Last month, MDK Law attorneys Mark D. Kimball and Joel F. Murray settled a major lawsuit with a well-known freight rail carrier over demurrage fees purportedly incurred by a client that imports product used for oil and gas fracking. The client transports the product from Seattle, Washington to Williston, North Dakota. Previously, the carrier had waived demurrage fees.

With the growth of oil and gas fracking extraction in the Bakken formation in Montana and North Dakota, the rail traffic between the Bakken formation and the Pacific Northwest has increased significantly as has commercial traffic at the Port of Seattle and Port of Tacoma related to oil and gas fracking. Consequently, businesses large and small have seen increases in demurrage fees.

The concept of demurrage is that a party transporting goods, whether it be via a shipping container, cargo ship, railcar, box car, or other means of transport, should not take unreasonable delay in loading and/or unloading the means of transport so as to prohibit another party from using the means of transport to ship their goods. What constitutes an “unreasonable delay” which results in a demurrage fee being incurred? It varies by transport mechanism. For railcars and/or boxcars, assuming they are owned by a freight rail carrier, generally the party shipping and/or receiving the goods has 24 hours after the railcar is “placed” in a position where it can be unloaded.

After reviewing the demurrage fee dispute discussed in the first paragraph, and conducting extensive discovery, MDK Law found that the national freight rail carrier had minimal, if any, evidence to demonstrate that the demurrage fees were legitimately incurred. The carrier essentially had generated invoices for the demurrage fees without any proof as to how and why the fees were purportedly incurred. Moreover, a quantitative regression analysis designed by Mark Kimball and performed by Joel Murray did not show a link between the number of railcars received within a given month and the amount of demurrage fees purportedly incurred. In fact, a negative correlation was determined to exist. More specifically, one would expect demurrage fees to increase during months of heavy volume of railcars received, and similarly, decrease during months of low volume of railcars received. Nonetheless, there were months of high volume with minimal demurrage fees, and months with relatively low volume and significant demurrage fees, sometimes in an amount exceeding that of months with high railcar volume.

Due to the lack of evidence as to how and why the demurrage fees were purportedly incurred and the existence of negative statistical relationship between the volume of railcars received and demurrage fees incurred, MDK Law was able to negotiate a very favorable settlement for the client, ending the lawsuit, and allowing the client to get back to focusing on the import and sale of the fracking proppant product.

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