With rails cars in short supply, how do you encourage customers to turn cars around quickly? One railroad has apparently decided that its customers will respond better to the stick than the carrot. In late April, the Burlington Northern Santa Fe (BNSF) announced a new, tougher policy regarding demurrage, the penalties it charges shippers or consignees for holding onto equipment beyond the allotted grace period. Many public warehouses, however, believe that BNSF's new fee structure will actually have the opposite effect.
The railroad's new demurrage policy, which took effect July 1, changes the demurrage calculation from an "average" plan to a "straight" demurrage system. Instead of a monthly balancing of car days used with car credits obtained, the new system calculates demurrage for each car individually and increases charges after the third day.
Not surprisingly, the amended policy isn't sitting well with customers. The International Warehouse Logistics Association sent a letter of protest to BNSF and the Surface Transportation Board in late June. The group opposes the move on several grounds, says Marc B. Massoglia, president of Compass Trade & Distribution, who helped draft the letter. "The [reduction in] free time from two days to one day reduces the amount of …time somebody has to unload the cars, but what is really disturbing is the change from a debit and credit system to straight time demurrage,"he says."That is really going to make it much more cumbersome [for] local yards, make service a lot worse and increase the bills."
In Massoglia's view, the new BNSF rule will encourage warehouses to order the oldest cars in first in order to minimize demurrage costs rather than choose cars on the basis of efficiency. Massoglia and the IWLA believe that with the system already strained by capacity problems, the additional work created by the new rules will result in more congestion, increasing car turn times by as much as 20 to 30 percent.
"Their intent is to increase rail car velocity," says Massoglia, "but I think it'll do the opposite of what they intend. And from a warehouse point of view, because it can be so detrimental, warehouses may request that shippers ship by truck rather than rail."