HB 1370 Fuel Surcharges Senate Testimony

Presented by Steve Strege to the ND Senate Transportation Committee on March 4, 2005

We need North Dakota state government to help its grain elevators and farmers bring an end to the abuse and extraction of what might add up to be millions of dollars from our state in excessive railroad fuel surcharges.  I should point out here at the beginning that the Burlington Northern Santa Fe is significantly worse in terms of the level of surcharge assessed.  In December and January when the BNSF was at 9% of the freight rate, the CP was at 5.5%.  Today those numbers are 7.5% BNSF and 4% CP.  BNSF has announced it will go back up to 8% in April, and with petroleum prices jumping again, who knows where we might be a few months from now. 

Fuel surcharges supposedly cover the increased cost of fuel due to the price run-up in the past year or two.  But BNSF is recovering much more than that from North Dakota grain, in some cases more than the total cost of the fuel consumed.  I’ve done some calculations where the surcharge comes out to over twice the total cost of fuel.   I don’t know any way to describe this other than to say it is a rip off.

            We and others have told the BNSF to back off.  But it is quite a cash cow for them to milk.  North Dakota Public Service Commission Chairman Tony Clark had contacted BNSF Ag Products Vice President Kevin Kaufman in January about this situation.  Mr. Kaufman responded right away, and then on February 14 sent a follow-up report letter.  I’d like to focus on the point #2 on 50% coverage and #1 on earnings.

Ad-lib paragraph:  BNSF says only 50% of its revenue base is paying surcharge.  Grain is in that 50%.  Are we being forced to pay extra surcharge to cover others?  Point #1 says increased fuel costs negatively impact BNSF earnings.  Higher fuel costs impact everyone who must buy any kind of fuel, but most buyers can’t pass on the increase in the form of a surcharge.  During the 4^th quarter of 2004 the BNSF reported all-time record earnings, all-time record freight revenue and all-time record operating income. 

Here are some specific numbers.  The 110-car shuttle train rate on wheat from Berthold, ND to Portland, Oregon is $4,174 per car for 1,300 miles ($3.21per car-mile) ($1.13 per bushel).  The 110-car shuttle rate on soybeans from Clarkfield, MN to Portland, same weight for 1,750 miles is $3,300 per car, $1.89 per car-mile.  The cars and locomotives are interchangeable, moving over much of the same track to the same place.  Let’s set aside for a moment the absurdity of that rate difference and look at only the fuel surcharge.  The 9% fuel surcharge assessed in December and January on that wheat train was $41,322.  On the identical weight train of soybeans pulled a third more miles the fuel surcharge was $32,670.  That is 70% more for North Dakota wheat on a per mile basis.   If Berthold paid the same per-mile its surcharge would be $24,271, not the $41,322.  This is a $17,051 over the soybean charge.  And we don't know that the charge on the soybean train is justified.

It gets even more odd.  The soybean rate from Berthold to the PNW is $3,400 per car vs. that wheat rate of $4,174.  The fuel surcharge on wheat is the $41,322 cited above.  On an identical weight train from the same origin to the same destination the fuel surcharge on the soybeans is $33,660.  My Board of Directors met with Mr. Kaufman in January and one of the Directors asked: “Does wheat pull harder than soybeans?”   There was no answer given to that question.  We were told then and still are told that fuel surcharges are “a complex issue”, that this method of assessment is easiest for the railroad, and that they are working to resolve the matter.  If this was not working in the railroads’ favor it would be corrected quickly.       

BNSF says their fuel surcharges are merely a “cost recovery mechanism”, and that it does not collect more in fuel surcharges than its incremental fuel expense.   A study undertaken by the National Grain and Feed Association, the National Industrial Transportation League and others, regarding fuel surcharges of five major railroads states:  “...with limited exceptions, the surcharge programs of the five carriers consistently result in over-recovery of fuel cost increases on an individual movement basis.”   

Let me personalize this a bit more for a couple of you with examples from Osnabrock and Reynolds.  To protect the innocent I’d better say that none of the managers, owners or directors of any of the elevators I’ve mentioned asked me to use them as examples.  I picked them out.   

Ad-lib paragraph:  Mr Chairman, Osnabrock is in your district.  On a 26-car train of wheat from Osnabrock to Minneapolis the fuel surcharge is $5284, but the cost of fuel is only $2853.  Just the surcharge is nearly twice the entire cost of fuel.  Senator Mutch, Reynolds is in your district (part of Reynolds).  On a 26-car train of wheat from Reynolds to Minneapolis the fuel surcharge is $4528, but the cost of fuel is $2127.  These calculations are based on BNSF reported $1.14 per gallon price of fuel in 4^th quarter 2004 and their 761 Gross Tons Miles per gallon fuel efficiency. 

The railroads have already said that you as legislators can’t do anything about this; that you can’t put a common sense restriction on their fuel surcharges because that is pre-empted by federal law.  Fuel surcharges assessed in this manner appear more lawless than lawful.  Let’s pass this; let’s enact this; and then if a railroad wants to ignore a law in a state that contributes so handsomely to its bottom line, that’s THEIR public policy and public relations problem.  I suggest that as soon as this bill is enacted a copy be sent to all three members of the Surface Transportation Board and all relevant Congressional committees with an appropriate letter of explanation.   I will be more than happy to assist.

Thank you.  I will attempt to answer any questions.