US chemical producers ask Congress for freight rail rate relief

31 January 2013 18:04  [Source: ICIS news]

WASHINGTON (ICIS)—The US chemicals sector on Thursday appealed to Congress and federal regulators for relief from what it contends are unreasonably high and increasingly onerous freight rail shipping rates.

The American Chemistry Council (ACC) said that US railroads are increasingly taking advantage of so-called captive shippers, meaning those chemical producers whose facilities are served by only one rail carrier.

ACC President Cal Dooley charged that over the last five years and more, there has been “a very rapid escalation in costs” for rail freight service “without correlation to rising costs for the rail industry”.

He said that a new study of rail rates commissioned by the council “give us cause for concern” and raises fears that the escalating freight rail costs of the last five years represent a trend that will accelerate over the next five years.

ACC said that the study, jointly done by Escalation Consultants and Veris Consulting, found that “railroads have leveraged their increasing and unique market power to charge chemical shippers higher rates” than other high-volume freight customers.

“These higher rates have often hindered chemical shippers from making domestic investments and meeting customer demand," the council said.

Dooley said that escalating freight rail costs invariably will affect the US chemicals industry’s ability to fully capitalise on its newly restored feedstock cost advantage related to the abundant US shale gas resources.

He said that reforms that could be made by Congress and the chief federal rail rates regulator, the Surface Transportation Board (STB), could increase market forces and “ultimately reduce the premium on chemicals shipments”.

That in turn could increase output by the chemicals sector and create more domestic jobs, he said.

Dooley said that the premium rates charged chemical shippers – rates that exceed 110% of general freight fees – increased to $3.9bn (€2.9bn) in 2010, an increase of $1.7bn from five years prior.

The study also found that as many as 73% of US chemical producers are captive to a single rail carrier, and that their freight rail rates are on average 30% higher than for non-captive shippers, Dooley said.

The council called on Congress and the STB “to address key shipper issues to make sure the marketplace is functioning properly in order to help foster a more competitive manufacturing sector and more American jobs”.

In particular, Dooley urged legislators and regulators to “require competitive switching to serve shippers in terminal areas and require railroads to provide reasonable rates over bottleneck segments”.

However, Dooley conceded that prospects for getting major, comprehensive rail reform legislation out of Congress are "relatively bleak, given the political environment”.

The US Senate is controlled by Democrats, and Republicans hold the majority in the US House of Representatives. Getting both chambers to agree on terms for legislation on almost any issue is a challenge.

But Dooley said that the new study may encourage more members of Congress to examine the freight rail rates issue and how it affects businesses in their own districts and states.

He also said he was optimistic that other high-volume rail shippers – such as agricultural grains, fertilizer producers, coal companies and electric utilities – will be conducting similar studies and likely will find similar results. 

Those broader findings could help advance the issue in Congress, he said.

($1 = €0.74)

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

By: Joe Kamalick
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