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Rail Surcharges for Fuel
May Get Closer Scrutiny

by Daniel Machalaba
Wall Street Journal, August 5, 2006

The federal Surface Transportation Board proposed tighter scrutiny of controversial surcharges used by railroads to recover fuel costs, including a ban on the current practice of essentially charging customers twice for the same fuel-price increase.

While the agency gave the railroad industry until Sept. 25 to file comments on the proposed changes, the move clearly puts railroads on the defensive about their fuel-surcharge methods and is likely to lead to tougher reporting requirements.

"It addressed our concerns of providing transparency and balance to the fuel-surcharge process," said John Ficker, president of the National Industrial Transportation League, an Arlington, Va., trade group of transportation customers and providers. Major U.S. railroads said they plan to file responses to the agency's proposals but declined to comment further.

Rail users have complained that railroads are using the extra fees, adding nearly 20% to basic shipping costs for some deliveries, to lift profits. Railroads have denied using surcharges as a profit center, and Union Pacific Corp. and Burlington Northern Santa Fe Corp. said last month that surcharges covered about 80% of their additional fuel costs in the second quarter. Still, the healthy economy and tight freight capacity are giving the industry unprecedented leverage.

The proposed changes would force railroads to tie surcharges more closely to actual changes in fuel costs. Railroads also would be required to file monthly reports disclosing fuel costs, fuel consumption and revenue from surcharges. The STB also called for abandoning the widely used method of setting fuel surcharges as a percentage of base shipping rates, which vary depending on the level of competition. Instead, the agency proposed requiring railroads to devise an alternative method, such as mileage or combination of weight and mileage.

Some railroads already have responded to criticism of their fuel surcharges by adjusting how they set the extra fees. BNSF, for example, implemented on Jan. 1 a mileage-based fuel-surcharge program on coal and agricultural freight.

Daniel Machalaba
Rail Surcharges for Fuel May Get Closer Scrutiny
Wall Street Journal, August 5, 2006

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