In a tour de force of life as a rail shipper with effectively only one road out of town, Mike Lacey told an often laughter-filled audience that such a captive relationship should be the basis for a partnership, not one of endless animosity.
Mike Lacey is the president of the North America zone of Solvay (OTC: SOLB.BT) , a Belgian-owned producer of soda ash among other chemical products. The Green River valley of Wyoming is the largest mining area for soda ash, and Solvay’s facilities are dependent upon one rail connection to haul it out of there. While Lacey didn’t mention the name of the railroad that serves the Solvay facility, he told FreightWaves afterward that it was Union Pacific.
Lacey made his presentation at a Washington conference entitled “Railroads + Shippers = Solutions,” sponsored by the law firm of Conner & Winters. Daniel Elliott, a partner with the law firm and a former chair of the National Surface Transportation Safety Board, moderated the day’s events.
Lacey discussed the first time he went to a negotiation with a rail shipper where the relationship was one of a captive shipper. “It was unbelievably contentious,” he said during his speech, where he conceded he had taken his prepared speech–he showed it to the audience–and tossed it aside in favor of his impromptu remarks. “I have never been treated so poorly. I would come out of the meetings hoarse from screaming,” he said. Lacey was horrified to learn that he very rapidly got the reputation as “the guy who hates the railroads,” which he admitted was not going to be productive going forward.
Solvay would like to expand its Wyoming operations, Lacey said, but a lack of certainty on what rail costs and service will be to transport soda ash out of the Green River operations is leading the company to hold off making the big investment necessary for that growth.
And recently, what Lacey said is known in his company as “the rail problem” is leading to lost sales. He described a current market situation in which soda ash coming out of a plant on the Mediterranean in Turkey has begun to move into the U.S. East Coast at a price more competitive than what Solvay can sell at. The sea journey is cheaper in price than the rail journey, which will vary in length depending on the location of the customers. Lacey said the entire basis for the Turkish soda ash being more competitive was the rail cost.
The customers buying the soda ash “don’t have a problem with me. They have a problem with the railroad.” Even an offer of free soda ash–plus the rail costs–would not be competitive with the Turkish soda ash, according to Lacey.
Lacey said he foresaw the situation coming for the past two years. He expressed his concerns to his rail shippers; “they spent a year and a half doubting me.” The basic issue, he said, is a lack of trust. “I don’t trust the railroads at all,” he said. “When I tell them what I make they look at it as an opportunity to raise rates.”
Elliott said he had invited Lacey to speak because when Elliott became chair of the STB, Lacey asked to come to speak to him. That’s the sort of move that shippers almost never undertook, and when planning the conference, Elliott remembered the unusual encounter.
Lacey didn’t disappoint. He said when he went to see Elliott, other shippers cautioned him that railroads might try to retaliate somehow. “What am I going to get, a horse’s head in my bed?” Lacey said.
It was a humorous moment, but the problem described by Lacey is real. “I thought when there is no competition you could be a partner,” he said, discussing the company’s captive position. But it hasn’t worked out that way, and a desire to expand the Green River plant with an investment of hundreds of millions of dollars won’t be happening in the foreseeable future. “The board will not give me the money until I solve the rail problem,” Lacey said.
But there is hope, Lacey said. The Turkish market penetration did lead to the sharing of data, back and forth, though Lacey said the data from the railroads had some accuracy issues. The possibility of an expansion and the business that would come with it has led to some railroad interest in the project, “and now we’re having real discussions on what kind of expansion they would need to undertake to support our expansion,” he said.
Soda ash is a desirable product to ship, Lacey said, because it is non-toxic and easy to handle. A producer of soda ash should be an “ideal customer” for a railroad, he said, but the two sides have not developed the relationship that he would expect from that fact.
For the expansion to make more soda ash go forward, Lacey said there needs to be an agreement where Solvay will spend “x amount of money, and then you’ll ship those,” but at rates and a capital commitment that are agreed upon.