of charges can be justified to a degree. Where to draw the line on these 

charges is the difficult question facing the Board, but the line needs to be drawn. Through the 

combination of charges and rates, from an economic theory standpoint railroads are earning 

inefficiently high profits, and shippers are bearing the cost. 

These practices raise questions for which USDA hopes the Board can provide much-needed 

clarity,_such as: 

• What guidance can the Board provide to railroads and their customers to ensure 

demun·age and access charges are commercially fair, are based on what rail customers 

5 
realistically and practically achieve when efficiently operating their facilities, and are 

reciprocal? 

• . How, and beyond which point, should a railroad's demurrage and accessorial charges be 

considered umeasonable practices? 

• What sorts of recourse do shippers have available to challenge these charges? 

Limited Tariff History and Data 

Data provide transparency, which underpins regulatory clarity and reduces uncertainty by 

shedding light on contentious issues. In addition, well-structured data help regulators and 

stakeholders anive at insights quickly and practically. However, at present, locating and 

analyzing the railroads' tariff documents, in their cun-ent fonnat, can be slow and cumbersome. 

USDA believes providing this content in a more accessible and restructured fmmat would afford 

the Board and its stakeholders with a better avenue for analysis than cunently available, with the 

added benefits of equal access and more immediate insights. 

Info1mation to assess the reasonableness of demmrnge and accessorial charges is quite limited. 

· Cmrnnt demmrnge, accessorial, and other charge documentation is available (in the case of one 

Class I railroad, though, it requires those seeking such info1mation to register and log in to its 

website) but requires considerable effort to make it usable and does not provide historical 

context. However, a full and proper inspection is not possible, given the limited tariff history 

railroads make available. Many railroads post only the cunent effective tariff with the justexpired version ( or worse, only the current effective tariff), which does not easily enable shippers 

and others to understand and track changes over time, such as changes in amounts and new 

conditions. 

In addition to expanding the historical coverage of tariff documents, full transparency requires 

these documents be usable so that any interested party can easily find and understand the tariff 

requirements. CmTently, locating these tariff documents is a time-consuming and manual 

process. They are not always located in one place nor is their relationship to each other clearly 

understood. To that end, USDA supports the use of plain language where possible, as opposed to 

legalese and jargon, and methods that make the information easier to understand and act on. 

To their credit, some railroads have already taken steps to do this, and USDA commends them 

for doing so. For instance, the Union Pacific Railroad has published a 3-page accessorial charge 

reference guide that succinctly provides the name or type of charge, the tariff authority where it 

is referenced, and the current charge. In another example, the Canadian Pacific Railway uses 

visual icons to indicate wording changes, price increases or decreases, and new items added. 

CSX Transportation provides a stand-alone document that has the sole purpose of listing the 

specific changes between the cmTent and expired versions of its supplemental services tariff. 

These approaches help make info1mation readily available and allow stakeholders to reach 

insights more quickly. · 

Beyond a wider historical range of tariff documents, additional data such as the revenue from 

accessorial and other charges are needed to fully track and assess the scope and nature of these 

charges. Only a subset of the data is presently available, namely "demmrage revenue" included 

in R-1 filings. Even if a railroad posits possible charges under certain circumstances, this does 

not show the full magnitude of how these penalties impact shippers. The tariffs show possible 

penalties, but additional data would help all parties observe their actual extent. USDA believes 

6 
these data could be captured through the addition of variables for demurrage and accessorial 

charges, as well as other service indicators, to the Carload Waybill Sample. Explicit separation, 

like what the Board did to parse out fuel surcharges beginning with the 2009 waybill, adds much 

needed transparency. 

USDA believes the Board should encourage all railroads to make their demurrage and 

accessorial charge requirements more accessible and useable moving forward and provide three 

years of historical data (2016 - 2018) in order to provide a basis by which to judge the 

reasonability of recent changes. From a cost and practicality perspective, USDA does not see this 

as an overly-burdensome request. The more that data can be made usable, the more transparent 

markets become, and the more efficiently they operate. 

To be most effective, data need to be as comprehensive as possible and collected at an 

appropriate interval. As the Board indicated in its earlier correspondence with the Class I 

railroads, data solely on demurrage revenue are insufficient and must be paired with revenue on 

other accessorial charges. Furthermore, USDA believes quarterly reporting would strike a 

balance between providing data at a meaningful interval without being a burden on railroads. 

With such inf01mation readily available, fewer disputes may arise surrounding business practices 

conducted with limited transparency. Rather than conducting protracted and costly proceedings 

at the highest administrative levels, transparency through data ensures that judging the 

reasonableness of railroad practices becomes a more routine and straightforward matter for STB, 

shippers, and railroads alike. This is much the way data signals from a simple traffic light 

routinely aid the orderly flow of traffic, preventing what otherwise would deteriorate very 

quickly into four-way chaos. 

Recommendations 

USDA understands the Board has a difficult job assessing the often-contrary positions of 

rail_roads and shippers while ensuring a balance of economic fairness to both sides. A financially 

healthy, high-performing rail industry is imp01iant for the entire country, as is the economic 

health ofrail customers. The Board has the difficult task of balancing the scales without tipping 

them too far in either direction, and USDA believes there are actions available to the Board that 

will provide that balance. Actions devoted to transparency, clarity, reducing uncertainty, and 

providing info1mation are robust because stronger action results only in more balance. 

USDA believes the Board should first focus on providing clarity to the industry on what 

constitutes reasonable accessorial and demurrage practices. For example, USDA believes it is 

patently unreasonable for shippers to be charged for problems over which they had no control. At 

the very least, providing clarity would help shippers better estimate their likelihood of being able 

to challenge demurrage and accessorial charges as being commercially unfair and non-reciprocal 

before the Board. In turn, railroads, too, would have a better idea of which charges would not 

meet this standard, and therefore hopefully would be more disciplined and cautious in 

implementing them in the first place. 

Even then, challenging these charges is not always feasible for all shippers. The scales are 

ce1tainly tipped in the favor ofrailroads when it comes to proving the reasonableness of 

accessorial charges compared to shippers proving unreasonableness. If nothing else, the 

reasonableness of an accessorial charge should be based on the costs of the delay. However, 

shippers have no way of knowing or even estimating the costs of a delay in order to assess 

7 
reasonableness. Shifting the burden of proof more onto railroads would provide more balance in 

these types of complaints. Doing so would not be a policy of targeting one side or the other; it 

would be a policy of balance by expecting each party to bring fo1th the information to which 

each has access. 

In addition to providing clarity and reducing uncertainty, USDA believes STB should provide 

more infmmation to the market. USDA encourages STB to continue requiring Class I railroads 

to submit in 2020 and future years the demurrage and accessorial charge data it has collected for 

this proceeding. Previous data collection efforts, such as Ex Paite No. 724 on rail performance 

metrics or the mandatory fuel surcharge repmting requirements in Ex Parte No. 661 , have greatly 

benefifted industry stakeholders by providing unprecedented ease to assess the cunent state of 

rail perfmmance and understand how the data compai·es across railroads and over time. Data 

repmting from Ex Pmte No. 661 has provided the Board and the community with a transparent 

method to monitor fuel surcharge practices. The Board could consider requiring the railroads to 

provide this revenue data qumterly, similar to the repmting frequency in Ex Parte 661. These 

actions with respect to data on demurrage and accessoi:ial charges would provide more 

transparency and balance. 

It is also important to capture a sense of "what" is changing (in addition to "how much"). This 

requires examination of the actual tariff documents, which are often difficult to find and only 

available for a limited amount-of time on railroad websites. To foster transparency and preserve 

inspection for all, USDA recommends the Board require the railroads to file their demunage and 

accessoi·ial charge tm·iffs for posting on the Board's website, which should list any material 

changes from the prior version. Doing so enables easy one-stop access and provides a permanent 

record. 

Finally, USDA recommends the Board add additional revenue categories (variables) for 

demunage and accessorial charges to the Carload Waybill Sample, along with other service 

indicators, as recommended previously by the Transpmtation Resem·ch Board in Modernizing 

Freight Rail Regulation (2015). Coupled with the cunent shipment level variables in the 

Waybill, these additions would enable tracking these values over time, and would enable much 

more fine-grained analysis of the effects of these charges. 

8 

Respectfully submitted, 

Under Secretary 

Marketing and Regulatory Programs 

U.S. Department of Agriculture 

Washington, D.C. 20250