(Reuters circulated the following article on April 4.)
CHICAGO — Transporting hazardous materials puts U.S. railroads on the horns of a dilemma: They’re damned if they do, and damned if they don’t.
The major railroad companies say they are legally obliged to carry dangerous materials — often toxic chemicals from chlorine to propane — while facing unlimited liability for damages in the event of an accident. They complain it’s unfair that over 50% of their insurance costs go for hazardous materials, which make up just 0.3% of the freight they haul.
“This is one of the single most serious issues we face,” said Wick Moorman, Chief Executive Officer of Norfolk Southern Corp. “The potential liability is staggering.”
The railroads are, therefore, lobbying U.S. Congress to introduce liability limits and create financial support for serious accidents, action analysts say is overdue.
“For shareholders in these railroads it seems hardly fair to combine the legal obligation to haul hazardous materials with an unlimited liability potential,” said Tony Hatch, a railroad analyst at New York-based ABH Consulting.
“Often the costs associated with these goods means it simply isn’t worth it for the rails to carry them,” he added.
With imminent government action unlikely, however, some railroads are looking for ways to cut shipments of hazardous materials — or Hazmat — rather than wait.
“We are looking for alternative solutions to hauling materials that represent a significant risk to our business,” said Robert Grimaila, vice president of safety, security and environment at Union Pacific Corp. The company is working with plastics and chemicals giant Dow Chemical Co. to develop safer rail cars and reduce Hazmat volumes on the tracks through better planning — using pipelines wherever possible, or looking to find chemical sources closer to customers.
Explosive mix
A rail accident involving Hazmat invariably makes headlines, due to the often explosive or toxic chemicals that are released.
This was the case for a CSX Corp. train derailment in mid-January in Kentucky, when a number of cars — carrying a potential carcinogen used to produce synthetic rubber, chlorine residue and an industrial solvent — burst into flames.
Eleven people were injured in the incident — one of three so far in 2007 for CSX — which may cost the rail company up to $30 million. CSX says it has a 99.99% Hazmat safety record and like other rails bemoans the obligation to haul it.
“We transport these materials not because we choose to, but because we are legally required to do so,” said Skip Elliott, CSX vice president for safety.
The major U.S. railroads express concern that insurance to cover Hazmat shipments is a huge and rapidly rising expense.
“The insurance costs associated with (Hazmat) have risen dramatically,” said Pat Hiatte, spokesman for Burlington Northern Santa Fe Corp., whose costs have increased 250% in the last five years.
In some cases, major railroads insure themselves because coverage is not available, but smaller U.S. railroads complain they simply cannot afford it.
“For a small railroad, a serious Hazmat accident would mean instant bankruptcy,” said Dave Mears, a spokesman at industry group the American Short Line & Regional Railroad Association.
Railroads that can afford insurance can, and do, include it in the billing process for their chemical company clients.
“Whatever the railroads are paying in insurance is passed on to us,” said Henry Ward, Dow Chemical’s transportation safety and security director.
Railroads say an even greater problem than insurance is the potential liability cost — including lawsuits — of a serious Hazmat accident that could run into billions of dollars.
“We’re in an untenable position,” said Tom White, spokesman for the Assn. of American Railroads. “We need a Hazmat liability limit, or remove the obligation to haul it.”
The railroads have lobbied Congress to introduce a Hazmat liability cap — $300 million for an individual railroad, according U.S. House of Representatives officials — and create a joint fund of railroads, chemical companies and government to cover damages up to $5 billion.
Officials at the U.S. Senate Committee on Commerce, Science & Transportation said a rail safety reauthorization bill is being prepared, but added it is too early to say whether Hazmat liability will be part of that legislation.
U.S. House Transportation and Infrastructure Committee spokeswoman Mary Kerr said rail safety and security — not Hazmat liability — is the committee’s top priority.
“What the railroads propose is difficult, as it would involve a minimum of at least another three committees,” she said. “It would be very complicated indeed.”
Support from chemical companies also seems unlikely.
Tom Schick, senior distribution director at industry group the American Chemistry Council, said that the obligation for railroads to carry Hazmat, safety regulations and liability for such shipments “all work the way they are supposed to.”
“The system is based on each party doing what they’re supposed to do properly,” Mr. Schick added. “And we’re happy with that.”