Buffett Tank Car Maker Urges New Rules Include Rail Operations

Jul 18, 2014 3:16 pm ET

July 18 (Bloomberg) -- Warren Buffett’s Union Tank Car Co., which makes cars that carry crude oil, is urging U.S. regulators to adopt new rules for rail operations in addition to sturdier tank-car standards to improve safety.

The railroad procedures need more scrutiny because most crude-oil derailments were triggered by rail operators’ actions or their infrastructure, according to a July 11 letter signed by Union Tank Chief Chief Executive Officer Kenneth Fischl and the CEO of lessor GATX Corp, Brian Kenney.

“The quickest and most meaningful way to improve crude-by- rail safety is to approve new regulations regarding railroad operating procedures and classification and testing of flammable liquids,” according to the letter the CEOs wrote to Cynthia Quarterman, chief of the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration.

The letter shows the push back from oil tank car owners against an agreement between railroads and shippers through their trade groups that focuses mostly on a new tank-car design and the modification of older ones, which could cost as much as $60,000 per car.

Buffett’s Berkshire Hathaway Inc. owns Union Tank Car, a Chicago-based producer and lessor of railroad tank cars. GATX, of Chicago, is among the largest owners of tank cars with about 4,600 in crude and ethanol service, according to an April 29 filing. The two companies said in the letter that together they own 140,000 tank cars that make up 40 percent of the North American fleet.

Lac-Megantic Legacy

Transportation Secretary Anthony Foxx has called for new regulations to improve crude-by-rail safety by the end of this year after a series of accidents that have caused explosions and oil spills. A crude oil train that crashed into the Quebec town of Lac-Megantic killing 47 people last July has hastened officials in Canada and the U.S. to adopt safety measures.

In February, railroads agreed to slow oil trains by 10 miles per hour to 40 mph in urban areas and place more devices to detect faulty track along routes that carry crude. Canada mandated cars ordered after October 2011 removed from tracks within three years and immediately banned tank cars made in the 1990s that have insufficient support underneath.

The Office of Management and Budget now is reviewing a proposal from the Pipeline and Hazardous Materials Safety Administration that will be made available for public comment as early as this summer before final adoption.

Regulations are trying to balance improving safety with the need to ship surging crude production from shale formations in North Dakota, Texas, Colorado and other states where pipeline construction hasn’t keep pace with demand.

Different Views

The Association of American Railroads, which represents companies including Buffett’s BNSF Railway Co., has opposed current proposals to further lower oil train speeds to 30 mph, saying it would slow service on the entire network and require more tank cars on the tracks to haul the same amount of oil.

The American Petroleum Institute, whose members include shippers such as Exxon Mobil Corp., have opposed classifying crude oil from the Bakken region that’s mostly located in North Dakota as more flammable than other crudes, which would require it to be shipped in tank cars used for more dangerous chemicals.

The two trade groups, which have been at odds on the new tank-car design, last week presented regulators with a unified proposal to build new tank cars with a half-inch thick steel hull and a three-year phase-out period for the older tank cars, known as DOT-111s. The two groups said they would oppose lower train speeds and mandatory stabilization for some crude oil deemed more volatile.

“Focusing only on tank car standards is simply not enough to immediately improve the safety of crude-by-rail shipments,” the letter said. “Without a comprehensive solution that also addresses the full range of possible improvements to rail transportation, little will have been done to protect the communities where these shipments travel.”

--With assistance from Jim Snyder in Washington.