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October 28 2019

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26 The Journal of Commerce | October 28 2019 www.joc.com Government THE US SURFACE Transportation Board (STB) is urging railroads to work closely with shippers to address concerns about demurrage practices shippers consider unreasonable and nothing more than revenue genera- tors for the railroads. The federal agency issued a policy statement on demurrage and accessorial policies in response to two of three related petitions it consid- ered. The statement makes clear that railroads must meet certain standards when imposing penalties. "Demurrage rules and charges are not reasonable when they do not serve to incentivize the behavior of shippers and receivers to encourage the efficient use of rail assets," STB's policy statement read. "In other words, charges should not be assessed in circumstances beyond the shipper's or receiver's reasonable control. It fol - lows, then, that revenue from demur- rage charges should reflect reasonable financial incentives to advance the overarching purpose of demurrage and that revenue is not itself the purpose." The STB's decision applies only to non-containerized cargo, but the subject has also been taken up by the Federal Maritime Commission. The FMC's proposed interpretive rule on port demurrage remains open for comment through Oct. 31, while the STB's decision on the three petitions is open for comment through Nov. 6. Both policies stem from the same questions: What are reasonable business practices? Where is the line between shippers taking too long to return assets (containers, boxcars, gondolas, or hopper cars) and rail- roads requiring unreasonably short turnaround times, placing an undue burden on shippers? The STB's rail demurrage policy statement comes after two days of testimony in May, during which shippers argued Class I railroads often deliver large numbers of railcars while providing only 24 hours to unload the cargo before assessing penalties. Although the testimony was specific to commodities, precision scheduled railroading's longer train sets can also cause bunching of containers. Class I railroads consider demurrage vital to maintaining network fluidity. Suggestions, not demands "The board expects to facilitate more effective private negotiations and problem solving between rail carriers and shippers and receivers on issues concerning demurrage and accessorial rules and charges," the STB said in its policy statement. "The board is not, however, making any binding determinations by this proposed policy statement." Instead, the board expressed se - rious concerns about the application of such charges. "The board has heard repeatedly, from interested parties in a broad range of industries, that it has become difficult, if not impossible, to avoid demurrage charges following the recent reductions in free time, partic- ularly in light of inconsistencies in rail service," the statement said. The delivery of a bunch of railcars at once makes it virtually impossible to unload cargo within 24 hours before penalties apply. Shippers say this is more common under precision sched- uled railroading, and they don't have enough labor to handle the sudden and unpredictable bursts of deliveries. Precision scheduled railroading can cause the discharge of a large number of containers in one day, rather than spaced over many days. As with commodities, domestic intermodal shippers now often have only one "free" day to pick up the containers before terminal demur- rage applies. Union Pacific Railroad, for example, tightened its free window in September to 24 hours in all intermodal terminals, replacing a two-tiered system in which 48 hours were allowed in smaller markets where terminals may not be open 24 hours or on Sundays. The STB provided an example of what it considered unreasonable, a sit - uation also at the heart of the FMC's evaluation of the demurrage issue. "Where, for example, carrier- caused circumstances give rise to a situation in which it is beyond the shipper's or receiver's reasonable con- trol to avoid charges, demurrage does not fulfill its purpose," the STB wrote. The FMC has made a similar finding when emphasizing the unfairness of demurrage penalties when containers are unavailable to be picked up, such as when a terminal is shut down during a hurricane. The STB has proposed a rule that would require Class I railroads to levy demurrage penalties on shippers rather than warehousing companies (receivers) when the stakeholders agree on financial responsibility. Because there is no nexus to intermodal containerized shipping, the issues involved in this dispute are unique to commodity shippers, who report that demurrage penal - ties are assessed to receivers even when shippers are listed as the consignees. Warehousing companies told regulators this May that Class I railroads habitually issue demurrage fines to them instead of the owners of the commodities being shipped, then refuse to serve the facilities. The warehousing companies contract with a variety of commodity shippers, and those companies are financially responsible for demurrage. "The board proposes a require- ment for Class I carriers that if a ship- per and warehouseman agree that the shipper should be responsible for paying demurrage invoices, the rail carrier must, upon receiving notice of that agreement, send invoices di- rectly to the shipper, and not require the warehouseman to guarantee payment," the STB said. JOC email: ari.ashe@ihsmarkit.com twitter: @arijashe International | Washington | Customs | Security | Regulation Reasonable assessment STB urges cooperation on rail demurrage issues By Ari Ashe The top US rail agency says railroads must make demurrage standards clear to cargo owners Alan Stoddard / Shutterstock.com

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