INSIGHT: US may force chemicals to pay rail liability costs

05 August 2010 16:20  [Source: ICIS news]

By Joe Kamalick

January 2005 rail wreck & chlorine spill that killed nineWASHINGTON (ICIS)--US rail regulators this week indicated they might force chemical producers to pay liability insurance costs for rail shipment of hazmat cargoes, a concept that process industry officials say is unjustified and a dangerous precedent.

The US Surface Transportation Board (STB) said that later this year it will convene a 27-member advisory panel for a two-year study on cost-sharing for liability risks and insurance fees for rail shipment of toxic inhalation hazard (TIH) cargoes.

The Department of Transportation (DOT), which includes the STB, lists more than 200 chemicals, gases, compounds and other substances on its list of toxic inhalation hazards, but only a few of those are shipped in any volume by rail.

The principal TIH chemicals shipped in high volumes by rail tank cars are chlorine and ammonia.

According to the American Chemistry Council (ACC), in 2008 the US produced 10.6m tonnes of chlorine and 10.5m tonnes of ammonia, representing as much as 12% of all chemicals shipped by rail in that year.

Overall, chemicals make up a substantial portion of freight moved by rail. According to the Association of American Railroads (AAR), last year chemicals and allied products together were the second-highest rail freight cargo in terms of both tonnage and revenue, second only to coal.

The AAR said that in 2009 the nation’s railroads carried 162.7m tonnes of chemicals or 9.8% of all rail freight, and chemicals (including allied products) accounted for $6.8bn (€5.2bn) in rail freight revenue or more than 14% of total rail freight gross income.

Chemical makers pay a premium for rail movement of their products, according to the AAR figures. While coal shipments brought in about $15/tonne of freight moved by rail, chemical cargoes accounted for $42/tonne.

Rail operators argue that those higher rate charges are necessary in part to cover the additional liability insurance costs they incur, especially for toxic inhalant hazard cargoes.

In a proposal to the Surface Transportation Board, the AAR suggested that the board adopt a policy that a rail carrier may require a TIH shipper “to indemnify and hold harmless the railroad against liability arising from a release of such materials” and require the shipper to provide insurance sufficient to cover that liability.

The board noted dryly that “other commentators, particularly those representing TIH shippers’ interests, urged the board to reject this proposed policy statement”.

This week STB members did what government officials and regulators often do when confronted with a dicey policy decision - they formed a committee.

In its formal proposal, the board said that the 27-member advisory committee on the TIH liability issue will include 10 rail representatives, five chlorine and fine ammonia shippers, four academic or policy experts, two insurance industry executives and one official representing tank car owners or manufacturers.

Rail operators, chlorine and ammonia producers and other stakeholders can nominate people for their respective committee slots, but STB will have final say on the panel’s membership. 

The board also said it might invite officials of the Transportation Department and the Department of Homeland Security (DHS) to sit in on the committee’s monthly meetings, which are expected to begin later this year, perhaps as early as November.

While the STB said that it hopes that the advisory committee can produce an industry-wide consensus on the matter, the board’s marching orders to the committee seem to some to presume a certain outcome - namely that TIH shippers should bear some of the cost of liability insurance for rail transit of their cargoes.

The board said that the special toxic cargoes study committee should help resolve “how the board should balance the common carrier obligation to transport this commodity [toxic chemicals] with the risk of catastrophic liability in setting appropriate rail transportation liability terms for TIH cargo”.

A solution to the question of liability sharing, said the board, “should revolve around the amount of economic responsibility for liability that railroads can reasonably ask TIH shippers to assume before the carrier will transport TIH cargo”.

US railroads would rather not carry toxic cargoes such as chlorine and ammonia because of the legal liabilities they face when train accidents result in spills that cause damage, injuries or deaths.

But under US law, railroads have a “common carrier” obligation, meaning that they cannot refuse to carry a specific cargo merely because it would be inconvenient or unprofitable.

US chemical producers have long argued that railroad operators should be solely responsible for toxic spills because those accidents are the result of railroad equipment or operational failures.

In the most recent serious toxic cargo accident, a Norfolk Southern freight train that included chlorine tank cars crashed into freight cars on a rail siding at Graniteville, South Carolina, in January 2005. 

The high-speed crash ruptured one of the chlorine tank cars, resulting in a chlorine gas cloud that killed the moving train’s conductor and eight residents of the town.

A federal investigation found that the Norfolk Southern train crew that had moved idle freight cars to the siding at Graniteville had neglected to reset a track switch so that passing trains would stay on the main line.

This illustrates the principal argument that chemical producers raise against the railroads’ demand for liability compensation or insurance cost-sharing: The manufacturers and/or shippers of TIH cargoes have no control over the railroads’ movement and operational handling of those tank cars.

The American Chemistry Council said that it appreciates the STB’s “efforts to consult with industry” on the TIH liability issue but noted that it was still evaluating the board’s decision to form the advisory committee.

However, the ACC and the Chlorine Council are already plaintiffs in a lawsuit against Union Pacific Railroad (UP) over UP’s policy, announced in March last year, of assigning liability for its handling of TIH cargoes to shippers.

Another chemical industry source, who requested anonymity, charged that the STB’s formation of the TIH advisory committee is simply another attempt by rail carriers to shift the liability costs to producers and shippers.

“Shippers have no control over how the railroads manage and handle the TIH cargoes, so to force shippers to pay for insurance for something over which they have no control just doesn’t pass the red-face test,” said the industry official.

“It looks like the rail industry is trying to get the federal government to back their idea on this issue,” the source added. “This is just push, push, push, to see what they can get away with under a friendly administration.”

The source said that an STB order requiring shippers to pay for part or all of the transit liability costs for TIH rail cargoes would be both unfair and a dangerous precedent.

“Chemical producers are already paying prohibitive shipping costs, and to add liability costs on top of that just doesn’t make sense,” the official said.

“And where does this end, if STB orders cost-sharing with the railroads on liability?  Would the trucking industry be next?  Barge carriers?”

Public comment and suggestions on the planned advisory panel are due at the Surface Transportation Board by 24 September, and nominations to the 27-member panel should be made to the board by 25 October.

($1 = €0.76)

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Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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