The American Chemistry Council (ACC) released a commissioned study today that accuses U.S. railroads of overcharging customers from 2003 through early 2007 to the tune of $6.5 billion by inflating fuel surcharges.

The report is of more than academic interest. Earlier this year, a lawsuit was filed by a tiny shipper seeking potentially billions of dollars in damages from five major rail carriers over alleged price collusion related to fuel surcharges. That suit also sought class action status that would enable other shippers to jump into the fray. (See Shipper Suit Alleges Price Fixing by Rail Carriers on Fuel Surcharges, though Details are Questionable.)

From our view, the suit had some questionable aspects, such as the fact that the company leading the legal action, a small, closely held company named Dust Pro (Phoenix, AZ), ceased operations of the relevant business in late 2005. Finding information on the company via web searches is difficult. The web site www.dustpro.com, which was once active, is no longer available.

Nonetheless, the report may provide ammunition for a Federal court to grant class action status to the suit – and the fact that the Chemistry Council funded such a study would indicate its members, among the biggest rail shippers, would like to regain some of the fuel surcharge payments from the carriers.

The research commissioned by the Chemistry Council, a business group representing 90% of the nation’s chemical makers, was conducted by Snavely King, a consulting firm specializing in research into the rates, revenues, costs and economic performance of regulated firms and industries.

The research focus is on the fuel surcharge processes of five major, U.S. Class I railroads between 2003 and Q1 2007.  During this period, Snavely King reviewed and compared the fuel surcharge revenues collected by BNSF, CSXT, Kansas City Southern, Norfolk Southern, and Union Pacific railroads and the total year-over-year change in fuel costs.  As a result of the analysis, they concluded that, despite dramatic increases in the price of fuel, the railroads abused the cost recovery system by collecting in excess of their own increased costs – to the tune of a collective $6.5 billion.

The ACC is accusing U.S. railroads of anti-competitive behavior, and using aggressive rhetoric.  Jack Gerard, president and chief executive of the ACC, was quoted by the Associated Press as saying, "This is the greatest train robbery of the 21st century."

In January, the Government banned excessive fuel surcharges and imposed strict rules which require the railroads to link the surcharges directly with the actual fuel costs for specific rail shipments; however, they have no authority to enforce refunds or seek penalties for activity prior to the new requirements.  Hence, the lawsuit, which seeks monetary damages from the railroads for allegedly fixing prices for fuel surcharges that don’t relate to actual fuel costs.

Next week, SCDigest will provide a more detailed analysis of the study itself.