A business has to make money to survive...railroads are businesses. But, in setting a price for service they must consider the investment needed to provide that service and add a reasonable profit to it. Then that sum has to be valuable enough for the railroads's customers to be willing to pay the price. So with hazmat materials, the cost of safety precautions including special cars, special handling, special routing, etc to assure no mishaps or to keep damage from mishaps at a minimum, have to be added to the price of transportation including a profit mark up. You cannot fault railroads...or any business for that matter...to price a product or service in that manner. But it also means that the hazmat material producer has to include that factor in its pricing including a profit mark up. The need of new style tank cars is a fact. Under present business patterns the shipper or a car leasing agent will bear the cost of the new car and provide the car to the railroads to carry the products. In the days of box cars, the railroad would often provide the tank cars specified to a product and price accordingly. But I believe tank cars were among the first cars to be handled through leasing agreements by the shipper because of the changing needs of the cars and ebb and flow of the product; the rails were quick to rid themselves of this burden.
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I have to disagree with our "We cannot solve the problem" approach. I think Fred Frailey's ideas make sense, and my recommendation is a way of implelenting without gumming up the works. You want to retain the status quo whole while the tankcar fleet is replaced. I think this is nonsense. Truly!
daveklepper Again, all this happened before the oil-train incidents, and witihout a unified and sensible approach by all the Class I railroads.
Again, all this happened before the oil-train incidents, and witihout a unified and sensible approach by all the Class I railroads.
Dave, I've got to disagree with you here.
The AAR Bureau of Explosives was established in 1907. It was formed to establish industry wide standards for the transportation of explosives and other hazardous shipments. It took a very sensible approach and a whole lot of dangerous commodities have been safely moved over the past 107 years.
More recently, the railroads have worked with the DOT to establish routings for hazmat.
The railroads do have a great record for the safe movement of hazmat. (Some of which they are literally forced to haul by government fiat.) They do not have a perfect record. They can't possibly have a perfect record. But to say they haven't taken a sensible and unified approach to the issue is just not right.
The salient problem now is that the DOT has certified the 111 tank cars for hazardous transportation. This ties the railroads' hands. The 111s can't be replaced immediately so we're going to have to live with this for a while. New tank car production is booked well into the future. That's it. We're where we are and we go from here.
Not at all. The exact same thing happened when railroads assumed control of Pullman. And this did not involve a safetty issue. And competition goes out of door when competition means hazards. In any sooiety. Now if the agreement were to include truckers and pipelines and air carriers, (and barges) you would have a case. But not just railroads. The ICC forced price fixixng on the railroads with disaster, but it wasn't illegal. Much of the hazardous traffic today moves without railroad competition anyway.
Dave H. Painted side goes up. My website : wnbranch.com
PNWRMNM [snipped - PDN] . . . The other famous case involved a chlorine move on the UP. This was a long move, something like from Henderson NV to the Gulf coast. This happened after I left the business so my details may not be clear. UP raised the rate with the intent of pricing themselves out of the move. When the shipper whined, UP said basically "We don't want to haul it. The customer can get their chlorine from suppliers much closer and that will involve less risk. The customer went to the STB and accused the UP of price gouging. UP, despite having a case on the safety issue, and despite the consumer having less transportatiion intensive sources of supply, lost the rate dispute. . . .
which refers to: "SURFACE TRANSPORTATION BOARD DECISION - STB Docket No. 42114 - US MAGNESIUM, L.L.C. v. UNION PACIFIC RAILROAD COMPANY - Decided: January 27, 2010 - SERVICE DATE – JANUARY 28, 2010" at: http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/40441?OpenDocument
An excerpt from the News Release at the first link above (emphasis added - PDN):
"However, the Board also agreed with Union Pacific that the new rates should reflect the differences between contract versus tariff rates and increased the new maximum rates by 14.8 percent. The resulting maximum lawful revenue-to-variable cost ratios are 356 percent for the Eloy movement and 346 percent for the Sahuarita movement."
See also a May 2013 summary titled "Recent Surface Transportation Board Decisions Regarding Rail Transportation of Hazardous Materials" at: http://www.steptoe.com/assets/attachments/4523.pdf
http://www.thompsonhine.com/publications/transportation-update-us-magnesium-wins-small-rate-case
A 2010 Harvard paper titled "Rail Transportation of Toxic Inhalation Hazards - Policy Responses to the Safety and Security Externality" (76 pages, 1.03 MB file size) at:
http://www.hks.harvard.edu/m-rcbg/rpp/Working%20papers/Rail%20Transportation%20of%20TIH.pdf
United States Court of Appeals, District of Columbia Circuit opinion upholding the STB's decision in: UNION PACIFIC RAILROAD COMPANY, Petitioner v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents. US Magnesium, LLC, Intervenor, No. 10-1019, Argued Oct. 21, 2010. -- Decided December 28, 2010 - at: http://caselaw.findlaw.com/us-dc-circuit/1549894.html
- Paul North.
Dave- I disagree. I bet there have been problems transporting hazardous materials since the first carload was shipped. Derailments, leaks, fires, explosions, and environmental catastrophes are nothing new. What is new, is the attention these things get because of instant news, in your face. It used to be via CNN, etc. now it's by way of the internet.
Thanks to Chris / CopCarSS for my avatar.
I should point out that when the Feds told the railroads to move radioactive material and chlorine at regular rates and that any special trains were to be at the raiilroads' expense, the various demonstrations of haxmat problems had not yet occuered. Now they have. And if the increased payment is needed to upgrade safety, the chances are better of getting it.
Murphy Siding Mac- What would be the likely outcome, if a railroad said "We've diligently checked out our costs of liability in hauling your stuff, and factored that into the rates. Your new rates will now be 50% (or whatever number) higher?
Mac- What would be the likely outcome, if a railroad said "We've diligently checked out our costs of liability in hauling your stuff, and factored that into the rates. Your new rates will now be 50% (or whatever number) higher?
Murphy,
If the new rates were at a level less than 180% of the Revenue/Variable Cost ratio, then nothing in terms of the STB. The shippers would go catterwalling to congress about the evil railroads price gouging them. Some traffic would move by other modes as shippers looked to cheaper transportation.
If, as is highly likely, the new rates were more than 180% of revenue to variable cost., then they have crossed the threshold of STB regulation. The shippers would challenge the new rates at the STB and the carriers would have to convince the STB that the cost of risk was a variable cost AND that they properly allocated that risk cost to any specific rate, which basically means any and all rates from the carrier's perspective.
The first part is obviously true, but shippers would say that the should not pay for the carrier's mistakes. I heard them say it when I was in the business. The more difficult part is the issue of allocation which would be difficult to figure out and certain to be challenged in each specific case. In short, it would be a massive cat fight analogous to the nuclear waste case. The shippers would tell congress that the evil railroads are price gouging even more than usual.
Assuming the rate increases were approved, again some traffic would shift from rail to other modes. No one will consider the goodness or badness of that from a societial point of view. Do you want hazmat to move on the railroad or the road? That is the big question.
Mac
If only those silly railroad guys would listen to me, and do things my way.. I think you're falling into the trap that a lot of people on message board forums fall into- that is portraying the folks being discussed, the railroaders in this case, as not being as sharp as you and I. I have to disagree strongly. How many times have you heard folks on this forum suggest that the problem is railroaders are too stuck in their ways to listen to outsiders? I have to believe, that the folks that are most in tune with the problems, and the solutions to this and any other issue involving railroaders is the folks who work for the railroads themselves. I view the railroads from my perspective, you view them from yours. Neither perspective looks anything like that of someone working for a railroad. I'm fairly confident that the railroad folks are very aware of the hazmat problems, and are working hard to improve the situation. To suggest anything less is to not give credit where credit is due.
Has the railroad industry presented a completely unified front on this? With specific costs and what the deeterioration of general railroad health would be if the problem is not addressed? As far as I know carriers have complained only on an individual case by case basis, and inconsistantly even within one railroad..
The costs in liability from hauling hazmat certainly are obvious and identifiable now, and must have been for quite some time. Why hasn't rate relief been inevitable up until now?
Key Transportation would be anagous to railroad-owned Pullman with similar responsibities replacing comfort with safety. The costs would be so obvious and identifyable that some rate relief would be inevitable.
Dave- I believe the answer is in Mac's post above. The railroads are welcome to institute a Key transportation type system, but won't be able to raise rates to cover the (in my mind huge) additional cost involved.
I maintain that by taking these hazmat to a seven-carrier joint effort can help solve the railroads' and the public's problem with the shippers' strong-arm efforts to ignore the problem. Thus my recommendation for Key Transportation, Inc., owned by all seven Class I's, with hazmat operations with respect to the general freight traffic much like Pullman's relations were to the general passenger traffic.
Greyhounds gave a great short explanation. The devil is in that 6% which includes many hazardous materials.
Another way to look at it is that one of two things control rail rates. The first is the competition's rate and the value of the service as seen from the customer's perspective. Rail rates are less than truck rates in part to entice customers to use rail to save money, and in part to reflect service disadvantages associated with rail carload.
The second is the STB and they will consider shipper complaints only if the Revenue to Variable Cost Ratio exceeds 180%.
As a general statement most hazardous material moves have a higher R/VC ratio than is the case for carloads of all commodities, so the traffic is attractive if you ignore the risk or limit the risk by engineering features of the packaging which has been the case since the railroad industry created the Bureau of Explosives in 1907. The Bureau wrote the hazardous material regulations for from 1907 to about 1980. The ICC put their stamp on them to give them the effect of Federal Regulation
Rail Pundit, responding to Fred Frailey's blog about fear at HQ, mentioned two well knows cases where the ICC/STB basically told the carriers that they could not price themselves out of certain moves based on risk.
The first involved high level radioactive waste during the period when the government solemnly promised the nuclear power industry that they would build a permanent repository for high level nuclear waste in Nevada. The railroads said to the shippers, which sort of kind of included the govt, that their highly engineered nuclear casks were all very nice but the rails were not absolutely certain sure that a cask would survive a derailment and fire, and every emergency response guy within 100 miles would go ape $hit and God only knew when they would get their railroad back. Because of these risks, the carriers wanted to restrict this traffic to special train service and charge special train rates, which were 10 or 20 times what carload rates would probably have been. The Department of Energy and the nuclear utilities cried foul on the basis that if the government said the casks were safe, then they WERE safe. The railroads should treat them like a car of sand and get paid on the same basis. The ICC bought the DOE argument and told the rails they could provide special train service if they wanted, but they could not get paid for it.
The other famous case involved a chlorine move on the UP. This was a long move, something like from Henderson NV to the Gulf coast. This happened after I left the business so my details may not be clear. UP raised the rate with the intent of pricing themselves out of the move. When the shipper whined, UP said basically "We don't want to haul it. The customer can get their chlorine from suppliers much closer and that will involve less risk. The customer went to the STB and accused the UP of price gouging. UP, despite having a case on the safety issue, and despite the consumer having less transportatiion intensive sources of supply, lost the rate dispute.
The shippers, even before I left the business, were deathly afraid that the railroads would figure out the risks they were running and demand to be paid for them. Determining those risks, allocating them to specific commodities and specific moves is a matter of mind numbing complexity. Even if there was a joint railroad/shipper search for "the truth", which there will never be since carrier and shipper interests are directly opposed, the next step would be to include those costs in the STB's "magic formula", which would raise the threshold for shipper complaints and, in theory, allow the carriers to be compensated for the risks they assume. That is not going to happen because the shippers do not want it to happen.
The regulatory system is 99% rigged in the shipper's favor. Meanwhile the chemical companies complain to any politician who will listen that the evil railroads are ripping them off on rates. Go look at NITL and CURE websites. Pay attention to who is funding them.
Murphy Siding I just must not understand how railroads price freight shipment. If my railroad were hauling something touchy that could result in a huge financial loss to my company-like hazmat- my first inclination would be to raise the price to cover the greater risk. Now, as I understand it, the railroads have lost court battles when trying to do just that (?) How does the pricing work? Is it a case of being required to charge the same price for moving a ton of iron, a ton of feathers, or a ton of methyl-ethyl-deathel from point A to point B? Can someone explain please?* A scary thought- spell check has methyl-ethyl-death preloaded into it's system.
I just must not understand how railroads price freight shipment. If my railroad were hauling something touchy that could result in a huge financial loss to my company-like hazmat- my first inclination would be to raise the price to cover the greater risk. Now, as I understand it, the railroads have lost court battles when trying to do just that (?) How does the pricing work? Is it a case of being required to charge the same price for moving a ton of iron, a ton of feathers, or a ton of methyl-ethyl-deathel from point A to point B? Can someone explain please?* A scary thought- spell check has methyl-ethyl-death preloaded into it's system.
Railroads can, and do, charge different rates for different commodities. All over the world. If you show me a freight rail system anywhere in the world that can't do that, I'll show you a financial wreck of a railroad that will exist as long as the politicians and bureaucrats perceive it to be in their own best interest to tax the population to support a money loosing railroad.
The vast majority of rail freight in the US is free from economic regulation. The market now sets the price. So if the railroad(s) can get more for moving the methyl-ethyl-death they will.
This has worked out very well as the US has the safest, most cost efficient rail freight network in the world. Our rail freight network is, according to FRA Administrator Joe Szabo, "The envy of the world."
The overwhelming majority of rail freight is now exempt from economic regulation because:
1) It is by nature truck competitive. This is how intermodal and boxcar shipments are regulation free. If the freight can move in a trailer or container on a flatcar, or in a boxcar, it can also move by truck. Therefore, it is competitive freight and regulation would be counterproductive.
2) It is moving on a contract. A contract involves a negotiated price agreed to by all parties signing the contract. If all parties involved agreed to the price there is no need for government involvement.
3) It is moving on a rate that is less that 180% of the calculated variable cost. Now we know that no one can actually determine the true variable cost of a carload movement. But the government has ordained a magic formula that spits out a number. If the rate is below 180% of that magic number the government has no authority to mess with the rate.
Well, 47% of rail loadings are regulation free intermodal. Add in the boxcars, the contract movements, and the prices below 180% of variable and you've got around 94% of the business. So around 6% of the rail freight is potentially subject to regulation.
A 6% rail customer can file a complaint with the Surface Transportation Board. But the Surf Board really has no valid way to determine what the rail rate should be. Oh, they'll hold hearings, make some lawyers some money, and often just split the difference. (Subject to political pressure, of course.)
The 6% shippers raise a lot of stink. But that's about it.
Anyway, the railroads can, and do, charge different amounts for moving different commodities. Sometimes. Depending on market conditions. Which is as it should be.
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