US chemicals shippers press anew for rail rates relief

26 March 2014 18:28  [Source: ICIS news]

WASHINGTON (ICIS)--In a long-awaited hearing on Wednesday, US chemicals producers urged federal regulators to require major railroads to transfer a shipper’s freight cars from one carrier to another in order to bring down rates.

In a hearing before the Surface Transportation Board (STB), the American Chemistry Council (ACC) asked the board to adjust rail regulations to enable competitive switching in some circumstances.

The STB has jurisdiction over railroad rates and services disputes and rail mergers.

Appearing for the ACC at the STB hearing in support of a petition filed by the National Industrial Transportation League (NITL) more than two years ago, attorney Jeff Moreno argued that since the nation’s major rail carriers were largely deregulated by the 1980 Staggers Act, railroad consolidations have effectively allowed rail operators to continually increase rates in excess of inflation or freight volume demand.

US chemicals manufacturers have long sought relief for what they call “captive shippers”, meaning producers whose factories are served by only one railroad.

The NITL, which represents a range of high-volume rail shippers such as chemicals manufacturers, filed its petition in 2011 asking the board to require major freight rail carriers, known as Class I railroads, to allow a shipper to have cargoes picked up by one railroad transferred to a competing rail line, in certain circumstances, for final delivery.

The US has seven Class I railroads, defined as any major carrier with annual revenues above $347m in 2006 dollars.  Although the criteria for qualification were lower then, the US had 132 Class I railroads in 1900.

Moreno, an attorney with the Washington, DC law firm of Thompson Hine, noted that in creating the Staggers Act, “Congress envisioned such switching arrangements to help provide competitive rail service”.

“Unfortunately, current STB rules are so onerous that not one shipper has successfully obtained competitive switching service since the rules were adopted in the mid-1980s,” he said.

Moreno said that because nearly three-quarters of US chemicals producers are captive shippers, they have paid “a $4.5bn premium on rail shipments in 2011, more than twice the premium from 2005, $2.2bn”.

He said that studies commissioned by the ACC “also found that all US producers who ship by rail, including steel manufacturers, farmers and utilities, paid premiums that totalled more than $16bn in 2011”.

“The findings echo other ACC research that found that rates have soared 76% since 2001,” he said, “nearly three times the rate of inflation and truck rate increases.”

Moreno argued that the captive shipper issue has been debated by shippers and rail carriers in numerous filings with the board for more than three years and that it is time for the STB to draft and offer specific rules on the matter for public comment.

However, rail carriers, represented at the hearing in part by the Association of American Railroads (AAR), strongly oppose any competitive switching mandate from the board.

AAR president Edward Hamberger argued that the NITL petition would have “STB override market forces by forcing Class I railroads to turn over to their competitors substantial portions of rail traffic”.

The proposal, Hamberger said, “would give a small group of shippers the right to demand that in some cases where one railroad serves their facility, the serving railroad must transfer or ‘switch’ loaded rail cars to competitors”.

As a result, he said, rail operators would have to increase the number of locomotives and rail cars needed, increase transit times and fuel consumption, reduce rail network efficiencies and risk higher injury rates among rail workers because of additional handling and switching requirements.

Hamberger also argued that if the NITL proposal were adopted by the board, “the freight rail industry could lose about 13% of its annual net income”.  That in turn would mean that rail operators “could not recover all of their fixed costs, which would lead to postponed maintenance, deferred capital upgrades and expansion programmes, service quality declines and negative impacts to all shippers”.

Among high-volume rail shippers, chemical cargoes made up more than 10% of all rail freight in 2012, according to AAR, second only to coal, which commands just more than 40% of all rail freight traffic.

Shipment of farm products, minerals, metals, groceries, petroleum, paper, lumber, stone and gravel and motor vehicles make up the other 50% of rail freight.

A ruling on the matter by STB is not expected before mid-year.

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

By: Joe Kamalick
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