Fuel Charges and Counter Charges

The National Industrial Transportation League's (NITL) position before the Surface Transportation Board (STB) is that "a fuel surcharge program, properly structured, is an appropriate method for recovering extraordinary changes in fuel costs."

The STB conducted hearings earlier this year seeking input on rail fuel surcharges from shippers and the railroads themselves. NITL takes the position that fuel surcharges based on freight costs rather than mileage create inequities.

Shippers who commented on surcharges in truck and rail in Morgan Stanley's Freight Pulse Survey were very vocal on that issue. One difference appears to be the ability of the truck shippers to influence carriers to adopt a mileage surcharge model instead of a percentage of the freight rate. Rail shippers complained about the railroad's surcharge method and demanded more government oversight, even re-regulation.

In part, NITL said the STB has authority to oversee fuel surcharge programs under its unreasonable practice jurisdiction, setting the tone for where it feels the railroads' surcharge programs fall. It is proper for rail carriers to recover unexpected increases in fuel costs, said NITL, especially when the increases are substantial. But the association argued railroads have other means to recover such costs, including the Rail Cost Adjustment Factor and short-term contracts that would reflect current costs, including fuel.

Long-term contracts often have a clause that does not permit increases beyond a certain point or may exclude surcharges altogether. Some shippers have expressed concern that some are charged an excessive surcharge to cover other shippers whose contracts preclude them from the charge.

NITL asked the STB to order carriers to provide better and more complete fuel data. It also asked that STB order each carrier to undertake a review of its fuel surcharge methodology.

The STB is not the only group investigating how a properly structured fuel surcharge program should be developed and applied. The U.S. Dept. of Justice (DOJ) has issued subpoenas to expedited parcel carriers FedEx and UPS in an ongoing international investigation into possible price fixing in air cargo.

The investigation was begun in February when the DOJ and European Union and South Korean authorities mounted a coordinated effort to obtain information from a number of airlines. Included in that initial effort were American Airlines and United Airlines and Polar Air Cargo. UPS was contacted at that time as well.

The airlines responded to the earlier effort by saying that they were unaware of any wrong-doing and would cooperate fully with DOJ. FedEx and UPS took a similar position in the recent development. As of yet no specific charges have been filed in the investigation.

The probe centers on surcharges for fuel and security imposed since 2001. Fuel surcharges published at the airlines' Web sites did appear to be identical or used similar methodology. Security surcharges varied widely.

In a presentation to the Federal Highway Administration, the CEO of EMO Trans, Jo Frigger offered several examples of the rapid rise of air cargo fuel surcharges. In January 2005, the surcharge was $0.30 per kg. By May 2005, it increased to $0.40 per kg. In January 2006, the surcharge was $0.50 per kg. And, by May 2006, it had reached $0.60 per kg, double the figure for January of the previous year.

Offering examples of average air freight rates on 1,000 kg from New York's JFK to Frankfurt, Germany, Frigger reported that in May 2005 the freight rate was $0.45 per kg, the fuel surcharge was $0.40 per kg, and the security surcharge was $0.15 per kg. A year later, the freight rate and security surcharge had not changed. The fuel surcharge was $0.60 per kg, a 20% increase.

A similar example for an air shipment from Hong Kong to Los Angeles illustrated a similar pattern. The freight rate of $2.50 per kg did not change from May 2005 to May 2006. The security surcharge remained at $0.15 per kg. But the fuel surcharge rose from $0.40 per kg to $0.60 per kg.

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