Shippers Hammer Railroads With Lawsuits Over Fuel Surcharges

U.S. Class I railroads BNSF (NYSE:BRK), Union Pacific (NYSE:UNP), CSX (NYSE:CSX) and Norfolk Southern (NYSE:NSC) got slammed with lawsuits this week from shippers of various industries. The lawsuits allege that between 2003 and 2008, the railroads engaged in price fixing by assessing fuel surcharges and saying they were part of a fuel cost recovery program, thus violating the Sherman Act.

More than two dozen lawsuits may have been filed this week on the issue, according to research conducted via PACER, an online database of court filings. Plaintiffs range from power companies such as Ameren Missouri, Duke Energy Carolinas and Dominion Energy, to chemicals and energy suppliers such as Eastman Chemical and Phillips 66, to automakers such as KIA and Hyundai.

The multiple filings could be related to a federal appeals court ruling on August 16, in which the U.S. Court of Appeals for the D.C. Circuit upheld a previous decision that prevented rail shippers from being able to form a class action lawsuit to argue against alleged fuel surcharge price fixing. As a result of the D.C. Appeals Court decision, rail shippers would have to file lawsuits individually and within a certain timeframe if they still wanted to pursue the issue.

"In 2003, the four largest United States-based Class I railroads engaged in an extraordinary series of meetings, phone calls and email communications through which they embarked on a conspiracy – under the guise of a fuel cost recovery program – to apply and enforce rail fuel surcharges across their customers in order to generate profits," read several court filings, including those from Dominion, chemicals supplier Old World Industries, Kia and chemicals shipper PCS Sales.

The filing continued, "Defendants used ‘rate-based' fuel surcharges – i.e., surcharges that use a percentage applied to the base rate for a shipment – as a means to impose across-the-board rate increases on rail freight shipments, a result that would have been prohibitively difficult to achieve on a contract-by-contract basis. Throughout the conspiracy and despite customer pushback against Defendants' fuel surcharges, Defendants set aside their individual, economic self-interest to undercut one another and instead staunchly maintained their fuel surcharge program, pocketing billions of dollars in profits as a result."

CSX and NSC said they would not comment on pending litigation, while BNSF said it is reviewing the filings. Attorneys for several of the plaintiffs also didn't return a request for comment.

"These allegations are not new and we have strongly denied these accusations for well over a decade," BNSF said.

"We believe the claims are meritless and we plan to vigorously defend ourselves in court," UNP said.

As the courts potentially grapple with the fuel surcharge issue, so too could the Surface Transportation Board (STB). In an unrelated action, the STB opted to discontinue a proceeding on fuel surcharges on August 29 because it could not reach a consensus on how to address the issue.

But a coalition of shippers' groups asked STB to reconsider its decision and even consider a rulemaking. They contended the railroads took advantage of the program and profited greatly from it, according to a September 18 filing by the Western Coal Traffic League, the American Public Power Association, the Edison Electric Institute, the Freight Rail Customer Alliance and the National Rural Electric Cooperative Association.

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