News Release

American Chemistry Council Decries Unreasonable Rail Fuel Surcharge Practices

Seeks More Equitable, Reality-Based System for Determining Need

ARLINGTON, VA (May 11, 2006) – Unreasonable pricing practices, rooted in today’s government-protected system of railroad monopolies, have led railroads to impose unwarranted and unfair fuel surcharges on chemistry sector customers and other captive industries, the American Chemistry Council (ACC) told the Surface Transportation Board (STB) today. The STB is investigating rail fuel surcharge practices.

Analysts contracted by ACC confirmed revenue generated by the rail fuel surcharges “greatly exceeds” actual fuel costs due in large part to flaws in the methodologies used in calculating the surcharges.

Further, the analysts estimate that rail fuel surcharges today have unnecessarily cost railroad customers – including the chemistry sector – roughly $1 billion in overcharges. This is a costly burden that could create negative consequences for the entire U.S. economy.

Testifying on behalf of the nation’s leading chemistry companies, ACC’s Senior Director for Distribution, Tom Schick, explained that railroad fuel surcharge practices are unreasonable because of five crucial factors:

1. Fuel surcharges often are not based on actual fuel consumption: Surcharges should be related to the amount of fuel consumed to provide a specific service to a shipper. Instead, they are based on other, often unrelated factors.
2. Fuel surcharges are inappropriately linked to freight rates: Rates are based on a wide range of competitive factors, and their differences are not relevant to the amount of fuel consumed for a particular trip.
3. Higher fuel costs are often covered by other means: Railroad fuel costs are captured through several mechanisms, such as the Rail Cost Adjustment Factor. Adding a fuel surcharge often means fuels costs are recovered more than once by the railroad. Such double jeopardy is unfair.
4. Some shippers are overcharged because others are not subject to fuel surcharges: Due to certain contracts or other circumstances, some railroads can not impose a surcharge on some customers. But it is unfair and unreasonable to “make up the difference” by unduly raising the charge for customers that do pay surcharges.
5. The reasonability of fuel surcharges can only be determined if there is complete data transparency: Railroads should report their actual fuels costs in a consistent, comprehensive and uniform manner so that the STB, shippers and Congress can accurately and readily determine the revenue obtained from surcharges.

The flaws in rail fuel surcharge practices are significant. According to the analysis prepared at the request of ACC by the economic and management consulting firm of Snavely King Majoros O’Connor and Lee, Inc., the manner in which fuel surcharges have been calculated and applied by the railroads has resulted in an “over recovery in the range of $1 billion for 2005. This is the amount by which Class I fuel surcharge revenues collected by US railroads exceed the increased fuel costs incurred by the railroads.” This information was submitted to STB for its consideration.

Snavely King has a simple recommendation to correct this obvious deficiency:

“We recommend replacing reliance on non-railroad measures of fuel costs with a simple process using the railroad’s own measurement of fuel cost increases. The railroads have demonstrated they can measure railroad fuel cost increases [and] have decades of experience in recording the fuel cost component of the Rail Cost Adjustment Factor [and] the predecessor AAR rail cost index.”

They note, “Our recommended change to proven metrics for fuel cost can restore confidence in the rail fuel surcharge process and eliminate reliance on unproven techniques whose design is unsupported and whose application is inequitable.”

ACC calls on STB to change how railroads calculate and assess fuel surcharges. More reasonable and equitable practices are urgently needed.