BNSF bans retrofitted tank cars from crude oil service

Dive Brief:

• BSNF, the largest U.S. hauler of crude oil by rail, has said it will limit the use of DOT-117R retrofitted oil tank cars on its lines following a derailment in Iowa, Reuters reported.
• Industry watchers expect other crude by rail carriers, such as Union Pacific, to follow BNSF’s lead in banning the DOT-117R cars that were brought up to new safety standards established in 2015. “It is incumbent on all parts of the supply chain to ensure we have the safest tank car in which to move these commodities,” a BNSF spokesperson told Railway Age. “BNSF continues to handle various car types for crude and ethanol, but we are working with our individual customers to facilitate getting the newest and safest tank cars in service sooner on our railroad.”
• Demand for oil tanker cars is high as U.S. and Canadian production surges, leading to higher lease rates for tank cars. Lease prices on new tank cars that BNSF will accept have risen from $400 per month in 2017 to $1,000 per month in 2018. The shippers, typically oil producers and refiners as well as logistics companies, own the tank cars, not the railroads.

Dive Insight:

After a June 2018 derailment in Iowa led to 230,000 gallons of crude oil spilling from 14 cars, BNSF reportedly told shippers that it would ban the DOT-117R retrofitted cars in all new contracts, even though the cars comply with current federal regulations.

New tank cars built to the current safety specifications are designated DOT-117J. Among other differences, the DOT-117J cars have a steel tank shell that is 1/8 inch thicker than the shell on a DOT-117R. Since the new regulations went into effect in 2015, about 11,000 DOT-111 tank cars have been retrofitted to the DOT-117R standards. The older cars must be upgraded by 2020 or removed from service.

The railroads, which bear the cost of derailments and environmental mitigation for spills, understandably want to haul equipment that meets the most stringent safety standards.

On the other hand, tank car owners invested about $60,000 per car to upgrade the fleet to the DOT-117R standard within the past three years, reported Railway Age. That investment will have less value if the operation of those cars is limited by the railroads.

Industry groups including the American Petroleum Institute are working with BNSF and federal regulators to ensure the safety of oil shipments.