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Rail industry faces tough new tanker safety rules

Timeline eased after industry warned of upgrade bottlenecks

Firefighters battle blazes after a freight train loaded with oil derailed in Lac-Megantic, Quebec, on July 6, 2013.
François Laplante-Delagrave | AFP | Getty Images
Firefighters battle blazes after a freight train loaded with oil derailed in Lac-Megantic, Quebec, on July 6, 2013.

After a series of fiery crashes, and months of negotiations with railroads, shippers and oil producers, U.S. and Canadian regulators Friday imposed tough new design standards on the tanker cars used to ship flammable liquids across the country.

The new rules will force the replacement and upgrade of tens of thousands of older cars under a timeline that was eased after railroads and shippers warned that the standards could overwhelm the industry's capacity to retrofit older cars and build new ones to the tougher standards.

"This is a schedule that we believe is workable, and it is aggressive," said U.S. Transportation Secretary Anthony Foxx. "If you talk to some of the manufacturers, this is more aggressive than some of them would like."

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The new rules, announced jointly with Canada's minister of transport, Lisa Raitt, come nearly two years after a catastrophic crash in Lac-Mégantic, Quebec, which killed 47 people and leveled much of the city.

There's widespread agreement on the need for stronger cars, after a surge in rail shipments of oil that has accompanied the boom in domestic oil and gas production. Much of the so-called unconventional production is coming from fields like the Bakken in North Dakota where the existing network of oil pipelines can't handle the boom in production.

"We've got to think ahead of the problems," said Foxx. "This rule is recognizing that we've got a growing risk."

The new regulations call for fresh standards for cars built after this October and upgrades to older tank cars constructed to standards that predate the oil boom and surge in rail shipments of crude. Tank cars will have to have thicker steel shells, stronger shields to protect the front of the car, thermal protection to better withstand fires and stronger valves to prevent leaks in the event of a derailment.

The rules also include a schedule designed to replace the most dangerous cars first, the so-called unjacketed DOT-111 cars that are the most prone to puncturing. The regulations also impose speed restrictions for the older tank cars.

"It'll still be tight, but it looks like it's not as completely out of line as the first proposal was," said Kevin Neels, a transportation consultant with The Brattle Group, which prepared an industry-sponsored report on the economic impact of the new rules. "But everyone is going to have to scramble to get this done. There's no doubt about that."

The rules also require tanker cars use a new electronically controlled pneumatic braking system, known as ECP, that stops all axles at once instead of the current design that triggers brakes separately.

"They can prevent cars from slamming into each other," said Foxx. "They can greatly reduce the probability that tank cars can puncture. This is proven technology."

The industry has lobbied against the new brake rules, contending the incremental safety benefits don't justify the cost. Some industry executives also have warned that adding the new brake standards could produce bottlenecks in the upgrade process and produce shipping interruptions.

"Capacity is not abundant, even though we're spending our way into it. Last thing we want is regulation that takes away capacity," Burlington Northern Railroad Executive Chairman Matthew Rose told CNBC. "Anything that anybody does that has potential to take away capacity has the potential to have a major impact to the economy."

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The new rules could face legal challenges, but Foxx said he believes the government would prevail.

"We believe strongly that our rule will stand up," he said. "All parts of it."

The DOT estimates the new rules will cost some $2.5 billion over the next two decades, about two-thirds of which represent the cost of upgrading or replacing older tank cars.

Without the new rules, the department said, damages from future accidents could range from $4 billion to as much as $12 billion from "high-consequence events."

"The financial losses and the cost of cleaning up after a crash like Lac-Megantic would in the long run be far more burdensome," said Canada's Raitt.