Rocky relationship for US rail, chem distributors should continue

03 December 2009 21:04  [Source: ICIS news]

MARCO ISLAND, Florida (ICIS news)--Warren Buffett's early November purchase of a major freight provider will not change the poor relationship between rail and chemical distributors, several executives of the National Association of Chemical Distributors (NACD) said on Thursday.

"There will be no change for chemical distributors," said Andrew Skipp, NACD vice-chairman and CEO of Hubbard-Hall, at a press briefing during the NACD's 38th Annual Meeting, on Thursday. "Buffett is a businessman."

Buffett's conglomerate Berkshire Hathaway is paying roughly $26bn (€17.2bn) for the 77.4% of Burlington Northern Santa Fe (BNSF) it does not already own.

With cap-and-trade proposals in the US influencing some companies to move more business off-shore, Bruce Schechinger, NACD's chairman and the president of BHS Marketing, speculated that Buffett bought BNSF because more shipments will be coming to the west coast from Asia.

Those products would then be shipped across the country via rail.

Rail and chemical distributors have had a contentious relationship over the past two decades as consolidation in railroads has reduced the number of providers and created a monopoly for the handful of railroads left.

BNSF is one of the six railroads that control about 90% of the freight shipped by rail in North America, and the NACD said that about two-thirds of the chemical industry is a captive shipper.

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

In 2008, about 170m tonnes of chemicals and chemical-related products were moved by rail.

But that tonnage may decrease as more railroads, wishing to avoid any potential liabilities, are trying to distance themselves from chemical transportation. In April, Union Pacific initially refused to carry chlorine, and other rail providers could follow suit.

Each railcar carries the equivalent of about five truckloads of material. Mathew Brainerd, president of Brainerd Chemical, said rail was probably the safest method of transportation, and that putting chlorine on the nation's highways to be shipped by truck would only increase the perceived danger.

The NACD's annual meeting in Marco Island, Florida, lasts until 4 December.

($1 = €0.66)

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By: Ivan Lerner
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