Accessorial Anger

Accessorial Anger

Copyright 2004, Traffic World, Inc.

There''s a "seething frustration" among rail shippers over accessorial charges. That description of shipper discontent comes from Phil Marlino, director for transportation data and process management at Conoco Phillips. He says there also is a "perception" that the charges are "poorly administered" and some "suspicion that they''re merely a way to enhance revenue."

It''s a perception that has spread beyond shippers to 3PLs. Joel Hoiland, president and chief executive officer of IWLA, The Association for Logistics Outsourcing, says that one of these charges alone - demurrage - applied to companies that unload over 3,000 cars a year can add up $800,000 a year.

IWLA, which represents over 500 warehouses and third-party logistics companies, is working with the railroads to mitigate the effects of demurrage charges applied unfairly to its members.

"These fees are intended to reimburse a railroad when the warehouse fails to unload freight cars in a timely manner," says Joel Hoiland, IWLA president and chief executive officer. "However, many times demurrage is being charged when delays are beyond a warehouse''s control. This is an inappropriate application of the demurrage concept, and while 3PLs often can resolve many of these charges, dismissing a claim costs considerable time and money."

Accessorial fees ranging from fuel surcharges to demurrage to finance charges tacked on to late freight bills have been piling up on rail shippers, who resent paying extra for problems they say are caused by the railroads in the first place. And with railroad performance hit by everything from bad weather to crew shortages to strikes, such fees are resented even more.

"If we know there''s a finance charge in place, we have to accept that," said Paul Vander Stoep, general manager of the Washington Perishable Shippers Association, whose members ship fresh potatoes and onions by rail and truck. "But if the railroad doesn''t live by their scheduled service, especially now when we''re seeing shortages of crews and power, my members are pretty reluctant to have to pay an 18 percent late fee on a bill for a shipment that has yet to be delivered to the customer."

Recent additions to the list of accessorial fees include a Canadian National Railway hazardous materials storage charge; a $50-$100 charge by Burlington Northern Santa Fe Railway for extended use of new reefer cars; and a new policy by Norfolk Southern to encourage electronic freight bill filing by charging shippers $50 for faxed bills of lading.

It''s not just the railroads that seem to be relying more on accessorials. UPS and FedEx also are levying accessorial charges for such things as Saturday deliveries and enhanced shipment tracking. With the federal government''s new hours-of-service rules being fully enforced, motor carriers are hitting customers with "stop-off" charges anywhere from $150-$300 to entice shippers to load and unload packages faster.

"It''s going on with all of our members, not just the railroads," said John Ficker, president of the National Industrial Transportation League. Ficker, a former logistics manager with Weyerhaeuser, said the debate between shippers and carriers always has been whether to apply a surcharge or add to the rate. "In the past shippers have said that under abnormal circumstances, if the railroad is adjusting for temporary service issue, then let''s go ahead with a surcharge. But now there''s so many charges, it''s difficult to keep track of them all."

Ficker noted a recent initiative by some railroads to charge shippers for faxed bills of lading to encourage filing electronically. "It''s a step in the right direction but there''s no doubt that some shippers, I suspect, will have difficulty with this. Not everyone is as computer savvy we''d like them to be."

Shippers say they understand that accessorial charges such as demurrage can be an effective means of keeping cars moving and avoiding bottlenecks in the rail system. It''s the difficulty in keeping track of and getting reimbursed for such charges when mistakes are made that angers shippers the most.

After the 2003 meeting of the North American Rail Shippers Association in Washington, D.C., it appeared that shipper umbrage might abate when the railroads agreed informally to look into the issue. Shippers'' optimism was short-lived, however, when the railroads came back and said that due to antitrust concerns, formal discussions and procedures on the assessment of accessorial charges would not be possible.

"We have no antitrust immunity in those areas, so we can''t deal with the issues jointly as an industry," said Association of American Railroads spokesman Tom White. He said the controversy over accessorial charges must be dealt on an individual level between the customer and the railroad.

"The fact is, it costs (the railroads) money to store cars for long periods of time, to deal with bills that are late, and these costs need to be recovered."

Ever since that breakoff "things seem to have gotten worse, not better" between the railroads and shippers, said Marlino. "There''s a perception from shippers that these charges are poorly administered and difficult to manage, and some suspicion that they''re merely a way to enhance revenue."

IWLA''s Hoiland said "we aren''t asking for legal or legislative remedies. They take too long to enact and cost too much to implement. IWLA members are committed to the free market and believe that a voluntary, cooperative program will benefit all parties concerned. It can create a win-win situation for both the railroads and the 3PLs involved."

Hoiland is hoping that a pilot program with one of the Class 1 railroads that waives demurrage charges as long as certain "objectively-measurable performance factors," such as taking charge of a certain number of railcars per day, are met by his members.

The program was endorsed by Surface Transportation Board chairman Roger Nober.

"The pilot program should be used as a model by the rest of the industry and I hope other railroads look at it," Nober said. He also said he''s "not sure that you can come up with a hard and fast rule" to deal with this situation, but STB might be willing to formally investigate demurrage issues it determines those charges are a chronic problem in the industry.

But IWLA''s members say it already is. "There are times when we have a lot of cars on our track waiting to get in to our warehouse," said Richard Murphy, president and CEO of Murphy Warehouse Co. in Minneapolis. "We could handle more volume if the railroads could service us with multiple switches a day. But because of their shipping patterns, the railroads hold onto their cars as cars build up in the rail yard, and they say it''s been placed, so it''s our problem. So not only are we hit with demurrage fees, they''re keeping us from doing more business. We''re thinking of buying a $60,000 locomotive and switching the extra business ourselves."