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9/17/2007



Rail News: Rail Industry Trends

U.S. Class Is turned fuel cost recovery fees into 'profit centers,' rail shipper organizations claim



The U.S. Class Is “overcharged” shippers by more than $6.4 billion the past four years through fuel surcharges that “transformed fuel cost recovery mechanisms into profit centers,” according to a study released last week by rail shipper organizations Consumers United For Rail Equity (CURE) and the American Chemistry Council (ACC).

Conducted by economic and management consulting firm Snavely King Majoros O’Connor & Lee, the study analyzed Securities and Exchange Commission filings from BNSF Railway Co., CSX Corp., Kansas City Southern, Norfolk Southern Corp. and Union Pacific Railroad, and compared year-to-year reported fuel costs with fuel surcharge revenue from 2003 to first-quarter 2007.

The study shows the railroads “systematically overcharged” shippers for fuel and used “unreasonable practices to pad their profit margins,” CURE and ACC officials said in a prepared statement.

Earlier this year, the Surface Transportation Board (STB) ordered the railroads to change the way they collect fuel surcharges, but didn’t require any refunds or quantify the amount of fuel “overcharges,” the officials claim.

“This demonstrates in the starkest of terms that the STB is broken and that Congress must step in to reform this industry,” said CURE Chairman and National Rural Electric Cooperative Association Chief Executive Officer Glenn English.

CURE and the ACC support the Railroad Competition and Service Improvement Act of 2007 (H.R. 2125/S. 953) and Railroad Antitrust Enforcement Act of 2007 (H.R. 1650/S. 772), which propose to remove railroads’ antitrust exemptions, and amend title 49 of the U.S. code to “ensure” rail industry competition and provide shippers a “reasonable process” for rate challenges and service disputes.

The Association of American Railroads (AAR), which opposes the bills, declined to comment on the study. Antitrust law limits the association’s ability to discuss rail rate issues, AAR spokesman Tom White said.

However, UP disputes the study's claims because the railroad has publicly reported fuel surcharge program data — which includes fuel consumption, average price per gallon, fuel surcharge revenue and incremental fuel expenses — since 2003, and there should be “no question” about data accuracy, said UP Executive Vice President of Marketing and Sales Jack Koraleski in a Sept. 14 letter to the railroad’s customers.

UP registered a fuel expense recovery shortfall of $1 billion between January 2003 and March 2007, recovering only 77 percent of its increased fuel costs during that period, he wrote.

“While commissioning a privately managed study is a well-known lobbying tactic in Washington, this particular project sets new standards for data manipulation and selective use of the facts,” said Koraleski.


Contact Progressive Railroading editorial staff.

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