Tom Hund BNSF Chief Financial Officer for BNSF gave some interesting testimony at the STB hearing on fuel surcharges. For those of you who are into this stuff, I posted the link to his Powerpoint Presentation below. What got my attention was the fact that current surcharges do not fully recover costs and the amount of the budget increase that fuel commands-well over a 100% increase.
All they are doing is putting it in black and white look this is what it costs us to do this and we want to recover some of the costs.
Ok, go to slide 8 where they talk about suffering a $1B under-recovery in recent years.
Consider this - does that address the question, is the amount that is charged on my invoice from BNSF today equal to their incremental cost of fuel? The simple, direct and honest answer is no.
What is says … and if you know anything about the historic contracts that BNSF inked with large shippers (particularly coal contracts and steamship lines) … is that those contracts either had no fuel surcharge recovery language or it was insufficient, given current conditions. Since some of those are long term in nature, BNSF can not recover from those parties. As a result, there is data to suggest that other customers, who are not party too such long term contracts, are currently subsidizing those other customers. BNSF has repeatedly refused to provide the simple math that justifies their FAK fuel surcharge program.
So - should other customers provide such a subsidy, because BNSF made bad deals in the past. I’m thinking not.
Go back and re-read the presentation. The presentation does not directly lie, but it does substantially mis-lead. Does it say “We believe that the fuel surcharge invoiced to each customer is fair and is representative of the incremental cost of moving that customer’s freight.” ? No it does not. It just says “In aggregate, we don’t get all of our fuel cost back.” If you dissect that as noted above, they intentionally fail to say why (bad historic, long-term deals.) That’s just short of lying to a Federal Board in my opinion.
I see your point which is well taken. In otherwords,its painted with a broad bru***hat dismisses individual customer’s issues with specific charges. Well, that certainly goes to show how misled I was.
There are no long term contracts like that any more. A long term contract is for two or three years. And absolutely all have a fuel escalator clause in them. Indeed the recent contract between Elk Valley Coal and CP included a clause where CP would share in a portion of the rise in price of the coal too!
MIght I clarify the point above. The railroads wouldn’t write those contracts again, when they come up for renewal, BUT, BNSF did in the past write contracts that were very long term in nature - in fact - they have one VERY big contract that is “evergreen” (never expires.) Some of those old contracts have expirations dates into the future as of today. “When” they expire, they will likely get their cumuppence from BNSF, but that doesn’t mean that they’re paying their fair share today.