ADM sues five major U.S. railroads, alleging price fixing
April 8, 2008
BY Sarah Smith
Web exclusive posted April 17, 2008 at 1:16 p.m. CST
Archer Daniels Midland Co. has filed a federal antitrust lawsuit in Minneapolis, alleging that five major railroads conspired to fix fuel surcharges, costing the agribusiness giant $250 million since 2003. ADM is seeking triple damages.
The suit names Union Pacific Railroad Co., of Omaha, Neb.; BNSF Railway Co., of Fort Worth, Texas; CSX Transportation of Jacksonville, Fla.; Kansas City Southern Railway Co., of Kansas City, Mo.; and Norfolk Southern Railway Co., of Norfolk, Va. In the suit, ADM alleges that chief executive officers of the five railroads conspired, through their membership as board members of the Association of American Railroads, to select identical factors to trigger the fuel surcharges, which moved in lock step instead of varying as they should have. Surcharges are levied to help railroads recover unanticipated costs when fuel prices rise, but ADM alleges the railroads used the surcharges to boost their profits. The association is not a party in the suit. ADM claims the five CEOs used their membership in the association "as an instrument to develop, organize and conduct their conspiracy."
"All AAR activities have been carefully conducted with antitrust laws foremost in mind," said AAR spokesman Tom White. "AAR is confident it has fully complied with all antitrust laws and regulations."
ADM is a major rail shipper, using railroads to transport soybeans, corn, wheat, canola, biodiesel, ethanol, soybean oil, soy meal, corn sweeteners and flour. It filed the lawsuit in Minneapolis because in 2007 the "defendants carried more than 98,000 rail cars for ADM that either originated or terminated in Minnesota," the complaint alleges. Although the surcharges themselves aren't illegal, ADM alleges the conspiracy to set them was in violation of antitrust laws.
"The allegations in this case do not have any merit and we intend to vigorously defend" them, said BNSF Railway spokesman Patrick Hiatte.
"We have independently and unilaterally developed our fuel surcharge program to recover cost of diesel fuel when this major cost of our operations began to escalate rapidly over the last several years," said Union Pacific Railroad spokesman James Barnes. "We're confident that we've complied with all laws in formulating a fuel surcharge program that's fair, that's equitable and easy to administer for Union Pacific and its customers."
ADM claims the conspiracy began around 2003 when the railroads changed the shipping rate index. The change "enabled the defendant railroads to impose agreed-on price increases that did not correspond with the actual unanticipated increases in fuel costs" from market fluctuations, the complaint asserts. The railroads used the fuel price increases to conceal "across-the-board rate increases," the suit alleges.
ADM, as evidence in its claims, said that in January 2007 the Surface Transportation Board issued an administrative decision that stated the railroads' methods for calculating fuel surcharges were unreasonable. The railroads were deregulated in 1980 and the 35 Class 1 carriers at that time eventually dwindled to seven. The five defendants, and two Canadian carriers not named in the suit, are those Class 1 shippers.
The Surface Transportation Board is an economic regulatory agency that Congress charged with resolving railroad rate and service disputes, as well as reviewing proposed railroad mergers. It doesn't regulate rail shipments such as those named in the lawsuit.
The railroads say the plaintiff has mischaracterized those 2007 findings.
Barnes said that even when Union Pacific Railroad didn't agree with the Surface Transportation Board's conclusions about the rate structures, it still implemented revisions of its rate policies in response to the 2007 report.
Because there are other rate structure lawsuits currently pending against the five railroads in various courts seeking class action status, Barnes and Hiatte said all pre-trial discoveries will be consolidated in a Washington D.C. federal district court. "Resolution of these actions could take several years," Barnes said.
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