Archer Daniels Midland (ADM) has filed a price-fixing lawsuit against the 5 major railroads. This could snowball….
The lawsuit filed Tuesday in federal court in Minneapolis names Union Pacific (UNP), BNSF (BNI), CSX (CSX), Norfolk Southern (NSC), and Kansas City Southern (KSU) as the conspirators. It accuses the five railroads of setting fuel surcharges by working through the Association of American Railroads, which publishes the indices used by railroads to calculate rates. AAR’s board includes the CEOs from the five railroads, according to the lawsuit.
ADM accuses UP and BNSF of agreeing to tie their surcharges to the same fuel price index, and to impose changes in the surcharge on the same day. While UP and BNSF locked their surcharges together in the territory they dominate, the Western U.S., ADM claims CSX, Norfolk Southern and Kansas City Southern did the same thing in the East.
The effect is that the railroads’ fuel surcharges moved in unison, the lawsuit alleges.
Most railroads hedge their fuel purchases. This ought to means that actual fuel spending should vary from one railroad to the next. If that is true, the fuel surcharges should have also varied, but they did not. In January 2007 the Federal Surface Transportation Board said railroads must link surcharges to their actual fuel costs.
ADM claims uniform pricing “could not have happened by chance or coincidence.”
The railroads of course denied the charges saying they “have no merit” and that they would “vigorously defend them”.
ADM says it alone has paid more than $250 million in fuel surcharges since 2003.
Here is where this could get sticky for the railroads. While ADM is a major rail shipper, there are thousands of smaller shippers looking for ways to reduce or recoup transportation costs. If there is any light at the end of this tunnel as the litigation moves forward, expect a flood of lawsuits to follow. The suits may follow anyway to force a settlement.
What we will then end up with is a major class action suit against the railroads. In that instance the sums the railroads will be looking at will be in the billions of dollars (both in refunds and punitive damages). Considering the 5 railroads only made almost $7 billion between them last year, the outcome could seriously damage the industry.
Disclosure (“none” means no position):Long ADM, None
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2 replies on “Archer Daniels’ Suit Ought to Give Railroads Pause…”
Interesting case, because it looks like ADM is saying they obtained the information from a public source. If I see my competitor is charging more for fuel surcharge and customers are paying it, why wouldn’t I want to match it?
Given the anti-business attitude these days, my guess is they lose or settle.
Whats that buffet analogy about the toll bridge? Thats the first thing that came to my mind.