Several shippers told federal regulators on Tuesday that they don’t believe railroads are meeting their everyday carrier obligations because of service issues they’ve experienced in the last year, including increased use of embargoes to control congestion.
According to federal regulations, the common carrier obligation obligates railroads to transport freight if the tendered agreement has reasonable terms and conditions.
During a public hearing, shippers told the Surface Transportation Board that one of the challenges with Class I railroads placing embargoes is that they don’t know how long the embargo will last, which causes uncertainty when planning the logistics of a shipment.
This, along with limited freight transportation options, was one of the reasons they felt the railroads failed to meet their everyday carrier obligations.
“To answer the question, ‘Do I believe they are fulfilling their common carrier obligation with embargoes?’ “No, I don’t think so,” said Don Boostra, business director at Chemtrade Logistics in Canada. Chemtrade operates 60 chemical plants in North America, producing chemicals such as aluminum sulfate and chlorine, which are used as raw materials in manufacturing.
“I’m still trying to figure out what the solution is. “I’m not going to tell them how to run their railroad, but it sure appears that when we have industries like ours and others trying to grow and capacity is declining, that no, I don’t believe they’re fulfilling their obligation,” Bootstra continued.
“I echo the comments,” said Gregory Twist, senior vice president of transportation for Ag Processing Inc. They need to fulfill their common carrier obligation, in my opinion. I believe it has been explained to us that a large portion of the service issues are related to a lack of labor or power. And I can see embargoes being used in unexpected situations, such as a surge in traffic, a weather event, or something similar. But this appears to be a capacity issue.”
Shippers made these remarks in front of STB, holding a two-day hearing Tuesday and Wednesday on why Union Pacific’s (NYSE: UNP) use of embargoes has increased significantly in the last five years. According to STB calculations, congestion was the cause of the vast majority of UP embargoes in 2022.
Shippers also noted an increase in the use of embargoes in recent years.
“I’ve been doing this for just over 20 years myself, both as a shipper and as a carrier. I’ve never seen anything like it. And if we don’t do something about it, it will only get worse,” said Rob McRae, Univar Solutions’ vice president of transportation.
Although none of the businesses Boonstra oversees for Chemtrade are directly served by UP, the embargoes have worked their way up the supply chain to the point where Chemtrade’s deliveries are stalled if Chemtrade’s customers experience rail service disruptions.
Boonstra related an anecdote about Chemtrade having to close its plant near Denver for three days due to a lack of rail service to deliver raw materials. The city of Denver typically receives two truckloads of chemicals for water treatment every day, but Chemtrade could not make those deliveries due to a lack of rail service.
“From what I understand, the city of Denver was on the verge of running out of treatment chemicals for drinking water,” Boonstra said.
“I bring these examples up to demonstrate how complicated supply chains are and how reliable rail service is required for supply chains to function,” he continued. “As with any chain, a breakdown anywhere along the linkages causes the chain to fall apart.”
According to Boonstra, his companies have faced eight different embargoes this year. To ship reduced volumes, affected companies must apply for waivers.
