Oil-Induced Rail Chaos Driving Up Consumer Costs For Gasoline And Other Goods

Renewable Fuels Association

April 3, 2014

WASHINGTON — Bob Dinneen, President and CEO of the Renewable Fuels Association (RFA), today sent a list of questions regarding the “abject failure of the rail system to adequately address the needs of all of its customers,” to Ed Hamberger, President and CEO of the Association of American Railroads (AAR).

U.S. ethanol is the lowest price liquid transportation in the world, saving American consumers between $0.50 and $1.50 per gallon. Dinneen writes, “Over the past several weeks, however, the sheer chaos that is today’s rail system is denying consumers that price relief by driving up the transportation cost for and impacting the supply of ethanol and other commodities. Nothing has changed with regard to ethanol production costs or efficiencies. The only change has been abject failure of the rail system to adequately address the needs of all its customers. The U.S. economy is suffering as a consequence.”

The letter spells out in clear detail the limiting impact the rail situation is having on the ethanol industry. “In response to increasing demand, the ethanol industry was producing at an average rate of 949,000 barrels per day (bpd) in December 2013. But disarray on the rail system in the first quarter of 2014 has forced ethanol producers to significantly curtail output.

By the first week of March 2014, ethanol output had fallen to 869,000 bpd, as producers were forced to slow down. Onsite storage tanks were brimming full and, in many cases, the railcars and/or locomotives needed to ship ethanol were simply not available. As a result, ethanol stocks in key regions have been depleted and prices have increased. All of this is due to the turmoil on the rails—dislocated railcars and locomotives, increased terminal dwell times, slower train speeds, an insufficient number of crews, and a shortage of spare railcars and locomotives.”

Dinneen exposes the excuse of winter weather, and drives straight to the heart of the issue, “The railroads have attributed this lackluster performance and inefficiency to winter weather. But they seem to have forgotten that winter comes every year!... Indeed, a more plausible explanation for the severity of the current epidemic is the explosive growth in railcar shipments of Bakken and Canadian crude oil.

"The surge in crude oil production from fracking has reshuffled the existing fleet of railcars and locomotives, pressured lease rates, changed normal rail traffic patterns, and generally exerted significant stress on the rail system. According to AAR, crude oil shipments have increased from 9,344 carloads in 2008 to 434,032 carloads in 2013.In addition, AAR data show rail shipments of industrial sand nearly tripled between 2008 and 2013, stating, ‘…frac sand is almost certainly the primary driver behind the increased industrial sand movements on railroads over the past few years.’

"It seems absurd to suggest, as some have, that the efficiency of the rail system has been unaffected by the 4545% increase in crude oil shipments and the 170% increase in sand shipments since 2008.”

In an effort to better understand the causes, extent, and strategies for resolution of the current situation, Dinneen asks AAR to answer the following questions:

• What role has the explosive growth in crude oil (and frac sand) shipments played in current rail inefficiencies?

• What steps are being taken in the short term by the rail industry to alleviate the current logjam on the rail system?

• When do you expect service on each of the Class I railroads to return to more normal operating conditions?

• How can you assure the ethanol industry—and other rail-reliant industries—that crude oil shipments are not being prioritized over shipments of other goods and commodities?

• Will average train speeds recover to historically normal levels, or do you expect slower speeds to be the “new normal” due to the increase in crude oil shipments?

• What efforts are being made to educate the public about the impact of the current rail situation on the U.S. economy and prices for individual consumer goods?

• As a longtime customer of the railroads, what can the ethanol industry do to assist in your industry’s efforts to ensure similar situations are avoided in the future?

Read the letter here

Read the original story here : Oil-Induced Rail Chaos Driving Up Consumer Costs For Gasoline And Goods