How to Resolve a Rail Freight Rate Dispute
When adjustments are allowed and not in a railroad pricing contract
on November 8, 2021
Updated on August 10, 2022
Companies working in the rail freight industry are essential to our nation’s economy. According to data provided by the Association of American Railroads (AAR), approximately 40 percent of long-distance freight volume travels by train. As freight railroads are a highly regulated and complex industry, companies locked in rail freight rate disputes face a number of different challenges. In this article, you will find an overview of the key things to know about resolving a freight rate dispute in Washington, D.C.
Many Rail Freight Contracts are Subject to a Railroad Cost Index
A commercial contract is an agreement between two or more parties. While rail freight agreements share some important similarities with other types of business contracts, there are also some unique issues that must be considered. A significant percentage of rail freight rates are set in relation to a railroad cost index. There are two main railroad cost indices:
- The Rail Cost Adjustment Factor (RCAF)
- The All-Inclusive Index Less Fuel (AII-LF)
The primary purpose of a railroad cost index is to assess the change in the price level for the primary economic inputs into rail freight operations—those being things like fuel costs, labor expenses, and other materials/supplies. The costs that go into rail freight operations are variable, which is a challenge because the rail freight industry operates on relatively tight margins.
Specialized Dispute Resolutions Procedures for Small/Mid-Sized Contracts
Railway companies in the rail freight industry are often looking for efficient, cost effective ways to resolve commercial disputes. A prolonged legal fight is generally not in the best interest of either party or interstate commerce. A specialized dispute resolution system exists to help small and mid-sized companies in the rail freight industry resolve freight rate fights and other legal contract disputes.
In 2007, the Surface Transportation Board (STB) officially announced the release of a new rule that created a “Three Benchmark” alternative dispute resolution process for shippers involved in a rate freight dispute valued at $1 million or less within 8 months of the initial complaint and $5 million or less in 17 months of the initial complaint. The alternative dispute resolution overseen by the STB is designed to help reduce the risk of litigation over rail freight rate disputes.
A Transportation Attorney Can Help You Navigate a Rail Freight Rate Dispute
Rate freight disputes in the railroad industry are notoriously complex. The specific circumstances of the case will always matter, including the language in the contract, whether a railroad cost index is a factor, and which federal regulations are applicable. Companies considering seeking an adjustment—or trying to prevent their contract from being adjusted—should be prepared to seek professional representation. If you have any questions or concerns about rail freight rate disputes, an experienced DC transportation attorney will protect your rights and help you find the best solution.
For more information on this area of law, see our overview of transportation and maritime law.