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Winners and Losers – The New PHMSA Rules Change the Game

The new safety rules announced last Friday by the Department of Transportation and Transport Canada could not have prevented the latest oil train explosion in North Dakota this week, but they certainly have the ability to create some fireworks of their own. The whopping 395 page final rule issued by PHMSA in coordination with FRA created many winners and losers throughout the industry.

For the complete U.S. DOT Final Rule for Safer Transportation of Flammable Liquids by Rail, please click here.

Winners

The tank car construction and repair industry.

Implementing the new standards for tank cars and retrofitting the existing fleet will be a significant task for the tank car industry. In its final rule, PHMSA estimated that the existing tank car retrofit alone would cost nearly $1.8 billion. Shares of American Railcar Industries jumped up 6% on the announcement of the new regulations.

The Class I and Shortline Railroads.

The rail industry bears much of the cost of each tank car accident, both in actual dollars and in damage to its relationship with the communities along its network, and has long argued that unsafe tank cars are the root of the problem. The new tank car requirements may not prevent derailments, but they should go a long way in reducing the damaging effects.

Losers

The tank car lessees and the petroleum industry.

The vast majority of tank cars in service today are not owned by the railroads—the shippers and railcar lessees will bear the brunt of the retrofit costs. The American Fuel & Petrochemical Manufacturers Association has already warned that the aggressive retrofit schedule may be disruptive to the industry.

The Class I and Shortline railroads.

The surprise addition of the requirement to provide ECP braking systems for high hazard flammable unit trains by January 1, 2021 caught many in the industry off guard. This new requirement will be burdensome for all railroads, but particularly so for the shortline rail industry.

Only time will tell if these new regulations improve the safety of transporting crude by rail. We can only hope that the safety improvements will be dramatic enough to offset the roughly $2.5 billion in compliance costs the new regulations will create.