Ex
Parte No. 661 – Rail Fuel Surcharges Good morning Chairman Buttrey, Vice Chairman Mulvey, staff, fellow testifiers and others in the room. I’m Steve Strege, here on behalf of the North Dakota Grain Dealers Association, a trade association of country grain elevators in North Dakota and a few in bordering states. These grain elevators receive grain from farmers, clean it, segregate it by qualities, and ship it to both domestic users and export ports. Fuel surcharges raise overall transportation cost. This impacts grain elevators and the price they can pay farmers for grain. The unpredictability of fuel surcharges creates a problem for grain elevators offering forward price contracts to farmers. Rural communities are affected when less is received for agricultural production in the area. Increased costs can detract from the competitiveness of our grain on the world market. Fuel surcharges have ripple effects. Thank
you for holding this hearing and for focusing on the right question – whether
railroad fuel surcharges actually reflect the increased fuel cost on the
shipments being assessed. We
aren’t here today to talk about whether railroads collect enough in total
fuel surcharges system-wide to cover their increased fuel cost
system-wide. At the
other extreme, I don’t think anyone is asking that railroads calculate
a unique surcharge for every shipment, although they may have the
data to do just that. Our
primary message to you today is that railroad fuel surcharges be
reasonably cost-based. You’ll
hear much evidence today that they aren’t.
Railroads
unilaterally impose these charges.
Rail customers are forced to pay because they have no effective
alternative means of transportation.
The broad interest in this hearing testifies to the concern and
economic pain suffered. I’ve
read several shipper statements. Common
themes include evidence of overcharges and a desire for cost-based
surcharges. It is time for
the STB to take a closer look and to effect more positive change.
Time for the railroads to get surcharges more in line with actual
increased cost. Because
BNSF is the larger carrier in my region, and because it has had the
higher fuel surcharge over most of the past couple years, it has drawn
the most attention in the Northern Plains.
Early last year BNSF said it was collecting fuel surcharge on
only half its revenue base. To
the extent some payers were being overcharged to make up for those who
were not paying, this is robbing shipper Peter to pay expenses generated
by shipper Paul. That is an
unreasonable practice on any railroad. According
to a brokerage house analysis quoted in our written submission, some
railroads were using fuel surcharges to pad their bottom lines.
Railroad earnings were said to face a headwind or drag if fuel
prices declined. We believe
assessing more fuel surcharge than actual additional fuel expense is an
unreasonable practice. Mr.
Chairman and Vice Chairman you have read our written testimony including
the spreadsheet about increased fuel cost versus fuel surcharges on the
BNSF. It used fuel cost
from mid-2002 when BNSF last had zero surcharge, and compared that to 4th
quarter 2004. The
spreadsheet used BNSF’s stated fuel cost and fuel efficiency.
To
its credit the BNSF has changed its method of calculation, but on a
specific movement basis our experience and data point out the inaccuracy
of using a rate-based method of calculation, which all the railroads
except BNSF still do. So
I’d like to highlight a few things from that experience. In
one case the fuel surcharge on a trainload was over $41,000 when the
actual increased cost was less that $14,000.
Surcharges were up to seven times increased fuel cost.
Surcharges sometimes exceeded total fuel cost.
Surcharges on different grains from the same origin to the same
destination varied by 50%.
These are unreasonable practices.
In some cases surcharges were less for longer hauls than for shorter hauls of the same weight over much the same route. In one example a haul of nearly 1300 miles paid 70% more per car-mile than a haul of almost 1750 miles. We think that defies common sense and is an unreasonable practice. We
compliment the BNSF Railway for making the change to a mileage-based
surcharge on grain and coal this past January 1.
This is a step in the right direction.
It has at least partially eliminated some of the distortions just
mentioned. We think other
railroads should follow BNSF’s lead and improve upon it. It
seems common sense that mileage must be a component of a reasonably
cost-based fuel surcharge. Driving the family car or a railroad locomotive 1000
miles consumes more fuel than driving it 500 miles. Another
component to a mileage-based surcharge is the per-car-mile charge.
We wonder how BNSF arrived at a 33 cents per car mile charge for
grain this month, but only 22 cents per car mile on coal.
That isn’t to say that coal should be increased, but rail
customer confidence is shaken by a process that yields such variable
results? The
railroads feed crude oil price or highway diesel price in one end of a
black box and out the other end comes the fuel surcharge.
We need transparency in this process so rail customers know they
are paying what is necessary and no more. While we applaud the BNSF lead in switching to mileage based, mileage-based is not an end-all. It must be accompanied by an accurate per-mile charge. I’m
told that the short lines and regional railroads operating in my state
get none of the fuel surcharge collected by the major carriers.
Clearly these smaller railroads have additional fuel expense.
The welfare of these smaller railroads in this regard is of
interest to us and should be of interest to the Board. Railroad
fuel surcharges are a big deal by anyone’s measure.
According to its own financial reports over 57% of the BNSF’s
total fuel cost in 2005 was covered by fuel surcharge.
It has been about two years since fuel surcharges took off in a
steady upward climb.
With the recent run-up in crude oil prices, fuel surcharges on
all railroads will become even more of an issue.
Some of that may be justifiable; some of it is probably not.
It is time for this Board to exert its influence and authority on
the railroads on behalf of rail customers to inject equity into this
situation. The
North Dakota Grain Dealers Association believes several principles
should apply to railroad fuel surcharge.
Our short list is as follows: ·
Assessing
fuel surcharges is justified only if the railroad is not recovering its
increased fuel cost through other mechanisms such as rate increases or
the Rail Cost Adjustment Factor.
·
Railroad
fuel surcharges should cover the increased cost of fuel on the shipments
to which they are applied.
They should be cost-based. ·
Basing
a fuel surcharge on the rate is not an accurate reflection of true
increased cost, and penalizes captive shippers more than others.
·
Rail
customers who pay fuel surcharges should pay for only their own use.
They shouldn’t have to make up the shortfall for rail customers
who don’t pay. ·
If
fuel surcharges are necessary, then it seems like short lines and
regional railroads should get their fare share. ·
Rail
customers are entitled to know how their fuel surcharges are being
calculated and if they are equitable.
Open the black box. One
of our members contacted me last week with the thought that where fuel
surcharges have been very excessive there should be a rebate back to the
payers. This is something
the STB might want to consider. Thank you Mr. Chairman and Vice Chairman Mulvey for this opportunity. I will try to answer any questions you might have.
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