Dow, DuPont Chemical Rail Fees May ‘Skyrocket,’ Group Says

Dow Chemical Co. (DOW), DuPont Co. and other producers may have to pay more than twice as much to ship toxic chemicals in the U.S. if railroads pass on the full cost of safety upgrades, the American Chemistry Council said.

Makers of chlorine, used to treat drinking water and make vinyl siding, and other chemicals that are toxic when inhaled may see shipping charges jump as much as $682 million to $1.14 billion a year, the Washington-based industry group said.

Freight railroads plan to spend billions of dollars to install collision-avoidance systems on lines that carry toxic chemicals or passengers to comply with a 2008 law, passed after a train crash that killed 25 people. Regulators are proposing a mandate on cost reporting that has the railroads’ backing. The rule would help railroads shift costs to toxic-chemical makers, shippers including paint maker PPG Industries Inc. (PPG) have said.

Shipping costs would “skyrocket,” Jeff Sloan, senior policy director for chlorine chemistry with the American Chemistry Council, said in a telephone interview. There would be “potentially dramatic consequences” for the industry and its customers, he said.

Higher shipping rates may lead chemical producers to raise prices or move production outside of the U.S., Sloan said. The American Chemistry Council’s members include Dow, DuPont, PPG and Occidental Chemical Corp., a subsidiary of Occidental Petroleum Corp. (OXY)

“Anytime they’re evaluating their production, the cost of transportation is certainly going to be a piece of that,” Sloan said. “If the costs are unfavorable in the U.S. versus overseas production, then those investments won’t end up here.”

‘Considered Appropriately’

Union Pacific Corp. (UNP), the largest U.S. freight carrier by revenue, supports including the costs of the safety technology requirement in its regulatory rate base so they are “considered appropriately” if a shipper challenges them, said Tom Lange, a spokesman for the Omaha, Nebraska-based railroad.

“Each railroad must determine for itself how it will recoup any additional costs that are imposed by the federal government, just as chemical companies determine how they recover increased cost from environmental or similar regulatory requirements placed on their production and distribution of their products,” Lange said in an e-mail.

The Washington-based Association of American Railroads estimates railroads will spend $5.8 billion by 2015 and $13.2 billion over 20 years on the mandate. It may not be fair to pass those costs on to all customers, Norfolk Southern Corp. (NSC) Chief Executive Officer Wick Moorman said this month.

Reporting Rules

The Surface Transportation Board, the U.S. agency that oversees freight rail shipping, proposed a rule Oct. 14 that would require railroads to report how much they pay a year to install, use and maintain the equipment.

The cost of shipping toxic chemicals may rise as much as $9,032 a carload if railroads pass the entire expense on to the producers, compared with $23 more per carload if all shippers shoulder the expense, according to a report the American Chemistry Council released today. The study was prepared for the group by consulting firm Snavely King.

The largest U.S. railroads, including Burlington Northern Santa Fe, owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), carried 75,563 carloads of toxic chemicals in 2008, the last year for which data was available, according to the Association of American Railroads.

Chemical companies paid an average of $5,994 a carload, the American Chemistry Council said, citing analysis by Snavely King.

The technology-installation requirement is among the safety regulations President Barack Obama ordered agencies in January to review for their cost-effectiveness and impact on economic growth and job creation.

The Obama administration said in May it would slice $1 billion of the requirement’s price over 20 years as part of a regulatory roll-back aimed at saving U.S. businesses $10 billion over five years.

To contact the reporter on this story: Lisa Caruso in Washington at lcaruso7@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net