Shippers, regulators muddle through ‘grey area’ of rail storage fees

Shippers are urging Congress to close the regulatory loop for rail container storage fees by expanding the Federal Maritime Commission's (FMC's) power so cargo owners can challenge demurrage that's billed by railroads directly to cargo owners and consignees, but it's a tall order.  

Cargo owners and consignees billed by Class I railroads for storage charges can't challenge those fees with federal rail regulators due to an intermodal exemption to the U.S. Surface Transportation Board's (STB's) purview. The agency, and the Interstate Commerce Commission before it, gave the rail industry broad exemptions for trailer and container services.

Shippers can take their case to the U.S. Federal Maritime Commission, but the FMC's reach is limited to cargo moved on "through" bills of lading, in which the ocean carrier takes responsibility for door-to-door moves. At the Journal of Commerce's Inland Distribution Conference last year, FMC Commissioner Daniel Maffei said the agency was increasing its monitoring of such fees, telling attendees bluntly, "Make no mistake; the Federal Maritime Commission's authority does not stop at the water's edge."  

The National Shipper Advisory Committee (NSAC) and the National Industrial Transportation League have recommended expanding demurrage rulemaking, mandated by landmark shipping regulation passed last June, to include all land storage of containers — not just at marine terminals — and any per diem charges assessed by railroads directly. The recommendation addresses so-called merchant haulage, when the shipper or consignee is billed by the railroad, rather than the container line. Currently, the FMC's definition of detention and demurrage reads "any charge assessed by common carriers and marine terminal operators related to the use of marine terminal space or shipping containers." 

"I think we all have to agree that someone has to be responsible," Ken O'Brien, vice chair of NSAC and CEO of the Gemini Shippers Group, said at NSAC's May 11 meeting. "Otherwise, why isn't the charge for rail storage a million dollars? If no one can say the number can be right or wrong, it could be nothing or it could be anything." 

Updating language on the detention and demurrage definitions to include rail "would disincentivize ocean carriers from offering through bills using rail, and I doubt that is what shippers want. It's safe to say that this issue needs a lot more thought from everyone involved," John Butler, World Shipping Council president and CEO, told the Journal of Commerce.  

Parsing regulatory authority 

The FMC is loath to expand its regulatory authority through rulemaking without Congressional approval. The rail and maritime regulatory environments overlapped briefly in the summer of 2021 when importers' frustration with storage fees amid record rate hikes prompted calls for the STB to exempt them from those fees. STB Chairman Marty Obermann in July 2021 pushed the railroads to explain their demurrage billing practices, sparking an immediate warning from rail interests of potential overreach.  

Ultimately, both the FMC and STB stayed in their respective lanes, despite pleas from some shippers to be more aggressive. That puts the onus on Congress, although the appetite for such a fix among legislators — let alone one tied to rail deregulation in the 1980s — may be limited. The FMC, meanwhile, is still working to meet mandates contained in the Ocean Shipping Reform Act of 2022 (OSRA-22), including rulemaking on two overlapping issues: defining when it's unreasonable for ocean carriers to refuse bookings on vessels and what's considered discrimination of service. 

Rep. John Garamendi, D-Calif., says he wants to take a crack at clearing up this "grey area" through changes to OSRA-22. 

"We haven't quite figured out how to write this," Garamendi said during a May 23 meeting of the House Transportation and Infrastructure Committee. "We think it's an important area where there should be authority ... I think when we figure out exactly how to parse the relationship between the Surface Transportation Board and the Federal Maritime Commission, this one will be adopted." 

How Garamendi, along with Rep. Garret Graves, R-La., craft an amendment to OSRA-22 will be interesting, to say the least. Class I railroads can be expected to wield their formidable political power if they fear the loss of the intermodal exemption. The Association of American Railroads in August 2021 was forceful in rejecting shippers' calls for a temporary exemption of demurrage charges, noting that rail regulators would have to show that railroads were abusing their market power to justify such an exemption. 

Yet, the inability of shippers to challenge storage fees before federal regulators will continue to fester. The easing of supply chain delays and bottlenecks may have reduced rail storage fees, but the problem isn't going away. 

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.