[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Proposed Rules]
[Pages 76946-76949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30967]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
49 CFR Parts 1030-1039
[Docket No. EP 707]
Demurrage Liability
AGENCY: Surface Transportation Board (Board or STB).
ACTION: Advance Notice of Proposed Rulemaking.
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SUMMARY: Through this Advance Notice of Proposed Rulemaking (ANPR), the
Board is instituting a proceeding regarding demurrage, i.e., charges
for holding rail cars. The agency's intent is to adopt a rule or policy
statement addressing when parties should be responsible for demurrage
in light of current commercial practices followed by rail carriers,
shippers, and receivers.
DATES: Comments are due by January 24, 2011. Reply comments are due by
February 23, 2011.
ADDRESSES: Comments and replies may be submitted either via the Board's
e-filing format or in the traditional paper format. Any person using e-
filing should attach a document and otherwise comply with the
instructions at the E-FILING link on the Board's Web site, at http://www.stb.dot.gov. Any person submitting a filing in the traditional
paper format should send an original and 10 copies to: Surface
Transportation
[[Page 76947]]
Board, Attn: STB Ex Parte No. 707, 395 E Street, SW., Washington, DC
20423-0001. Copies of written comments and replies will be available
for viewing and self-copying at the Board's Public Docket Room, Room
131, and will be posted to the Board's Web site.
FOR FURTHER INFORMATION CONTACT: Craig Keats at 202-245-0260.
(Assistance for the hearing impaired is available through the Federal
Information Relay Service (FIRS) at 1-800-877-8339.)
SUPPLEMENTARY INFORMATION: Demurrage--the assessment of charges for
holding railroad-owned rail freight cars for loading or unloading
beyond a specified amount of time--has compensatory and penalty
functions. It compensates car owners for the use of their equipment,
and by penalizing those who hold cars too long, it encourages prompt
return of rail cars into the transportation network. Because of these
dual roles, demurrage is statutorily recognized as an important tool in
ensuring the smooth functioning of the rail system.
Since the earliest days of railroad regulation, there have been
disputes about who should be responsible for paying demurrage. Certain
principles for allocating liability for holding carrier equipment
became well established over time and were reflected in agency and
court decisions.\1\ Regulatory and technological changes over the
years, however--such as the elimination of required tariff-filing and
the advances in electronic commerce--suggest a need to revisit the
matter to consider whether the Board's policies should be revised to
account for current statutory provisions and commercial practices.
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\1\ See Responsibility for Payment of Detention Charges, Eastern
Cent. States, 335 I.C.C. 537, 541 (1969) (Eastern Central)
(involving liability of intermediaries for detention, the motor
carrier equivalent of demurrage), aff'd, Middle Atl. Conference v.
United States, 353 F.Supp. 1109, 1114-15 (D.D.C. 1972) (3-judge
court sitting under the then-effective provisions of 28 U.S.C. 2321
et seq.) (Middle Atlantic).
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The Board has long been involved in resolving demurrage disputes,
both as an original matter and on referral from courts hearing railroad
complaints seeking recovery of charges.\2\ Our attention became focused
on the possible need to examine our policies, however, when some
tension developed in the Federal courts of appeals regarding the
liability of warehousemen and similar third-party car receivers for
railroad demurrage.\3\ As we reviewed the two lines of analysis, we
began to consider the possibility that neither court's approach
produces an optimal outcome given the current statutory and commercial
environment. We therefore are instituting this proceeding in an effort
to update our policies regarding responsibility for demurrage liability
and to promote uniformity in the area.
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\2\ E.g., Eastern Central; Springfield Terminal Ry.-Petition for
Declaratory Order, NOR 42108 (STB served June 16, 2010); Capitol
Materials Inc.-Petition for Declaratory Order-Certain Rates and
Practices of Norfolk S. Ry., NOR 42068 (STB served Apr. 12, 2004);
R. Franklin Unger, Trustee of the Indiana Hi-Rail Corp., Debtor-
Petition for Declaratory Order-Assessment and Collection of
Demurrage and Switching Charges, NOR 42030 (STB served June 14,
2000); South-Tec Dev. Warehouse, Inc., and R.R. Donnelley & Sons
Company-Petition for Declaratory Order-Illinois Cent. R.R., NOR
42050 (STB served Nov. 15, 2000); Ametek, Inc.-Petition for
Declaratory Order, NOR 40663, et al. (ICC served Jan. 29, 1993),
aff'd, Union Pac. R.R. v. Ametek, Inc., 104 F.3d 558 (3d Cir. 1997).
\3\ Compare Norfolk S. Ry. v. Groves, 586 F.3d 1273 (11th Cir.
2009) (Groves), pet. for cert. pending, No. 08-15418 (filed Apr. 6,
2010), with CSX Transp. Co. v. Novolog Bucks Cnty., 502 F.3d 247 (3d
Cir. 2007) (Novolog).
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The Interstate Commerce Act (IC Act), as amended by the ICC
Termination Act of 1995 (ICCTA), provides that demurrage is subject to
Board regulation under 49 U.S.C. 10702, which requires railroads to
establish reasonable rates and transportation-related rules and
practices, and under 49 U.S.C. 10746, which requires railroads to
compute demurrage and to establish demurrage-related rules ``in a way
that fulfills the national needs related to'' freight car use and
distribution and that will promote an adequate car supply. In the
simplest case, demurrage is assessed on the ``consignor'' (the shipper
of the goods) for delays at origin and on the ``consignee'' (the
receiver of the goods) for delays at destination.
An important issue has always been who is liable for demurrage when
goods are shipped to warehousemen, transloaders, or other
``intermediate'' stops in the transportation chain before reaching
their ultimate destination. Notwithstanding the usual common-law
liability (for both freight charges and demurrage) of a consignee that
accepted delivery,\4\ the issue was more complicated for warehousemen,
who typically are not ``owners'' of the property being shipped. The law
became well accepted that, for a warehouseman to be subject to
demurrage or detention charges, there had to be some other basis for
liability outside the mere fact of handling the goods shipped.\5\ And
what became the most important ``other basis'' was whether the
warehouseman was shown as the consignee on the bill of lading.\6\ Thus,
our predecessor, the Interstate Commerce Commission (ICC), held that a
tariff \7\ may not lawfully assess such charges on a warehouseman who
is not the beneficial owner of the freight, who is not named as a
consignor or consignee in the bill of lading, and who is not otherwise
party to the contract of transportation, ``e.g., a warehouseman who
receives the freight pursuant to an `in care of' designation.'' \8\
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\4\ Pittsburgh, Cincinnati, Chicago & St. Louis Ry. v. Fink, 250
U.S. 577, 581 (1919); Groves, 586 F.3d at 1278.
\5\ See, e.g., Smokeless Fuel Co. v. Norfolk & W. Ry., 85 I.C.C.
395, 401 (1923).
\6\ A bill of lading is the basic transportation contract
between the shipper and the carrier; its terms and conditions bind
the shipper, the originating carrier, and all connecting carriers.
\7\ Historically, carriers gave public notice of their rates and
general service terms in tariffs that were publicly filed with the
ICC and that had the force of law under the so-called ``filed rate
doctrine.'' See Maislin Indus., Inc. v. Primary Steel, Inc., 497
U.S. 116, 127 (1990). The requirement that rail carriers file rate
tariffs at the agency was repealed in ICCTA.
\8\ Eastern Central, 335 I.C.C. at 541. The ``in care of''
designation refers to the principle of agency law under which a
consignee--although presumed to be an owner generally liable for
freight charges upon acceptance of goods--could be relieved of such
liability if the carrier were made aware that the receiver of the
goods was accepting the goods only as an agent for the actual owner.
The Novolog court, 502 F.3d at 255, found that agency principles
such as these became incorporated into the IC Act in the 1920s in
what is now 49 U.S.C. 10743(a). See Novolog, 502 F.3d at 255. That
statutory provision states that a consignee that informs the
railroad in writing that it is only an agent is not liable for
``additional rates that may be found due after delivery.''
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The absence of any litigation over the matter suggests that the
accepted rule described above provided some degree of certainty for
several decades. In recent years, however, a new issue has arisen: what
is the law when a warehouseman who accepts rail cars and holds them too
long is named as consignee in the bill of lading, but asserts either
that it did not know of its consignee status or that it affirmatively
asked the shipper not to name it consignee? On that issue, the Eleventh
Circuit in Groves looked to contract principles and found that a party
shown as a consignee in the bill of lading is not in fact a consignee
unless it expressly agreed to the terms of the bill describing it as a
consignee.\9\ On virtually identical facts, the Third Circuit in
Novolog held that ``recipients of freight who are named as consignees
on bills of lading are subject to liability for demurrage charges
arising after they accept delivery unless they act as agents of another
[party] and comply with the
[[Page 76948]]
notification procedures in [the] consignee-agent liability provision
[of] 49 U.S.C. 10743(a)(1).'' \10\ That provision relieves certain
receivers of property from liability for certain rates if it notifies
the carrier in writing that it is not the owner of the property, but
rather is only an agent for the owner.
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\9\ Relying in part on Illinois Cent. R.R. v. South Tec Dev.
Warehouse, Inc., 337 F.3d 813 (7th Cir. 2003) (South Tec), which did
not directly decide the issue but that indicated a predilection
toward such a result, Groves found the warehouseman not to be a
consignee and thus not liable for demurrage even though the
warehouse accepted the freight cars as part of its business and held
them beyond the period of free time.
\10\ 502 F.3d at 254. Novolog cited Middle Atlantic, the Uniform
Commercial Code, and the Federal Bills of Lading Act to find (502
F.3d at 258) that a warehouseman (or, in that case, a transloader)
could be a ``legal consignee'' even if it was not the ``ultimate
consignee.'' The court found that a contrary result, such as the one
suggested in South Tec, would frustrate what it viewed as the plain
intent of Sec. 10743: ``to facilitate the effective assessment of
charges by establishing clear rules for liability'' by permitting
railroads to rely on bills of lading and ``avoid wasteful attempts
to recover [charges] from the wrong parties.'' 502 F.3d at 258-59.
The court found warehouseman liability equitable because the
warehouseman--which otherwise has no incentive to agree to
liability--can avoid liability under Sec. 10743(a) simply by
identifying itself as an agent, whereas the rail carrier has no
option but to deliver to the named consignee. Id. at 259.
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Discussion
We believe that broad public input would assist us in addressing
the liability of a warehouseman who accepts rail cars and holds them
too long, but who asserts either that it did not know that it had been
designated the consignee on the bill of lading or that it affirmatively
asked the shipper not to name it consignee. Indeed, even with the
extensive discussions in Novolog and Groves, the best answer in this
matter is not readily apparent. Novolog relies on a broad reading of
section 10743(a)(1) (one that the ICC appeared to share), along with
policy reasons why a rule requiring that a warehouseman explicitly
accept potential demurrage liability would not be a good idea. Groves
relies on contract law principles to support its view that a receiver
of goods must explicitly agree before it can be a consignee subject to
liability. But neither approach seems clearly superior, and indeed
there are shortcomings with each.
Novolog, for example, cites valid transportation reasons for
putting liability on the party best able to release the rail cars (the
warehouseman) or to decline the cars if it knows that its facility is
already overcrowded. Yet Novolog places dispositive weight on the
designation given to the warehouseman in the bill of lading, which
historically was a paper document that was consciously agreed upon by
the carrier and the shipper (although it did not require any action by
the consignee). Today, however, transactional paperwork such as the
bill of lading is largely handled electronically, and the role of the
railroad, the shipper, and the listed consignee in making the
designation is evolving. In Groves, for example, it is unexplained why
some of the bills named the warehouseman as the consignee while others
did not.
Groves, for its part, is unsatisfying in various ways. First, it
overlooks the fact that, because the warehouseman is in the best
position to deal with returning the equipment or rejecting cars if its
facility is overcrowded, finding the warehouseman to be responsible for
demurrage would best advance the intent of 49 U.S.C. 10746 (efficient
use of freight cars). Moreover, although we share the concern that a
party might be made liable for charges without its knowledge,\11\ as
the decision in Novolog points out, it is also true that the
warehouseman is the one who has the relationship with the shipper, and
it should not be the carrier's responsibility to investigate whether
the relationship described in the bill of lading accurately reflects
the de facto status of the parties.
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\11\ See West Point Relocation, Inc. & Eli Cohen-Petition for
Declaratory Order, FD 35290 (STB served Oct. 29, 2010).
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Finally, notwithstanding the ICC's finding in Eastern Central in
1969, we are not certain that the provisions of 49 U.S.C. 10743 should
be interpreted to apply to demurrage. The language of section 10743
(``[l]iability for rates for transportation'') can be read to focus on
the shipping charges themselves, and not on accessorial charges such as
demurrage. As explained in Hub City and Hall,\12\ the statutory
provision, which was first enacted in the Transportation Act of 1920 as
an antidiscrimination provision, was modified in 1927 to address the
liability of a sales agent for freight charges that turned out to be
higher than those originally paid. It was further modified in 1940 to
address the liability of an agent vis a vis a beneficial owner for
additional freight charges resulting when shipments were reconsigned
and refused at destination. Neither event speaks to application of the
provision to demurrage. Moreover, because section 10743(b) does not
apply to a shipment that is prepaid, applying section 10743 to
demurrage as well as line-haul charges could have the curious effect of
making the consignee liable for demurrage if the shipment is not
prepaid, but not liable for the same conduct--holding the cars too
long--if it is prepaid. That would be in some tension with the historic
(and statutory, see 49 U.S.C. 10746) purposes of demurrage: to
compensate the equipment owner and to facilitate prompt return of cars.
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\12\ Blanchette v. Hub City Terminals, Inc., 683 F.2d 1008 (7th
Cir. 1981); Union Pac. R.R. v. Hall Lumber Sales, Inc., 419 F.2d
1009 (7th Cir. 1969).
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For all of these reasons, we are instituting this proceeding to
explore whether we should look to a new way of determining the
liability of warehousemen for demurrage.
One possible rule would place liability for demurrage on the
receiver of the rail cars, regardless of the designations in the bill
of lading, if the carrier has provided the receiver with adequate
notice of liability. (If the receiver were an agent of another party,
we assume that the usual principal-agent rules would govern, although
we request comments on this point.) What constitutes ``adequate
notice'' could be decided on a case-by-case basis either by the Board
or the Federal courts in collection actions, or it could be established
by rule. Given the potential industry-wide implications of such rules,
broad public input is warranted.
Accordingly, we seek comment on these matters. In their comments,
parties may address any relevant matters, but we specifically seek
comment on the following, which we believe will assist us in developing
an appropriate way of allocating liability that advances the purposes
of demurrage and also is consistent with the IC Act, contract law,
agency law, and principles of notice/fairness:
Describe the circumstances under which intermediaries
ought to be found liable for demurrage in light of the dual purposes of
demurrage. Notwithstanding the ICC's decision in Eastern Central, is
there a reason why we should not presume that a party that accepts
freight cars ought to be the one that is liable regardless of its
designation on the bill of lading, so long as it has notice of its
liability before it accepts cars?
Explain how the paperwork attending a shipment of property
by rail is processed and how it gives (or does not give) all affected
parties (rail carriers, shippers, consignee-owners, warehousemen etc.)
notice of the status they are assigned in the bill of lading. For
purposes of assessing demurrage, should it be a requirement that
electronic bills of lading accurately reflect the de facto status of
each party in relation to other parties involved with the transaction?
If so, and if electronic bills of lading do not accurately reflect the
de facto status of each party in relation to other parties involved
with the transaction, please suggest changes that will ensure that they
do.
With the repeal of the requirement that carriers file
publicly available tariffs, how can a warehouseman or
[[Page 76949]]
similar non-owner receiver best be made aware of its status vis a vis
demurrage liability? Does actual placement of a freight car on the
track of the shipper or receiver constitute adequate notification to a
shipper, consignee or agent that a demurrage liability is being
incurred? What about constructive placement (placement at an
alternative point when the designated placement point is not
available)?
Describe how agency principles ought to apply to
demurrage. Are warehousemen generally agents or non-agents, or are
their circumstances too varied to permit generalizations? How can a
rail carrier know whether a warehouseman or similar non-owner receiver
of freight is acting as an agent or in some other capacity?
Given the discussions in Hub City and Hall, should section
10743 be read as applicable to demurrage charges at all? The ICC said
it was in Eastern Central, but it did so with little discussion. Would
general agency principles apply to demurrage liability even if section
10743 were found inapplicable?
If section 10743 is applicable, would the Groves analysis
(finding that liability does not attach unless the receiver agrees to
accept liability) apply to the underlying shipping rate as well as
demurrage charges? If it did, how would such a ruling affect industry
practice?
Because the warehouseman or other receiver can reap
financial gain by taking on as many cars as possible (and sometimes
holding them too long), or by serving as a storage facility when the
ultimate receiver is not ready to accept a car, should liability be
based on an unjust enrichment theory? The court rejected such an
approach in Middle Atlantic, 353 F. Supp. at 1124, principally because
it found no benefit to the warehouseman from holding rail cars. Is that
finding valid?
The requirements of section 603 of the Regulatory Flexibility Act
of 1980, 5 U.S.C. 601, et seq., (RFA) do not apply to this action
because, at this stage, it is an ANPR and not a ``rule'' as defined in
section 601 of the RFA. Under the RFA, however, the Board must consider
whether a proposed rule would have a significant economic impact on a
substantial number of small entities. ``Small entities'' include small
businesses, not-for-profit organizations that are independently owned
and operated and are not dominant in their fields, and governmental
jurisdictions with populations under 50,000. If adoption of any rule
likely to result from this ANPR could have a significant economic
impact on a small entity within the meaning of the RFA, commenters
should submit as part of their comments an explanation of how the
business or organization falls within the definition of a small entity,
and how and to what extent the commenter's business or organization
could be affected. Following review of the comments received in
response to this ANPR, if the Board promulgates a notice of proposed
rulemaking regarding this matter, it will conduct the requisite
analysis under the RFA.
This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.
It is ordered:
1. Initial comments are due on January 24, 2011.
2. Reply comments are due on February 23, 2011.
3. This decision is effective on its date of service.
By the Board, Chairman Elliott, Vice Chairman Mulvey, and
Commissioner Nottingham.
Andrea Pope-Matheson,
Clearance Clerk.
[FR Doc. 2010-30967 Filed 12-9-10; 8:45 am]
BILLING CODE 4915-01-P