The tragic accident in the Quebec town of Lac-Mégantic was the major transportation story of the past week. As of tonight, the death count is at 33 but it will likely reach 50 people when all the bodies are found. In addition, much of the downtown of that town area was destroyed as 72 tanker cars of the Montreal, Maine and Atlantic Railway Ltd., carrying crude oil, caught fire as they came off the tracks.
Rail transportation in Quebec, Canada dates back over a century. The rails have been a key element in the history of commerce in this Canadian province. The railway has been hauling iron ore, pulp and paper and other commodities for many years. But the sharp decline in the United States housing market, as a result of the Great Recession, reduced the demand for Quebec’s lumber. This motivated the MM&A Railroad and others to shift their focus to the movement of crude oil via rail.
The transportation of crude oil via tanker car goes back to the days of John D. Rockefeller. The rail industry is now hauling more crude oil than it did in those days. Trains transported a record 97,135 carloads of crude in the first quarter of 2013. That’s 166 percent more than during the first quarter of 2012 and 922 percent more than the rails handled during all of 2008.
Union Pacific, the largest US railroad, tripled the amount of crude it moved the previous year. BNSF, America’s second largest railroad, is now transporting 650,000 barrels a day versus almost none five years ago. Canadian Pacific Railway expects to haul 70,000 carloads of crude in 2013, up from 500 in 2009.
While moving crude oil by pipeline still costs about half to one-third of what it costs to move it by rail, trains don’t require long term contracts or need to wait for pipelines to be built. While pipes stretch only from point A to point B, refiners can access nearly any market in the United States or Canada by rail. Flexibility and the ability to easily shift delivery markets to maximize revenue, has been encouraging oil companies to increase the leasing of rail cars.
Much of the increase has come from the Bakken shale formation in North Dakota, the origin of the oil that caught fire in Lac-Mégantic (that was en route to Irving Oil refinery in Saint John, New Brunswick). BNSF and CP now carry 400,000 barrels a day out of the Bakken each day. Seventy-one percent of this oil leaves the region by trains as compared with twenty-five percent in 2012.
The crude business has been very important to the bottom line of the major railways. As utilities have switched to cleaner-burning natural gas, coal shipments have fallen 23 percent since 2008. The rails are also becoming important to the pipeline companies as they have begun investing in rail terminals to increase their crude-by-rail capacity.
There are several issues that have been brought to the surface by this tragic accident. First, the MM&A Railway had an upswing in accidents during the first six months of this year. The train involved in the accident was inspected the day before the accident. Questions are being raised about running an automated train with one person responsible for the braking, the safety of the cars themselves and why this train was left unattended overnight All of these questions must be reviewed in detail in the coming days.
Second, there is the issue of the routing of a train carrying 72 cars of crude oil going through the downtown core of a town. This issue should be expanded to address the question of where is it safe to route a train. Should the rails be allowed to transport crude oil through the center of a city or be routed next to a lake or river? A train carrying more tanker cars could derail in a large urban area or next to a major water way. The potential loss of life and environmental damage could be much larger the next time. This must be re-evaluated.
Third, the safety of pipelines should be evaluated at the same time. Within the last few days, it has been suggested that it is much safer to move crude oil via pipeline. The argument is being made to expedite the approval of the Keystone pipeline project. After the BP crude oil spill in the Gulf of Mexico, this suggests that this is the appropriate time to revisit the safety of all modes of transport.
Finally, there is the issue of how the MM&A Railroad bungled the PR aspects of the disaster. After five days, Mr. Edward Burkhardt, the company’s CEO, made his way to Lac-Mégantic to give a set of poorly crafted remarks, all in the English language. This made Mr. Burkhardt, his company and the rail industry, look insensitive and out of touch with culture and pain of the citizens of this small predominantly French-speaking Quebec town.
Where do we go from here? We live in a society that is very much attuned to the “hot story of the day.” We quickly move from the Newton Massacre to the latest tornado to the Lac-Mégantic disaster. Despite the large loss of life and damage to the city, this story cannot move the Trayvon Martin/George Zimmerman case off the US news networks. Will the issues arising out of this disaster have “legs?”
They should. Each of the issues outlined must be addressed. While I am not in favor of more industry regulation, the large loss of life and property damage demands that all modes involved in transporting crude oil be re-evaluated. As a society, we will be using crude oil for the foreseeable future. The legacy of the Lac-Mégantic disaster should be that this incident served as a catalyst to improve the safety of the transportation of crude oil by all modes.
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Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill