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Shippers tell STB railroads aren’t fulfilling common carrier obligation

Surface Transportation Board conducting 2-day hearing on big jump in embargoes

The Surface Transportation Board is holding a two-day hearing on Union Pacific's use of embargoes. (Photo: Jim Allen/FreightWaves)

Several shippers told federal regulators Tuesday that they don’t believe the railroads are meeting the common carrier obligation because of the service issues they’ve encountered in the past year, including an increased use of embargoes as a means to control congestion.

Per federal regulations, the common carrier obligation binds railroads to carry freight, provided that the tendered agreement has reasonable terms and conditions.

Shippers told the Surface Transportation Board at a public hearing that one of the challenges with the Class I railroads placing embargoes is that shippers don’t know how long the embargo might last, which causes uncertainty when planning the logistics of a shipment.

That, coupled with limited freight transportation options, are among the reasons why they felt the railroads were not meeting the common carrier obligation.

“To answer ‘do I think they’re fulfilling the common carrier obligation with embargoes?’ No, I don’t think they are,” said Don Boostra, a business director at Canadian company Chemtrade Logistics. Chemtrade operates 60 chemical facilities across North America, producing chemicals such as aluminum sulfate and chlorine that serve as raw materials for manufacturing.

“I don’t know the solution. I’m not going to try to tell them how to run their railroad, but it sure seems to me when we have industries like ours and others that are trying to grow and capacity’s going down, that no, I don’t believe they’re fulfilling their obligation,” Bootstra continued.

Gregory Twist, senior vice president of transportation for Ag Processing Inc., said: “I echo the comments. I do not feel that they’re fulfilling the common carrier obligation. I think it’s been explained to us that a large amount of the service issues relate to lack of labor or lack of power. And I can see embargoes having a place in unexpected things, like a surge in traffic or a weather event or something else like that. But this seems like it’s a capacity issue.”

Shippers made these comments before STB, which was holding a two-day hearing Tuesday and Wednesday on why Union Pacific’s (NYSE: UNP) use of embargoes rose significantly in the last five years. According to STB’s calculations, the vast majority of UP’s embargoes in 2022 have been a result of congestion.

STB’s chart tracking UP’s embargoes since 2017. (Source: STB)

Shippers also noted that the use of embargoes has risen dramatically in recent years.

“I’ve been doing this for just over 20 years myself, both as a shipper and as a carrier. I have never seen it this bad. And if we don’t do something about it, it will continue to get worse,” said Rob McRae, vice president of transportation for Univar Solutions.

Although none of the businesses Boonstra oversees for Chemtrade are directly served by UP, the embargoes worked their way up the supply chain in such a way that Chemtrade’s deliveries get stalled if Chemtrade’s customers face rail service disruptions of their own.

Boonstra relayed one anecdote in which Chemtrade had to shut down its plant near Denver for three days because there was no rail service to deliver raw materials. The city of Denver normally receives two truckloads a day of chemicals for water treatment, but the lack of rail service prevented Chemtrade from making those deliveries.

“As I understand it, the city of Denver came dangerously close to running out of treatment chemicals for drinking water,” Boonstra said. 

“I bring up these examples to illustrate how complicated supply chains are and how reliable rail service is essential for supply chains to function,” he continued. “Like any chain, a breakdown anywhere along the linkages results in the chain falling apart.”

Boonstra said his businesses have experienced eight different embargoes year to date. Affected companies must apply for waivers in order to ship reduced volumes.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.