September 1, 2006

More fuel for the debate

By DC Velocity Staff

What's a fair way to calculate the fuel surcharges imposed on rail customers? That's been the subject of some debate this year. In May, angry shippers took their complaints to the Surface Transportation Board (STB), charging that the rails' fuel surcharges bore little relationship to actual consumption and that different customers were charged different rates.

Now the STB is proposing new rules to govern the surcharge calculation process. The agency is proposing that any railroad seeking to assess a fuel surcharge would have to develop a computation closely linking the added cost of fuel to particular rail movements. It would also prohibit railroads from "double dipping" by imposing both fuel surcharges and rate escalators based on an index like the board's Rail Cost Adjustment Factor without subtracting any fuel cost component. Further, it would require railroads to use the Energy Information Administration's (EIA) diesel cost index as a uniform index for measuring fuel cost increases.

The agency also seeks to add more transparency to the process. Under the proposed rules, it would require the nation's largest railroads to submit a monthly report to the STB showing actual total fuel costs, total fuel consumption, and total fuel surcharge revenues, including any revenues shared with short-line railroads.

Members of the National Industrial Transportation League (NITL) have been some of the more vocal opponents of the railroads' current procedures. In testimony before the STB at the May 11 hearing, NITL President John Ficker said league studies showed that rail carriers were recovering more in fuel charges than the actual increase in railroad expenses. Though he commended the BNSF, Canadian National and Canadian Pacific railroads for taking some steps to address shippers' concerns, he said he was disappointed that Eastern carriers had paid no attention. He argued that railroads should not be allowed to charge different fuel surcharge rates to different customers. Curt Warfel, the league's first vice president and an executive with Eka Chemicals, also testified at the hearing. "[B]asically, what we're asking for is fairness and transparency," he told the board.

At the same hearing, Tom Hunt, CFO of BNSF, insisted that his railroad was not recovering more than its due in fuel surcharge costs. He said BNSF's surcharge was tied to the EIA index, which he said correlated closely with the railroad's fuel costs. He told the board that BNSF had switched to a mileage-based surcharge for some commodities this year and would move in that direction for other commodities as well. He called it the "most reasonable and appropriate approach" to fuel surcharges. And he defended applying different rates to different commodities because their handling equates to different fuel usage.

The STB will accept public comment on the proposed rules through Sept. 25.

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