Canadian National raises rates for using older oil tank cars

Wed Feb 12, 2014 6:28pm EST
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By Nia Williams

CALGARY Feb 12 (Reuters) - Canadian National Railway is charging shippers more to transport crude oil in older tank cars, one of the first signs that rail operators are actively discouraging use of the type of cars involved in several dramatic explosions.

Confirmation of a tiered fee structure for different models of tank cars comes amid intensified scrutiny on the safety of shipping volatile light crudes by rail, spurred by a series of explosions including the Lac-Megantic disaster last summer, in which a runaway crude train exploded in the center of a Quebec town, killing 47 people.

Railroads, shippers and regulators across North America have acknowledged that older DOT-111s tank cars, manufactured before higher standards were adopted in 2011, often fail during accidents, making them more likely to spill their cargo and catch fire.

While new rules to upgrade or phase out cars are under consideration, it may be months if not years before they come fully into effect, frustrating many rail companies that often deal with the public fallout and potentially repair costs.

"CN has structured its rates to create an economic incentive for customers to acquire, over time, more robust tank cars that meet the higher safety standard of the more recent CPC 1232 design," said Mark Hallman, spokesman for CN, Canada's biggest railway and a major player in the oil-rail trend.

On Monday, CN chief marketing officer J.J. Ruest said in a presentation: "What we do to help ourself is we price crude differently for different car types. ... The CPC-1232 is our favorite car when it comes to pricing or attracting business."

The CPC 1232 design refers to a circular issued by the American Association of Railroads requiring all crude- and ethanol-carrying cars ordered after October 2011 to have enhanced safety features, including reinforced outer shells and protective shields.

Hallman declined to comment on the specifics of the rates. A source at a Canadian midstream company said CN was charging up to 5 percent additional freight costs on some DOT-111 cars.   Continued...