Defining Rail Shipping Demurrage and How to Dispute It

Railroad demurrage is a fee charged by rail carriers when railcars are held in the carrier’s yard. Minimizing these fees is important for rail shippers because they add to the revenue loss from idle railcars. Businesses using rail shipping should understand demurrage charges and how to resolve them.

Below, we will examine the demurrage rules, their evolutionary process, and the procedures for disputing demurrage charges. If you want to proactively lower your demurrage charges, check out this post from RSI Logistics, a TrinityRail Company, titled Strategies to Reduce Demurrage.

Playing by the Demurrage Rules

Rail shipping often involves demurrage, a charge designed to keep rail-serving yards open and to encourage the swift movement of railcars by imposing fees for extended dwell times. Despite this purpose, demurrage can be unpredictable due to the inherent variability of rail shipping. Understanding how demurrage charges are calculated by each railroad is crucial for minimizing these costs. Once you understand rail shipping demurrage, you can strategize to reduce overall expenses.

However, navigating demurrage calculations can be complex in today’s landscape, often requiring meticulous record-keeping from rail shippers to understand and address railroad demurrage reporting.

Demurrage Start and Stop

Understanding the criteria employed by railroads to determine demurrage charges is essential for assessing associated costs. The application of modern technology has automated various aspects of rail shipping, enabling railroads to levy charges based on a broader array of triggers.

Comparing the historical approach to demurrage determination with the contemporary framework reveals a more simplistic methodology used in the past. Previously, the progression of a railcar from Constructively Placed to Actually Placed initiated and ceased the demurrage clock, respectively.

Now, demurrage charges are often contingent on specific situations, with triggers being more precise. For instance, certain railroads impose demurrage based on car type, resulting in distinct charges for hoppers and tank cars. Additionally, location serves as a significant factor; railroads are inclined to expedite the movement of traffic in busier areas, leading to higher demurrage charges compared to remote locations.

Tiered charges are also a possible structure, in which the daily demurrage charge escalates by a predetermined amount after a defined period. Consequently, with tiered charges, the daily charges increase substantially if a railcar remains stationary beyond the specified period — such as a week.

Standard Transportation Commodity Codes (STCC) can be another way to determine demurrage charges. Hazardous commodities would be charged a higher cost per day than a less dangerous commodity.

Switch Schedule

It’s important to be mindful of the demurrage rule pertaining to the switch schedule, which refers to the availability of a railroad to transport railcars to and from a company facility. For example, if there is a railroad-owned rail yard adjacent to your plant, it is crucial that there are personnel available to facilitate the movement of your railcars on the appropriate track to and from your facility. The days on which they are available to perform this task constitute their switch schedule. It’s important to know your serving railroad’s switch schedule and the days they are available for switching.

The significance of this information in relation to demurrage lies in the potential consequences of missing a switch, which could result in delays and demurrage charges. Failing to notify the railroad after a switch may be deemed your responsibility, potentially leading to demurrage charges until the next switch becomes available.

Embargoes

As part of the routine management of demurrage costs, it also is important to account for potential embargo threats. Labor shortages within the broader rail industry have introduced additional complexities to the demurrage management process. Embargoes are put in place to manage traffic when congestion or interference at certain locations requires controlled movements and limitations to keep things moving. For example, in cases when a rail switching facility experiences persistent congestion, an embargo may be imposed to restrict rail traffic and alleviate the congestion.

Unforeseen scenarios such as railcars bunching in rail yards or being erroneously routed cannot be preemptively anticipated. Delays affecting a subset of your railcars, potentially due to traffic congestion, may result in newer railcars arriving simultaneously with previously dispatched ones. The simultaneous arrival of all railcars leads to demurrage charges, as the cars remain stationary and delayed. Additionally, a backup of railcars in service yards poses the risk of embargo imposition, stemming from the substantial number of stationary cars.

Disputing Demurrage Charges

Today, demurrage management tools are readily accessible, revolutionizing the traditional method of receiving monthly demurrage invoices from railroads based on the previous month’s activities. Most railroads now provide the option to track daily demurrage activity through their websites. Leveraging these tools can significantly enhance supply chain planning and diminish demurrage charges. In case of discrepancies in demurrage charges, real-time dispute resolution is now feasible by submitting detailed disputes through the railroad’s website.

Despite the advancements in technology and the automated process of ordering railcars, disputing demurrage charges may still pose challenges. Presented below are essential tips and best practices to effectively contest demurrage charges.

Maintain Missed Switch Records

Maintaining accurate records of missed switches holds significant importance. While railroads typically identify missed switches effectively and may even offer additional credits for such occurrences, it’s important to recognize the potential for errors on the part of the operator. Diligently documenting occurrences when railroads miss a switch and initiating a formal report with the railroad, supported by this documented evidence is an effective approach to resolving disputes and ensuring a resolution.

Report Errors

If a railcar arrives at your facility and remains unattended in the yard, it is important to initiate a formal investigation. Reporting any discrepancies identified within your organization is crucial, as these errors may not have been detected by the railway or other relevant stakeholders. Rather than allowing the matter to go unresolved, open a case in order to prompt necessary actions.

Question Yard Bunching

Not all railroads will acknowledge railcar bunching in rail yards as disputes, but some may do so. If you experience issues with bunching, elevate the matter to your railroad representative for further deliberation on how this affects your supply chain and leads to increased demurrage costs.

Dealing with demurrage charges can be frustrating, but understanding the rules and regulations can make a big difference. Becoming familiar with how demurrage penalties are calculated by your relied-upon railroads will enable you to be prepared. If you ever need to dispute charges, make sure to reach out to your railroad representatives and provide them with the evidence you have.

If demurrage is still giving you trouble, we’re here to help! Our team of rail experts can assess your rail logistics and come up with a plan to help you reduce charges and improve your rail shipping operations to minimize idle railcars.