Transportation News: Lawsuits over Railroad Fuel Surcharge Prices Take New Twists

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- April 8, 2008 -

Transportation News: Lawsuits over Railroad Fuel Surcharge Prices Take New Twists

Multiple Suits Consolidated in to One Class Action Trial; Archer Daniels Midland Claims Price Fixing, While Other Suits Cite Gouging; What’s a Shipper to Do?

SCDigest Editorial Staff

SCDigest Says:

That notion may become even more appealing after corporate and shipping heavyweight Archer Daniels Midland (ADM) filed its own suit last week accusing the rail carriers not of price gouging but, rather, price fixing on the fuel surcharges.

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US railroads, which have enjoyed a number of years of strengthening volumes, rates and profits, are now finding themselves under a new challenge – a legal one.

For the past year or more, there have been claims that the major rail carriers were using fuel surcharges not just to recoup costs, but also to pad profits. That included a charge – but no lawsuit – last September from a study commissioned by the American Chemical Council that the railroads had overcharged shippers by at least $6.5 billion through inflating fuel surcharges from 2003 through early 2007. In Q2 2007, the Surface Transportation Board changed rules prohibiting rail carriers from calculating surcharges as a percent of the freight bill for non-contract carriage (meaning a straight per mile charge would be used). (See Report Charges Railroads With Overcharging on Fuel Surcharges to the Tune of $6.5 Billion Since 2003.)

The alleged excess fuel surcharges represented between 49-71% of different carriers’ 2006 profit, according to additional research by Supply Chain Digest.

Percent of 2006 Rail Profits as from Alleged Fuel Surcharge Over-Recovery
Carrier	2006 Profit	Alleged Fuel Surcharge Over-Recovery	Percent of 2006 Profits from Alleged Over-Recovery
Burlington Northern	$1.87 billion	$925 million	49%
CSX	$1.31 billion	$842 million	64%
Norfolk Southern	$1.48 billion	$890 million	60%
Union Pacific	$1.6 billion	$1.169 billion	73%
Kansas City Southern	$108 million	$79 million	73%

Source: Supply Chain Digest Research

(Transportation Management Article - Continued Below)

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A number of class action lawsuits over this “fuel surcharge gouging” had been filed, with most of the plaintiffs to date having been relatively small shippers. Now, however, some 25 of these class action suits have been combined into a single class action suit against the rail carriers before a US district court in Washington DC. This may enable the plaintiffs to throw more legal muscle into the action – and potentially inspire other shippers to jump in.

The suit contends the carriers moved in lock step in how they priced and handled fuel surcharges, resulting in almost or completely identical surcharge practices among the five major US rail carriers: Burlington Northern Santa Fe Corp., CSX Corp., Kansas City Southern, Norfolk Southern Corp. and Union Pacific Corp.

ADM, which says it has paid some $250 million in rail fuel surcharges since 2003, contends collusion among the rail carriers to keep surcharges excessively high, and that different fuel costs and results from fuel hedging should have led to differentiated fuel surcharge rates, not identical ones among the carriers.

The rail operators and the American Association of Railroads continue to dispute both the gouging charge and there being any collusion to fix surcharges.

What’s your reaction to these latest legal moves? Do you think the AMD suit will cause other shippers to “follow suit” with their own legal actions? Were there big problems with rail fuel surcharges? Let us know your thoughts at the Feedback button below.