NACD president warns of further regulations

Always on the move

20 November 2008 00:00  [Source: ICB]

NACD president Chris Jahn's job just got busier. The changes occurring in Washington, D.C., now are sure to impact chemical distribution and transportation

Ivan Lerner/New York

BECAUSE OF its urgency, the financial crisis is foremost in the minds of members of the National Association of Chemical Distributors (NACD). But the trade organization, based in Washington, D.C., is not going to let more than 250 members forget about the changes coming to the capital on January 20, 2009.

Regarding the global banking situation, NACD members are taking a bit of a "wait and see" attitude, and will adjust accordingly, NACD president Christopher Jahn told ICIS Chemical Business.

Members have indicated that their businesses have not been hit too hard, and are currently "doing okay," says Jahn.

They are, however, cautious about what is to come, and what the fourth quarter of 2008 and the first half of next year will bring.

Since the last recession in 2001, NACD members are well positioned to withstand a downturn, notes Jahn, but "it's going to be a challenge for them just like it will be for the rest of the economy. Chemical distributors are not immune in any way."

POTENTIAL NEW REGULATIONS

It is the consensus of the chemical industry that after the Obama administration and the new Congress begin their terms, the new officials will take a more proactive regulatory approach.

"We as an organization have been really preparing ourselves for what could be potentially a regulatory onslaught," says Jahn.

The NACD believes the new, predominantly Democratic Congress will be more likely to engage in "aggressive" legislation.

The tenor in the US capital has changed, notes the NACD president. Part of this is fallout from the financial crisis, but Jahn feels that there will be an even greater shift.

"I've been in Washington, D.C., for 16 years, and I have never seen a more anti-business posture in this town," he says.

Any potential action the government might take will not be one overriding regulatory bill, but a variety of actions, he says.

"It will be the 'death of a thousand cuts.' Taxes will be raised, new security requirements will be imposed without regard as to how they will impact other parts of the chemical industry, and so on."

The NACD has routinely argued that chemical distribution is already one of the most regulated industries in the US. "There are appropriate health, safety and environmental product regulations, but then NACD members must contend with transportation regulations, as well," notes Jahn.

"Our members have more federal, state and local officials knocking on their doors than probably any other business out there," he says.

LOCALS ONLY

A major issue for the NACD is maintaining federal preemption, where federal laws have jurisdiction over local laws.

Some states and localities have been rallying to gain control of the determination of which routes hazardous materials can travel.

Not only does this interfere with interstate commerce, but the NACD argues that while local governments' concern is understandable, the industry record is very good, and rerouting every shipment would mean significantly increasing costs.

"In some cases, it would mean that some necessary chemicals could not be delivered, like chlorine for a municipal water treatment plant," notes Jahn.

Banning the transportation of all hazardous materials from specific towns or cities "would create a nightmarish web of compliance."

If federal preemption were removed, Jahn points out that any company with facilities throughout the US would potentially have to deal with at least 50 sets of different rules.

"That's why the NACD feels this should be a federal issue - so everyone is playing by the same rules," says Jahn. "Local preemption is a focus on compliance that does not really increase safety."

Over the next two years, the NACD anticipates a plethora of new regulations, and the organization has geared up to fight that battle.

While hiring an additional government affairs staffer, the NACD has also added more tools for its members on its website, www.nacd.com, such as a new online voter education and advocacy program called Chemical (Re)Actions, as well as webinars on Responsible Distribution Process (RDP) compliance, security, the EU's Reach chemical regulations, training programs and so on.

"We're well positioned to help our members meet these challenges, and rest assured, those challenges are coming," says the NACD president. "Our members are in the crosshairs."

RAILING ON THE ISSUES

While chemical distribution is primarily by truck, many of the NACD's members also bring product in by rail, and they are unsatisfied with their service.

"I have talked to about 90 NACD members who regularly use rail, and only one of them has been happy with his rail service," Jahn explains. "An NACD prospect company representative recently told me that his rail service has gotten worse and costs him more."

There are several rail bills pending in Congress that the NACD supports, including the Railroad Antitrust Enforcement Act and the Railroad Competition and Service Improvement Act.

The Antitrust Act is in response to the fact that a handful of railroads, including Union Pacific, Burlington Northern Sante Fe (BNSF), CSX and Norfolk Southern, control roughly 90% of the freight.

"Basically, two-thirds of the chemical industry is a captive shipper," notes Jahn. "When a chemical manufacturer or distributor has only one railroad serving its facility, that's a monopoly."

The benefit of rail being a very safe transportation method for chemicals is almost outweighed by the fact that the railroads can basically charge whatever they want.

The American Chemistry Council (ACC) in a survey of 2003-2007, found that several of the largest railroads overcharged chemical industry customers by $6.4bn (€5.12bn).

About 170m tonnes of chemicals and chemical-related products are moved every year by rail, says the ACC. After coal, chemicals are the second-largest railroad commodity in terms of volume.

After increasing the competitive landscape, the Acts pending will also try to reform the Surface Transportation Board (STB), which is the primary regulator of the railroads.

Because the average case before the STB costs $200,000 to initially file, then generally takes three years and costs $3m by the time the case is done, many chemical companies do not file cases against the railroads.

US chemical company DuPont has been successful in a number of cases before the STB. "But there are only a handful of our members who can afford that," notes Jahn. "The rest have to bite the bullet, and pass on the increases to their customers, which ultimately get passed on to the end-consumer."

The NACD recently filed two comments on some Toxic Inhalation Hazard (TIH) legislation, which could shift TIH liability.

Railroads would rather have the liability shifted onto the shipper, who might be a chemical distributor or manufacturer.

"We don't see why a problem with the track or the tank car is the fault of the company hiring the railroad," says Jahn.

In their arguments for the legislators, the NACD pointed out that the two largest rail incidents in recent history - in Minot, North Dakota, in 2002, and Graniteville, South Carolina, in 2005 - were both found to be the fault of the railroads.

Meanwhile, new standards for railcars have been introduced to harden and protect them. "We're supportive of that going forward, but the concern we have is how you go about that," notes the NACD chief.

One of the proposed rules is that if it is not a hardened car, the train has to slow down to 30 miles/hour (48 km/hour), especially if it is carrying TIHs. "Rail service is already overcongested, and that would only make it worse," notes Jahn.

For tank cars manufactured before 1989, the STB wants them to be out of service within five years, and fully replaced in eight years.

The supply of railcars right now is very tight, points out the NACD, and these rules would make the situation worse. Meanwhile, because the rules have not been finalized, no standards have been set, so there have been no new railcars built yet.

The railroads estimate it is going to cost about $1bn to implement the changes. "And that is their best case scenario," says Jahn.

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By: Ivan Lerner
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