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What Does Rail Congestion Mean for Truck Demand?
April 15, 2022
Demand for North American trucks is likely to see a surge from the petrochemical and resin industry as railroad congestion has prompted at least two Class 1 railroads to restrict and allocate traffic, and at least one major polymer producer to issue a force majeure on all of its polymer products.
Earlier this week, Ineos Olefins & Polymers notified customers that it declared a force majeure for all polymer products related to railroad restrictions and that it expects to be required to restrict rail shipments below its optimum average daily rate.
Ineos added that is committed to exploring all commercially reasonable alternatives for delivery of product to its customers, but the FM notice is a "precautionary measure" in the event that the restrictions worsen or extend beyond a few weeks.
The FM includes resin production that includes a production capacity of 318,000 mt/yr high density polyethylene (HDPE) at its Cedar Bayou, Texas; a 439,000 mt/yr polypropylene (PP) production capacity at its Chocolate Bayou, Texas site; a 794,000 mt/yr HDPE production capacity its Deer Park, Texas site; and a PP production capacity of 147,000 mt/yr at its Deer Park, Texas, site.
The company was already under FM on polystyrene, and another separate FM on PP at its 230,000 mt/yr Carson, California, facility.
Another major North American resin producer based in the US Gulf also notified distributors and clients that it was experiencing outbound railcar shipment interruptions, and its daily outbound was being limited by its service railroad.
The strain on rail congestion has pushed one major logistics provider serving the petrochemical and resin industry to announce a railcar surcharge this week. In a letter to customers, Texas-based Quantix said it would be implementing a rail congestion surcharge at a one-time fee of $175/railcar on all railcars arriving at its terminals on or after May 1.
The company added that rail congestion has pushed its domestic facilities beyond their designed capabilities, and as it works to explore storage alternatives, increased inventory and congestion is increasing its labor, fuel, and switching costs. The supply chain crunch is also causing an increase in the number of labor hours required to spot a specific car for packaging or bulk loading, with the accompanying increases in labor and diesel fuel costs, which is currently above $5/gallon and expected to increase further.
Quantix added that when the shipping market stabilizes, diesel costs recede, and product flows smoothly, the surcharge will be removed.
The Ineos FM and increase from Quantix come as railcar traffic has risen so far this year. According to the latest data from the Association of American Railroads (AAR) from the week ending April 9, North American chemical railcar loadings were up 3.5% from a year earlier. Chemical railcar traffic was also up 5.2% year on year to 660,455 for railcar loadings.
By Brian Balboa for The Plastics Exchange.
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