May 16, 2012

STB to issue ruling on demurrage

Rail agency to resolve thorny issue of liability for railcar detention charges.

By Mark B. Solomon

The concept of railcar detention or "demurrage" charges is fairly simple to grasp: A railroad makes its fleet of boxcars, tank cars, and hopper cars available to shippers, third parties, and consignees. Under contractual terms, the equipment must be returned to the railroad by a specified date or else the rail gets compensated for the absence of revenue-producing assets.

Just who bears the burden for these charges—which have run well into the six figures in a number of individual circumstances—will be determined by the Surface Transportation Board (STB), the federal agency that oversees the railroad industry.

On May 3, the board opened a rulemaking to invite comments on a proposal that any receiver of railcars that detains the equipment beyond a specified "free time" may be responsible for paying the demurrage charges, as long as the receiver accepted the cars with actual notice of the demurrage terms prior to the cars' delivery.

In a statement, the agency said, "differences among recent court decisions highlight the need for uniformity on demurrage liability." The board said its rulemaking will center on whether the receiver of the goods or the intermediary involved in their handling should be liable when an intermediary detains railcars for too long.

"We expect this rule to bring clarity to what has become a murky legal area," said Daniel R. Elliott III, STB chairman, in the statement. "It should simplify the roles and responsibilities of all parties in the chain of railcar movements, realigning them with actual industry practices and enhancing efficiency of movements." Comments must be filed no later than June 25, the agency said.

The board's involvement comes after two appeals courts, the 3rd circuit in Philadelphia and the 11th circuit in Atlanta, issued conflicting decisions on demurrage liability. The 3rd circuit ruled that if the railroad names an intermediary as a receiver in the carrier's "bill of lading"—the contract that governs the transaction—and the third party does not dispute that classification prior to physical delivery of the equipment, the third party would then be liable for the demurrage charges.

By contrast, the Atlanta appellate court ruled that if the third party does not agree prior to receiving the equipment to the language contained in the bill of lading, then it is not responsible for detention claims and payments.

The demurrage ball was bounced to the STB after the U.S. Supreme Court in 2010 declined to sort out two conflicting appellate rulings and requested comment from the Solicitor General's office. The Solicitor General, which argues cases before the high court on behalf of the federal government, advised that the STB, as the experts in rail disputes, take up the matter.

The matter has aroused the interest of the International Warehouse Logistics Association (IWLA), a Des Plaines, Ill.-based trade group. IWLA said it represents between 40 and 50 members that operate railroad sidings on behalf of consignees and which have control of the cars and the goods for a period of time.

IWLA contends that if the warehouseman advised the railroad prior to accepting the equipment that it is acting as an agent and not the owner of the cargo, it should not be liable for demurrage charges. The group has advised its members that they should stipulate to the railroad in writing, prior to taking delivery of any railcar, that they are acting as agents to the owner of the goods.

Not surprisingly, the group said it sides with the ruling from the 11th circuit.

Part of the problem, according to IWLA President and CEO Joel Anderson, is the railroads' practice of railcar "bunching," where the carrier dumps more cars at a siding than was originally agreed upon. Anderson argues that if the intermediary expected to receive six cars at a consignee's siding and instead was sent 12, it shouldn't be responsible for the additional six cars.

"We are more than willing to accept demurrage charges for 'actual placement,'" said Anderson, invoking industry lingo for the practice of processing for return the number of cars the intermediary originally expected to handle.

Holly Arthur, a spokeswoman for the Association of American Railroads, the trade group representing the nation's major railroads, said the group is reviewing the proceeding and declined further comment.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

More articles by Mark B. Solomon

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