The American Fuel and Petrochemical Manufactures has filed a lawsuit against the railway objecting to a $1,000-per-unit surcharge on older DOT-111 tank cars used to move crude oil.
The American Fuel and Petrochemical Manufactures filed suit against Burlington Northern Santa Fe Railway objecting to the $1,000 per unit surcharge the BNSF charges when moving crude oil in its older DOT-111 tank cars, according to an industry update from Stifel.
According to the trade group of over 400 U.S. refining and petrochemical companies, the surcharge increases shipping costs by $1.50 per barrel, although Stifel estimated the actual cost was closer to $1.40 per barrel.
BNSF, which moves the most crude oil by volume in North America, started imposing the surcharges at the beginning of 2015 and is not unique among Class I railways in doing so. Both Canadian Pacific Railway and Canadian National Railway employ a similar pricing structure, according to Stifel. Similar litigation in Canada may be less likely, however, as a proposed timeline for the phase-out of older cars is already in place.
Stifel noted, “Industry consultant, PLG Consulting, has cited per barrel shipping costs for moving crude by rail ranging from below $10 to over $15, so a $1.50 per barrel surcharge is not an insignificant fee.” The investment bank believes shippers are not only concerned with current surcharges, but also with the possibility that surcharges may increase after the Pipeline and Hazardous Materials Safety Administration (PHMSA) issues a final rulemaking.
According to Stifel, many industry participants at a recent Rail Equipment Finance Conference viewed BNSF’s surcharge as an unfair excuse to raise prices that is relatively unrelated to safety. Shippers said that in many cases they are unable access the newest, safest tank cars – and thereby avoid the surcharge – due to constraints in available manufacturing capacity. They went on to say recent explosions following derailments of CPC-1232 cars have demonstrated that those cars are not safer than the older DOT-111 cars in a high speed derailment, and therefore, the surcharges are not about safety.
In addition, they speculated BNSF’s imposition of surcharges to require stricter tank car standards than the Federal government could be a violation of its common carrier obligation. Under the common carrier obligation, railways are required by law to haul certain hazardous materials and may not impose “exorbitant surcharges” taking advantage of lack of modal alternatives, even if the railway would rather refuse the business entirely.
Stifel said it expects BNSF to argue railways have the power to price discriminately per The Staggers Act, and the surcharges are intended to encourage the timely adoption of safer railcars and reflect additional risks and costs of using older tank cars.
BNSF sued over tank car safety surcharges
