Railroad Demurrage Liability Changes

On April 9, 2014 the Surface Transportation Board (STB) decided to revise the existing rules pertaining to 1) who may charge demurrage and 2) who is subject to demurrage. The new rules took effect on July 15, 2014. The complete decision and related statements to support the decision may be read on their website here. I have read through the document and would like to boil things down and to provide some summary and commentary that will hopefully be helpful to you.

Demurrage Defined

Demurrage is defined by the STB as, “…a charge incurred when rail cars are detained by the party receiving delivery of the cars beyond a specified period of time for loading or unloading.” This definition may be a little confusing as it appears to apply only to the time that the receiving party holds onto railroad-owned cars. Later in the document, paragraph C ii, it states that the rule applies to privately owned railcars held on railroad property as well. Typically this would be when the receiver could not accept a railcar for delivery, so the railroad keeps the railcar on their property and places the railcar in constructive placement status. For a deeper discussion of this type of demurrage and demurrage in general, please refer to this article.

Who may charge demurrage?

The party that may charge demurrage is the railroad providing a railcar to a shipper at origin or the railroad delivering a railcar to a receiver at destination. The decision clarifies that it construes 49 U.S.C. § 10743, which is a law that states who is liable for the payment of freight charges, to not apply to the assessment of demurrage charges. Why did they include this statement? I think it is because this law ties liability of freight charges closely to the bill of lading. Keep reading for more discussion about this.

Who is subject to demurrage?

The STB is moving away from defining liability of demurrage charges based on the bill of lading. Historically, the consignee (the party that is financially responsible for the receipt of a shipment) was subject to demurrage charges. The new rule places demurrage liability on the party that takes physical control of the railcar regardless of their presence on the bill of lading. This party is called the receiver. However, the rule requires that the assessing railroad, must have provided “actual notice” to the receiver before placement of the railcar. Actual notice is defined as providing a direct communication to the receiver through a mailed letter or email. This letter or email must include at least a summary of the demurrage tariff rule and then a link to the full rule is acceptable. This is opposed to just “notice”, which would be posting a tariff on the Internet somewhere. The letter or email only needs to be sent once. Then if there are significant changes to the demurrage tariff, another letter or email must be sent.

Does this rule override private agreements?

This rule only applies in the absence of other agreements. Nothing prevents any of the parties (i.e. delivering railroad, shipper, consignee, agent, transloader, third party, etc.) to come up with their own rules pertaining to demurrage.

The parties that will be most affected by this new rule change are the companies that provide loading, unloading, or transloading services on behalf of another company. In other words, the companies that provide the services as a third party where their company name doesn’t appear on the bill of lading or it shows as the “care of” party. These companies will most likely have a contract with either the shipper or consignee to load or unload railcars respectively. These agreements should be reviewed to ensure that liability for demurrage is well defined. If demurrage is not well defined in the agreement, then these new rules will take precedence in the case of a dispute and the company that handles the railcars will be paying the bill.

Can demurrage be disputed?

Disagreements relating to demurrage may still be disputed as before. Information regarding arbitration is available here.

Final take away

I like this change. It will improve the utilization of railcars by assessing the charge for non-movement on the party that has the greatest ability to expedite the movement of railcars.

I hope that you have found this article helpful. What do you think of the new rule? Please comment if you would like to add something or have a personal experience to share about how the rule is getting implemented.

 

All the best,

Jim