PBF going to new tank cars only

[matthew.brandley]

The reason pbf refinery is going to the new tanker cars only is this. CN CP have instituted a $325 per tanker car fee starting april 1 on any tanker car built  before after 2011 and a certain classification. This fee eats into every refinerieas bottom line. DELTA has a refinery for there jet fuel in trainer pa.  so this will affect them also since the oil they get comes from the sands region  and bakken region. To me this sounds like extortion by the railroads

[jrbernier]

Matt,

  Not sure what is happening in Canada, but the AAR and now the fed's want all new tank cars to meet a stiffer construction standard, and existing cars to be upgraded.  Of course, the tank car owners are fighting this, but the rash of tank car wrecks is pushing this to happen.

  This cost of this will be initially borne by the tank car owners, and the cost will trickle down to the refinery and eventually the end user - Nothing new here.

Jim

[Euclid]

I will move this over here because I don't want to hijack a thread that is about a Pennsylvania derailment and playing records backward to find secret messages.

 

So, as I said over there:

If railroads cannot refuse shipments offered in legal cars (as we have been told), how can they be allowed to overprice shipping in those cars for the express purpose of discouraging their use?

[Anonymous]

pass the popcorn. I love a good ufo story?

[Anonymous]

Good heavens, but there are a lot of oil threads lurking about.........

[zugmann]

Murray

Good heavens, but there are a lot of oil threads lurking about.........

It's all the rage these days.

[daveklepper]

Norm, are you saying you don't find the language (the specific labeling) offensive or that you believe the whole message was inappropriate?

[Norm48327]

The latter.

[daveklepper]

Don't other hazmat already have surcharges?

[Euclid]

dehusman

Adding a surcharge is not the same as refusing to handle the shipment.

But it sounds like that is the intention of the surcharge.  Is the railroad able to add a surcharge with no price limit?  Or are surcharges regulated somehow?

In this case, what if the surcharge does not result in any tank car shifting.  What if the surcharge is simply accpted and passed trough to the end user?  Could the CN then raise the surcharge higher?

If so, it seems like the end result would simply be the pricing of the oil out of the market.  New tank cars are not going to magically appear overnight just because CN is pricing to encourage that.  Something has to give when the price goes up.   

[Steve Sweeney]

Dear Posters:

I went ahead and deleted certain posts with a thought to getting this discussion back on course ... it is a good one. Please keep your discussions respectful.

Also, please be aware that each of you are able to send private messages to one another to seek clarification of points of view or for details that, when asked publicly, might otherwise distract from the main conversation. This might help in diffusing tense situations before they overtake a thread.

Best,

Steve S.

[daveklepper]

thank you

Was not the UP Chlorine case decided before Staggers?

[Anonymous]

maybe

[Paul_D_North_Jr]

Euclid

[snipped - PDN] . . . If railroads cannot refuse shipments offered in legal cars (as we have been told), how can they be allowed to overprice shipping in those cars for the express purpose of discouraging their use?

Of course, the railroads will say that they are not discouraging the use of the DOT-111 cars, but instead merely adjusting the price to compensate themselves for the now-realized increased exposure to risk of damages/ losses from fire, explosion, and liability for property damage and bodily injury (including death) resulting from the use of said cars.  The railroads will also point out that much of the risk of these damages is outside of the carriers' control - grade crossing accidents, etc. - and it's the shippers, not the railroad, who choose to buy/ lease those cars and maintain them, etc. 

A long legal principle in the U.S. is that while a certain activity cannot be absolutely prohibited, it may be heavily regulated, taxed, etc., almost to the point of practically barring it.  While that may seem to be almost the same thing, it is enough of a "distinction with a difference" to pass most legal challenges and reviews (except some activities expressly protected by the First Amendment to the Bill of Rights, etc.). 

Here, the $325 per car surcharge is around 50 cents per barrel (700 barrels per car), or a little over a penny a gallon.  Anyone want to bet on an oil company winning an argument over that small of an amount, in an era of $3.50 per gallon gas for our cars ?       

That said, I find the flat $325 per car fee - apparently regardless of the mileage traveled or risk incurred - a little too simple.  I'd find it quite a bit more reasonable if it was proportional on a per car-mile basis - say, 16 cents per car-mile for a 2,000 mile haul would be about the same ($320), maybe subject to a minimum of $100 or so.

Also, the fee would be more defensible as compensatory self-insurance if the carriers would put it into a trust fund dedicated to paying such damages.  Then, agree to refund the unused portion (with interest) to those shippers whose cars haven't caused or been involved in an accident after, say 5 years, if claims against them haven't used it all up by then.  That way, the fee is clearly not additional profits, but more of an experience-modification mutual self-insurance fund.

- Paul North.   

[daveklepper]

Paul, thank you for a clear and concise analysis.

[Paul_D_North_Jr]

You're welcome, Dave (and everyone else).  I used to do trackwork in the PBF refinery (and others in that area, such as the one at Trainer), and oil-by-rail is a subject in which I've been deeply interested for over 40 years now (yikes !). 

I'd much rather do (and read) this kind of analysis, same as some of the posts by you and others.  It just took a while to collect my thoughts, mainly while shoveling the accumulated snow and ice off the driveway . . . .

- Paul North. 

[daveklepper]

What is your opinion on the pure bitumen by rail question, or is your experience completely outside that portion of the oil business?  Do you agree with Greasmonkey?

[Euclid]

Paul_D_North_Jr

Euclid

[snipped - PDN] . . . If railroads cannot refuse shipments offered in legal cars (as we have been told), how can they be allowed to overprice shipping in those cars for the express purpose of discouraging their use?

Of course, the railroads will say that they are not discouraging the use of the DOT-111 cars, but instead merely adjusting the price to compensate themselves for the now-realized increased exposure to risk of damages/ losses from fire, explosion, and liability for property damage and bodily injury (including death) resulting from the use of said cars.  The railroads will also point out that much of the risk of these damages is outside of the carriers' control - grade crossing accidents, etc. - and it's the shippers, not the railroad, who choose to buy/ lease those cars and maintain them, etc. 

A long legal principle in the U.S. is that while a certain activity cannot be absolutely prohibited, it may be heavily regulated, taxed, etc., almost to the point of practically barring it.  While that may seem to be almost the same thing, it is enough of a "distinction with a difference" to pass most legal challenges and reviews (except some activities expressly protected by the First Amendment to the Bill of Rights, etc.). 

Here, the $325 per car surcharge is around 50 cents per barrel (700 barrels per car), or a little over a penny a gallon.  Anyone want to bet on an oil company winning an argument over that small of an amount, in an era of $3.50 per gallon gas for our cars ?       

That said, I find the flat $325 per car fee - apparently regardless of the mileage traveled or risk incurred - a little too simple.  I'd find it quite a bit more reasonable if it was proportional on a per car-mile basis - say, 16 cents per car-mile for a 2,000 mile haul would be about the same ($320), maybe subject to a minimum of $100 or so.

Also, the fee would be more defensible as compensatory self-insurance if the carriers would put it into a trust fund dedicated to paying such damages.  Then, agree to refund the unused portion (with interest) to those shippers whose cars haven't caused or been involved in an accident after, say 5 years, if claims against them haven't used it all up by then.  That way, the fee is clearly not additional profits, but more of an experience-modification mutual self-insurance fund.

- Paul North.   

Paul,

You make excellent points.  I agree that raising the shipping price is not the same thing as the railroads saying they prefer the more dangerous cars not be used.  If they are free to raise the price, they can simply compensate for what they view as a cost for increased liability.  

Although CN did say that the surcharge is “an economic incentive for customers to use safer cars.”  The article linked to the other thread refers to the fee as “actively discouraging use of the type of cars involved in several dramatic explosions.”

Nowhere do I find a reason for the surcharge being to cover an increase in liability cost.  Instead, they say that the reason is to limit the use of the cars that are relatively unsafe. Although, the liability cost does have to be a part of the decision since the liability cost and the relative safety are fundamentally linked together.  Perhaps CN simply believes that it is more publically palatable to link the reason to public safety rather than to money. 

In a larger sense, the issue of safe tank cars and not-so-safe ones is interesting.  In a legal sense, a lawyer representing damage victims will ask why a defendant used a car that he knew was unsafe instead of the safe one.

Therefore, it seems ill-advised for the industry to have gone public with the information that much of their tank car fleet is not up to the standard of safety that they know is attainable, and that they intend to attain in the future.  Adding this surcharge further cements the public knowledge that railroads are knowingly using cars that threaten public safety.  So, while the surcharge is intended to compensate for rising liability, it may actually be increasing the liability simply by admitting that the company is aware of the hazard they are causing. 

In economic terms, there are two possible outcomes: 

1)      The price will be passed through and accepted by the end user.

2)      The price will be rejected by the end user, resulting in a tank car shortage.

Also, I wonder if this fee is just the beginning of a cascade of new and increasing fees.  The Lac Megantic event alone was so massive that its legal and regulatory reaction will probably be like a tsunami, coming on with unbelievable fury long after the fire was extinguished.

Any such fee raises the cost of shipping oil by rail compared to shipping by pipeline. 

If the fee is for liability, which seems obvious, the calculation will be very complex and the results will have to constantly change with the times and the prospect of more accidents as the oil business ramps up.        

[Anonymous]

by lawyers, 4 lawyers,pass the popcorn. it raining lawyers

[schlimm]

Euclid

Therefore, it seems ill-advised for the industry to have gone public with the information that much of their tank car fleet is not up to the standard of safety that they know is attainable, and that they intend to attain in the future.

So in the name of profits over safety, you'd prefer the industry to keep the hazards a "secret" even though the hazards were identifed 23 years ago by the NTSB?

[Euclid]

schlimm

Euclid

Therefore, it seems ill-advised for the industry to have gone public with the information that much of their tank car fleet is not up to the standard of safety that they know is attainable, and that they intend to attain in the future.

So in the name of profits over safety, you'd prefer the industry to keep the hazards a "secret" even though the hazards were identifed 23 years ago by the NTSB?

 

I have no preference in the matter.  While a lawyer can argue that everything can be made as safe as possible, safety is relative; so the goal of making everything as safe as possible always needs to be compromised against the cost.  Automobiles kill people every day, and everybody knows they can be made safer, resulting in fewer deaths.  Think how many lives we would save if the speed limit were 30 mph.  So I don’t think the issue is black and white.

All tank cars are dangerous.  But once the owners start talking about the danger and their ability to eliminate it, they had better do it now.  But instead, we have a whole class of tank cars in daily use that the industry has labeled as dangerous.  And they promise to eventually eliminate that class because of the danger and replace it with cars that are less dangerous.  And we now we have members of the railroad industry coming out and reaffirming that goal by saying that the older tank cars are so dangerous that they prefer shippers would not use them. 

But the new, safer tank cars will be dangerous too, but just not as dangerous as the older tank cars.  Anybody can be charged with negligence for not correcting a danger, but the merit has to be proven in court.  An industry can paint itself into a corner by publically marketing that they have a product that is dangerous, and another one that is less dangerous, but one that they feel is safe enough.      

[Paul_D_North_Jr]

Euclid's comments above remind me of the debate and litigation in the late 1970's about the allegedly 'weak' gas tanks of the Ford Pinto compact car and their tendency to rupture, catch fire, and explode in rear-end accidents.   

Additionally, Euclid has made and expanded on many valid points above.  I don't necessarily agree 100% with all of them, but for the most part they are well-reasoned, credible, and legitimate concerns, which will need to be addressed and resolved, one way or the other.  

To continue with my math/ economics a little bit further:

$325 surcharge per car x 120 cars (typ.) per train = $39,000 per train.

So a little under 26 trains per day would be $1 million per day - and 26 trains seems reasonable as a guess preliminary estimate as to the volume being moved out of the Bakken region each day now.

Which means the total surcharge could amount to on the order of $365 million per year.

The lawsuit by the Lac Megantic survivors is reported to be for $400 million (see separate thread on that).

Mere coincidence ?  Anybody else see where this might be heading ?  

- Paul North. 

[Euclid]

Paul,

I agree that liability cost is the reason CN is adding the surcharge.  My larger point was about how much ability the railroads have to refuse traffic that they feel is too dangerous, and therefore poses an unacceptable liability risk. 

I ask that because the thrust of earlier threads here suggested that the railroads should do something about the oil train danger, and many came to their defense, saying that railroads have no say in the decision whether to ship Bakken oil in the tank cars offered. 

We were told that they have to accept any shipment, and that the cars were perfectly legal.  I recall that the Union Pacific chlorine case was cited as an example of how railroads cannot refuse traffic that they regard as having excessive liability due to its hazardous nature.  The court ruled against U.P.s proposal to add higher rates to shipping chlorine for the purpose of compensating for the higher liability. 

http://msds.3ecompany.com/files/COSTHA_railroad.pdf

 

I wonder if the discrepancy in dealing with this matter is simply due to a difference between the U.S. and Canada. 

[Paul_D_North_Jr]

I'd want to read the full decisions/ opinions of both the Federal court and the STB - all the footnotes, cited cases, concurring and dissenting opinions (if any), etc. - to obtain a more informed understanding of the rationale - and limits, and nuances, etc. - of the basis for their respective holdings, before I comment on that aspect of this debate/ discussion any further.

- Paul North.    

[daveklepper]

I would guess that the chlorine shipments involved already used the  very safest cars available at the time.  That, in itself, is a differrence.