Freight rail industry dynamics and STB's 2021 demurrage policy revisions: An empirical analysis

In 2021, the U.S. Surface Transportation Board STB adopted revised demurrage regulations aimed at improving transparency and uniformity to ensure that demurrage charges promote the efficient use and circulation of railcars. This study evaluates whether demurrage charges from 2018 to 2021 reflected underlying operational conditions prior to the regulatory revision. Using a unique quarterly dataset of Class I freight railroad demurrage charges, we estimate a conceptual structural demurrage equation with firm-year fixed effects to identify the primary determinants of demurrage. The analysis investigates the extent to which these charges diverged from actual operational dynamics, providing empirical context to STB's revision to demurrage regulations. The results show clear and statistical significance difference in how individual railroads' pricing strategies and operational decisions influence demurrage. In contrast, both core-measures of network performance; terminal dwell time variance and system average train speed and seasonal variables do not fully account for changes in demurrage charges. This means that demurrage practices were not aligned with the Class I freight railroad industry operational dynamics. Further, this suggests that demurrage was not achieving its statutory purpose of incentivizing the efficient use of railcars. Simulations results of demurrage per carload reinforce the observation that industry dynamics were consistent with STB's intervention.