On Aug. 30, ISRI submitted comments in support of a joint petition for rulemaking to the Surface Transportation Board (STB) asking the STB to develop rules that would hold railroads accountable when they cause inefficiencies in their use of private cars, just as rail customers are held accountable for using railroad-supplied cars. The petition to establish rules that would incentivize the efficient use of private cars supplied by non-railroad parties to Class I railroads was submitted July 26 by the North America Freight Car Association (NAFCA), the National Grain and Feed Association (NGFA), the Chlorine Institute (CI), and the National Oilseed Processors Association (NOPA).
After receiving a railcar supplied by a railroad, shippers have a specified period of time—known as free time—for loading and unloading. If shippers hold onto railcars beyond that period, then the railroads can charge them demurrage. According to the STB, demurrage compensates carriers for the expense incurred while the cars were detained and “serves as a penalty for undue car detention to encourage the efficient use of rail cars in the rail network.”
“It’s an efficiency principle,” says Karyn Booth, partner and practice group leader for transportation at Thompson Hine, the law firm that drafted ISRI’s supporting comments. “If shippers are hanging on to railcars for too long for reasons within their control, and if that happens across many industries, then the efficiency of the network is undermined.”
The petition uses the same principle to argue that Class I railroads should be charged for holding shipper-owned or leased cars beyond a 72-hour period. Not only would this promote fairness, but it also aligns with the current landscape, as the majority of railcars in service today are owned or leased by non-railroad entities. The shift began after the deregulation of the rail industry in 1980 and has only increased since precision schedule railroading (PSR) in 2019 as railroads have continued to downsize their fleets.
The idea of reciprocity was discussed during the STB’s 2019 hearings on the excessive detention and demurrage charges from the railroads. ISRI was among the groups that shared concerns about these changes, as well as the issue of railroads holding onto shippers’ cars for too long. “During ISRI’s testimony, some of our members raised concerns regarding the length of time railroads held onto their cars,” says Billy Johnson, ISRI’s chief lobbyist. “We were implying that maybe we should be able to charge the railroads when they don’t return our cars.”
Given its members struggles with these issues, ISRI filed comments in support of the petition. “Like many shippers, ISRI believes that fairness and reciprocity support rules that would equally incentivize railroad efficiencies in the handling of private cars,” Booth says. “If the railroads detain private cars beyond a reasonable time period, why shouldn’t shippers be able to incentivize them to do better and be compensated for the loss of the efficient use of the asset they’re providing?”
In its comments, the association raises several issues supporting the petition’s arguments. ISRI noted that its members, like many shippers, have had to purchase or lease their own railcars, incurring a huge expense. “Over time, the railroads have shifted the cost of furnishing railcars to scrap shippers, so the large majority have had to lease the cars at a significant expense,” Booth explains. “When the railroads hold onto the cars for too long the shippers believe they should have some remedy for that just like the railroads do.”
ISRI expressed support for the 72-hour time period that the railroads would be able to hold the cars. The association notes that this window is reasonable and should account for any service variability from the railroads. “We think demurrage helps keep the railroads moving and keeps everyone honest,” Johnson notes. “If the railcars delay our members’ operations because of their inferences or poor service, our members should get to charge the railroads.”
Now that the petition has been filed, the STB will review and decide whether to do a rulemaking. “ISRI is a big supporter of this petition and we hope it’ll move forward,” Johnson says. When considering next steps, Johnson thinks the STB may hold a hearing or briefing on this issue that includes the petitioning associations and the railroads. “It’s not going to happen overnight but it is in progress,” Johnson says. “It all comes down to fairness. If the railroads get to charge our members for holding onto cars, why can’t our members charge them for holding onto their cars for too long?”
Booth agrees. “It’s about fairness, reciprocity, and efficiency,” she says. “The shippers are supplying the cars, they have a like-minded interest in the efficient use of the assets, and if the railroads are holding onto the cars for too long when they’re in the system, then the shippers should be able to charge [the Class I railroads], just as they are charged for detaining railroad supplied cars.”