U.S. railroads overcharge customers through fuel surcharges, clients say

U.S. railroads overcharged customers by $6.4 billion over four years through fuel surcharges, some of their biggest customers said in a study released today.

The five largest railroads collected $11.7 billion in fuel surcharges from 2003 through the first quarter of 2007 as their fuel costs increased by $5.3 billion, trade groups representing the chemical industry and electric utilities said. The $6.4 billion difference was overcharged to shippers, the study said.

"While the U.S. Class I railroads saw dramatic increases in their fuel costs during the study period, they used fuel surcharges aggressively, transforming cost-recovery mechanisms into profit centers," the study said.

The study was released as the U.S. Congress considers legislation to give railroad customers more power to reduce shipping rates. The House transportation committee is scheduled to review rail industry competition and service on Sept. 20.

Susan Terpay, a spokeswoman for Norfolk Southern Corp., the fourth-biggest U.S. railroad, said the company is reviewing the study and had no immediate comment.

Union Pacific Corp. spokeswoman Kathryn Blackwell, Burlington Northern Santa Fe Corp. spokeswoman Mary Jo Keating and CSX Corp. spokesman Garrick Francis declined to comment.

Union Pacific, Burlington Northern, CSX and Norfolk Southern are the four largest U.S. railroads.

Tom White, a spokesman for the Association of American Railroads, said he couldn't talk about rate issues.

The study was sponsored by the American Chemistry Council and Consumers United for Rail Equity. The chemistry group represents companies including BASF AG, the world's biggest chemical company by sales. Consumers United's members include electric utilities and forest products companies.

The study supports shippers' arguments that Congress should intervene to control railroads' pricing power, said Jack Gerard the chief executive officer of the chemistry council.

Gerard noted that British Airways plc and Korean Air Lines Co. were each fined $300 million by a U.S. court last month after admitting they reached secret agreements with competitors on fuel surcharges.

"They got fined because they're subject to the U.S. antitrust laws," Gerard said in an interview. U.S. railroads have limited antitrust immunity, which the council wants Congress to revoke.

Rate Regulator

The Surface Transportation Board, a federal agency with authority to regulate some rail rates, told railroads in January they could no longer calculate fuel surcharges as a percentage of their base rates.

The board commissioned a study in response to a U.S. Government Accountability Office report last year that cited "possible abuse of market power" by the railroads. The board, in a statement today, said the study is to be completed in about a year.

Union Pacific, Burlington Northern, CSX and Norfolk Southern said in July they received grand jury subpoenas during the second quarter related to fuel surcharges.