Petrochemicals industry defies U.S. rail-freight transport slowdown

A slowdown in U.S. rail-freight transportation has done nothing to dampen enthusiasm for chemicals, which is one of just three commodity categories to enjoy an increase in rail traffic this year.

The number of carloads transporting chemicals (which includes petrochemicals and petrochemical derivatives, as well as chemicals not derived from petroleum or natural gas) hit 1.05 million in the first 34 weeks of 2016, up 1.9% from last year, according to the Association of American Railroads’ latest weekly traffic report.

Total carloads have fallen 11.3% this year, with only grain (4.3%) and motor vehicles and parts (2.7%) also enjoying growth. The six other major categories all fell, led by coal (down 27.2% for the year to date) and petroleum and refined-petroleum products (22.2%).

BNSF has emerged as the biggest beneficiary of chemicals growth, transporting 18,388 (or 6.83%) more carloads for the year to date. Excluding the two Canadian Class I railroads (whose U.S. operations are counted under Canadian rail traffic), the four remaining Class I railroads have all transported less chemicals this year than they did last year.

Union Pacific (UP), the largest transporter of chemicals, has seen the quantity of chemicals it transports slip by 2.3% this year. BNSF and UP hold a virtual duopoly over the western half of the United States, while CSX Transportation and Norfolk Southern dominate the east.

Preparing for growth

Kansas City Southern (KCS), the smallest of the seven Class I railroads by freight volume, is taking a number of steps to accommodate growth in the transportation of bulk liquids and plastics resins, according to spokeswoman C. Doniele Carlson.

Last year, KCS announced it had reached an agreement with Sasol Chemicals for the construction and long-term lease of a storage-in-transit (SIT) railyard to support Sasol’s ethane cracker and derivatives project in Lake Charles, Louisiana. In addition to building the SIT yard for lease to Sasol, KCS is replacing and expanding its existing railcar classification yard in Mossville, La.

“The facility will serve Sasol’s needs in Lake Charles for many years to come, and the investment better positions KCS to serve the growing petrochemical industry and other customers in the Lake Charles area,” Carlson said.

Map of the Class I Railroads, with Kansas City Southern in thick red (Image credit: Kansas City Southern)

KCS is the only Class I railroad with operations south of the Mexican border, and this has given it an advantage in preparing for the likelihood of growing exportation of U.S. petroleum and petrochemicals. Last year it opened eight new receiving and departing tracks at the Sanchez Yard project in Nuevo Laredo on the Mexico-U.S. border. The next phase is due for completion this year with the opening of new classification tracks and improved mechanical repair space. This project will improve network fluidity for all commodities, including chemicals, relieve congestion and improve cross-border traffic flow, Carlson said.She noted that KCS had also invested in track capacity in the port of Lazaro Cardenas on Mexico’s Pacific Coast, where a new deepwater terminal is set to open by the end of this year. Lazaro Cardenas is about 1,500 miles from New Orleans by rail, about 20% less than the distance from New Orleans to the Port of Los Angeles.

None of the other Class I railroads have made big public statements this year on chemicals-related capital expenditure, excluding the usual infrastructure improvements. Union Pacific said it would spend $52 million to maintain railroad track and $6 million to maintain bridges in southern Louisiana in 2016, to add to the $619 million in capex it spent in the state in 2011-2015. It expects to spend $3.75 billion across its network this year.

Lines are always open

Carlson and Formosa Plastics USA’s Rick Lissa both told Petrochemical Update about the ongoing conversation between railroads and producers of petrochemicals products. There are eight to 10 major plastics projects in the U.S. Gulf Coast region, and KCS continues to work with them to ensure it has the capacity to move products that will land up in the U.S., Europe, South America and Asia, Carlson noted.

Lissa, Senior Director, Logistics Management Department at Formosa’s U.S. business, said railroad service had always been a major issue for his company, but “their service has improved over the last year.”

Formosa regularly updates the Class I railroads on expected volumes, and on where it thinks growth is going to come. It also spends a lot of time discussing strategy with them, and this includes recommending to the railroads where their operations can improve, he said. The aim is to make mutual supply chains more efficient, “because as their supply chains become more efficient so do ours.”

The question, Lissa said, is, “Has their service improved because of the productivity they’re enhancing or the fact that there’s less volume on the railroads? I’m not sure about either one, but it’s probably a combination of both because they are spending a lot of time and effort to improve their service.”

By Nadav Shemer