OUTLOOK ’08: US chems seek rail freight relief

03 January 2008 21:30  [Source: ICIS news]

Chemical makers seek rail relief By Joe Kamalick

WASHINGTON (ICIS news)--US chemical producers hope Congress will provide some relief in 2008 from what they consider exorbitant rail freight rates, but whether they get a break on shipment costs they are almost certain to get more regulation.

Chemical companies have long sought relief from the “captive shipper” status that saddles many production sites that are served by only one rail carrier.

Under the 1980 Staggers Act that largely deregulated US railroads, rail operators are allowed to charge captive shippers higher rates, but that law is also supposed to give shippers a means of challenging exorbitant rates by filing a complaint before the US Surface Transportation Board (STB).

However, BASF logistics vice-president David McGregor told a Senate hearing that filing rate complaints to the STB is too costly; the board does not adequately enforce rail competition and too often sides with rail operators when complaints are brought.

McGregor and other high-volume rail shippers testified that pursuing a rate hike complaint before the board can cost $3m (€2m) and as much as $5m while taking three years or more to reach a usually negative result.

“The system is broken, and we are asking Congress to act quickly to provide relief,” McGregor said. He complained that rates charged by railroads for service at some captive-shipper BASF production sites are as much as 165% higher than rates charged for rail service at BASF sites served by two railroads.

“This would not happen if there was real rail competition available for captive shippers or if the STB were really doing its job,” McGregor said.

Congress is considering at least three bills designed to reduce STB complaint filing costs and give the board expanded authority to pursue anti-competitive issues in rail service.

The chemical industry has garnered allies in its fight with railroads as other high-volume rail freight users - grain and other agricultural shippers and utilities dependent on rail deliveries of coal - have joined in seeking congressional relief.

Their coalition, Consumers United for Rail Equity (CURE), noted in testimony that US rail freight rates are so high that some US electric utilities find it cheaper to import coal from Indonesia and other overseas sources.

Chemical firms, auto manufacturers, utilities and other rail-dependent shippers also want relief from capacity constraints that plague rail operators as freight demand has grown much faster than railroads have been able to add track, rolling stock and crews.

US Energy Department Secretary Samuel Bodman has joined the fray, warning that rail capacity constraints constitute a critical chokepoint in US energy development. 

If electric utilities cannot get reliable deliveries of coal, more of them may turn to natural gas as a power fuel. That trend would hurt chemicals because US chemical production relies heavily on natural gas as a feedstock.

Despite the broad, multi-industry appeal to Congress for better rate regulation and federal oversight of rail service, shippers might not see significant legislative results in 2008. The US national election campaigns will heat up in earnest as the new year unfolds, and election cycles always make legislative progress more laboured. 

All 435 seats in the House of Representatives and one-third of Senate chairs are in contention, and it is easier for incumbents to be re-elected if they avoid taking legislative action, especially on controversial issues.

One area where Congress might be more eager to move is in the regulation of hazardous rail cargoes, especially rail tank cars that carry toxic inhalant hazardous (TIH) materials such as ammonia and chlorine.

Although fatal tank car accidents are extremely rare in terms of total tonnes and miles covered by TIH cargoes each year, those wrecks usually are shocking and horrifying and attract legislative response.

Chemical companies, the railroads, tank car manufacturers and the Federal Railroad Administration have nearly completed work on a new tank car design that should be ready for production by the end of 2008 and ready for roll-out the following year. 

The new tanker will be much less vulnerable to puncture and leaks, but it also will be much more costly - a financial burden chemical companies will have to bear as they, not railroads, own or lease the tank cars.

In addition, as the fear of terrorist attack continues to drive US federal policy and local governments fear the potential of exploding chlorine tank cars, Congress is likely to impose additional cargo tracking and security regulations on chemical firms.

Henry Ward, Dow Chemical’s director of transportation safety and security, said federal legislation and regulations mandating the use of radio-frequency identification (RFID) and global positioning systems (GPS) are not far off.

RFID tags are small labels that contain a tiny antenna and an integrated circuit. More advanced (and more costly) versions can send radio reports indicating whether a cargo - for example, a rail tank car full of ammonia - has been opened or tampered with while en route.

A GPS unit attached to each tank car carrying a toxic inhalant cargo would provide rail operators, chemical producers and federal and state security officials with real-time information on the tanker’s location and status.

Congress has already taken steps to regulate security measures at chemical production sites and other stationary facilities, Ward said, and it is likely that federal legislators soon will turn their attention to regulation of hazardous chemicals in transit.

($1.00 = €0.68)

By: Joe Kamalick
+1 713 525 2653

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index