Fuel Surcharges – 10 Years Later

It’s easy for shippers to take railroad fuel surcharges for granted as the norm today. However, they didn’t become common practice until 2004. Petroleum prices were on the rise and the intent was to enable the railroads to recoup some of the cost increases and deal with short term volatility. So, how does what you are paying in FSC today compare to the railroads’ actual fuel cost increases?

Last month the STB released a letter seeking public comment on the safe harbor provision of the FSC rules. When the STB adopted fuel surcharge rules in 2007, it concluded that the Highway Diesel Fuel (HDF) Index accurately reflects changes in fuel costs in the rail industry. Based on this conclusion, the STB declared a “safe harbor” for any railroad that uses the HDF Index in its fuel surcharge program. In other words, a railroad fuel surcharge program based on the HDF Index is immune from a challenge that it over-recovers actual changes in the railroad’s fuel costs.

In a recent case before the STB, Cargill showed that BNSF’s fuel surcharge revenues exceeded its incremental fuel costs by $181 million. However, the STB dismissed Cargill’s complaint under the safe harbor rule. That result has prompted the STB to revisit the safe harbor rule and the STB has requested public comment on whether the safe harbor rule should be modified or removed.
View the letter on the STB website.

The chart below shows major railroads recouped between 54% and 71% of their total fuel cost from FSC revenue in the first quarter of 2014.

fuelcost-snapshot-575

Note: Includes fuel for all railroad operations, U.S. operations only.

Although fuel surcharges rates are usually not negotiable, this insight may be helpful. An understanding of the railroads total revenue helps to highlight areas where you may have room to reduce your costs. Contact us if you would like to discuss ways to improve you rail rate management or learn more about USRail Impact rail rate analysis software.