Economics of Chemical Transportation The estimated cost of transportation i n the United States is i n excess of $60 billion annually-approximately $90 billion if the entire transportation and distribution costs from movement of raw material to the final consumer are taken into consideration. The rapid expansion of the chemical industry has resulted in the construction of many new plants, some strategically located so that their long-term success seems assured; in other cases plants have been located on the basis of today’s conditions, but may not meet long-term requirements. Choice of a site requires consideration of many factors, but available transportation and related functions, such as freight rate structures and population trends, may be controlling in the long run.
D. G. WARD Olin-Mathieson Chemical Corp., Mathieson Bldg., Baltimore 3, M d .
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HE transportation network within the United States is the most complete of any nation in the world. There is scarcely a community that is not accessible t o a variety of transportation facilities. A few facts: We have 1,800,000 miles of surfaced highways, 223,000 miles of mainline railroad tracks, 160,000 miles of petroleum pipelines, 66,000 miles of controlled airways, and 27,000 miles of improved inland waterways. I n total mileage, our basic domestic transport would encircle the earth almost 96 times. It is long enough t o provide nine separate routes t o the moon. One out of eight gainfully employed persons in the United States is directly involved with manufacturing, commercially operating, or servicing transport equipment. These persons earn almost 14% of all the wages, salaries, and dividends paid b y all industries in the nation and help t o create more than 15% of all industrial and commercial sales. Approximately one sixth of all net corporate investment is in transport equipment and facilities. T o keep this plant and equipment functioning and improving requires a n annual expenditure of approximately 10% of all such expenditures for the nation as a whole. Transportation is a heavy user of the products of other industries. It consumes 2970 of all the energy used in the United States, including 48% of all petroleum products. It consumes 62y0of all rubber, 28% of all steel, 17% of aluminum, and 14% of the copper used in the United States. The estimated cost of transportation in the United States is i n excess of $60 billion annually, and if the entire transportation and distribution costs of the nation from movement of the raw materials t o the final consumer are taken into consideration, the cost will be approximately $90 billion annually or 25% of the entire produced wealth of the nation. T h e importance of these costs t o t h e chemical industry must not be overlooked. Several aspects of transportation economics which are of vital interest to the chemical industry are frequently, in whole or in part, mishandled. T h e rapid expansion of the chemical industry has resulted in the construction of many new plants. Some of these new plants have been strategically located, so t h a t their long-term future appears assured. I n other cases the plants have been located t o meet today’s conditions, but i t is extremely doubtful t h a t they will meet the long-term requirements of the future. CHOICE OF SITE
Before a new plant or warehouse can reach the blueprint stage, a strategic site must be chosen. [Editor’s note. See “Plant
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Site Location,” A. T. Waidelich, IND.ENG.CHEM.,47, 35 A (April 1955)l. I n choosing this site there are many factors t o be considered, including the type and kind of plant required and, in each instance, the controlling factors will be different. T h e requirements may be for a place t o expand present facilities, a location near a particular market, a site near certain materials or supplies, a new plant in a large city, a new plant in a small town, a site on which a new plant can be built, a ready-built plant t o buy or lease, a strategic warehouse location, a branch assembly plant, a site with abundant water supply, or a location convenient t o deep water ports. Among all of the factors of vital importance, transportation and related functions may well be controlling over the long run. These functions include: Railroad service, both freight and passenger Motor truck service Railroad switching facilities Water transportation, including both barge and ocean service Air freight and passenger transportation and service Express service Port facilities Pipelines Freight rate structures Transportation from home to work, including bus service Attitude of carriers Side track facilities Cost of extra trackage Highway conditions Distance from home office Laws affecting transportation Direct and access streets Nearness to trunk highways Nearness to trunk rail lines Possible interruptions in transportation services Transportation congestion A large industry recently located a plant about 7 miles from the nearest railroad. This appeared logical in view of the fact t h a t the great majority of the outbound finished products would move in bulk by tank truck, However, this may have been a serious mistake, as suitable property could have been located adjacent t o railroad lines, where railroad service could have been supplied a t not too great an expense. I n this instance, the cost of construction of the new plant was unnecessarily increased by having t o transfer all heavy equipment by truck t o the plant site from rail sidings located some 7 miles away. I n event of a truck strike in t h a t area, the plant would be out of business, as rail service would not be available. This plant may also be severely handicapped in the future, as there is no long-term assurance t h a t
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both rail and truck rates on outbound finished products will remain equalized. At the same time, future expansion of this plant may well be limited, if it is desired t o manufacture new products requiring rail transportation in lieu of truck transportation. Several other instances can be mentioned where plants were unsatisfactorily located because of transportation conditions, illustrating to some degree the fact t h a t a serious error may be made when transportation is not thoroughly analyzed prior t o the selection of a n industrial site. Some years ago, a n industrial plant was located a t a n interior point where adequate railroad facilities were available. This plant used several hundred thousand tons of raw materials annually and its products were distributed over a radius of some 800 miles t o customers predominantly located on railroad lines. Competing plants were constructed a t a later date a t locations where they not only had rail service available but also were on deep water. The raw materials for these competing plants were delivered by ocean-going vessels a t approximately 25% of the rail cost and some 40% of all the outbound shipments were made b y water t o customers located on the inland waterways. I n addition, during periods of overproduction the waterside plants exported a large proportlon of their production to foreign customers. T h e result is obvious-the plant located only on rail will in due course find it impossible to meet the prices of its competitors and, in addition, must cut back production because of its inability t o ship overseas a t a cost competitive with waterside plants as well as foreign competition. On a short-term basis, of course, the plant located only on rail may continue to operate a t a profit, as i t is the policy of the railroad industry t o establish market-compelled rates equal t o the rates t h a t they have established from waterside plants t o meet water competition. This practice is, however, limited in its application and i t is impossible t o foretell a t the present time the degree to which it will continue in the future. A further instance of insufficient consideration given to transportation conditions in locating of plant sites came to attention a few years ago. A plant site was chosen adjacent t o a railroad and also t o water transportation. Unfortunately, however, the firm which made the transportation survey overlooked two very vital transportation factors. Consideration was not given to the fact t h a t the destination markets were located in a different freight rate jurisdiction from the one applying a t the location of the plant. This increased transportation costs on finished products some $3,000,000 more than originally estimated and resulted in freight rates considerably higher than those applying from competitive plants located in the destination freight rate territory. Through some rather extraordinary handling on t h e part of the traffic department of this industry approximately $1,500,000 of this freight loss was eliminated. However, based upon present freight rate structures, approximately $1,000,000 annually will be lost to this company during the life of this plant. The second error was that while this plant was admirably located from the standpoint of transportation as a whole, consideration was not given to the fact t h a t in order to serve the plant a railroad branch line had t o be constructed for a distance of some 2 miles. This would normally have cost anywhere from $20,000 to $30,000 but, because of unusual conditions in this instance, coat in excess of $500,000. These errors could have been avoided by a thorough and complete analysis of the transportation factors involved in the selection of the site. POPULATION TREND
Several other factors influence transportation considerations. There is a continuing trend in population shift from the Atlantic Seaboard to the F a r West. The markets of the Mountain Pacific territory ,are of great importance today and will be of even greater importance in the future. The trend during the past 12 inflationary years has resulted in a n average increase of 68% in June 1955
railroad freight rates and this trend will continue, although at a lesser rate. T h e percentage method of increasing freight rates had had a serious effect on the reasonable but high transcontinental rates, making i t progressively more economical t o construct chemical plants in the Mountain Pacific area than to ship from eastern plant sites. The industrial development of the South is also proceeding a t a rapid rate and much more rapidly than in the Middle Atlantic and New England states. The industrial development and population shifts along the Mississippi and Ohio Rivers and their tributaries are also of great importance and must be given full consideration. President Russell of the Southern Pacific CO. said about 18 months ago t h a t his railroad was locating in excess of two industries per calendar day on its lines in the Far West. As compared with this, New York Central has said t h a t in one recent year 547 new plants were located along its 1ines.covering the area from St. Louis to the eastern seaboard. FREIGHT RATE STRUCTURE
An additional aspect of transportation of great importance is the freight rate structure. Freight rates are clearly and simply the prices established by transportation companies for the commodity which they sell-transportation services. One of t h e vital factors involved in the industrial development of the United States has been the method by which these rates have developed, as well as the basis for these rates. Transportation charges in the past have been dissimilar to the prices of industry generally. They have not generally represented cost plus profit margin but have been set basically as high as the traffic would bear. Many practical people, as well as theorists, have bitterly criticized this method of rate making. T o some greater or lesser degree they have contended that freight rates should be based primarily on cost, which in turn is reflected by distance. Nothing could be more detrimental t o the development of our American industry than rigid freight rate structure constructed in this manner. American industry would never have developed along its present lines if this pattern had been followed. On that basis we couldnever havemoved our fruits and vegetablesfrom California to the eastern seaboard, nor coal, lumber, wheat, and many other commodities which must move over long distances, had not freight rates been relatively lower than those on higher valued commodities and products which can stand a higher freight cost. The trend toward making rates on the cost-and-distance principle seems t o be diminishing and, if true, our industrial expansion in the future should not be handicapped. A recent poll of railroad freight traffic executives showed t h a t 80% believed t h a t uniform class rates and cancellation of commodity rates would not make railroads competitive with other forms of transportation and were not in the best interests of the shipping public. Over 75% of industrial traffic managers expressed the opinion t h a t such a trend was improper and over 71 % thought the trend toward rigid rate scales was not in the best interest of industry. The railroads are considering a new concept of rate making. The fundamental principle seems t o be the making of rates which will move the traffic with less regard t o technicalities in the rate structure and more regard t o obtaining the business. This seems only to be prudent business judgment and either has been done or should have been done for the past 20 years. What does this mean t o the chemical industry? It means continuing expansion and marketing of products a t reasonable rates and at a level t h a t will permit moving the products t o more distant destination markets without undue prejudice to competing plants and at a level t h a t will not result in monopoly to the plant located nearest the consuming destination. Freight rates will continue t o be constructed, as in the past, subject only to regulatory or legislative restrictions, which are necessary in order to eliminate destructive transportation competitive
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practices and which will not prefer one shipping point to the extent t h a t capital investment in other producing points are made worthless. T h e establishment of reasonable freight rates for chemical products in the future will continue t o be based upon the knowledge and sales ability of transportation executives, since freight rates are not made by mathematical rules. Rates established by negotiations with carriers must not be unduly discriminatory or preferential. Basically, carriers can establish any level of freight rates in the zone between minimum reasonable rates and maximum reasonable rates. Freight rates of all carriers are extremely fluid, in that they are changing from day to day and basically reflect the competitive influences of industry generally throughout the United States, as well as scientific and technological advancement in the development of new products, new plants, and new markets. Rail carriers, as well as water lines and trucking companies, can only establish rates based on the information which they are furnished-information which is checked t o the best of their ability against railroad or carrier records, as well as the view expressed by other interested parties, such as other forms of transportation and industrial competition.
Many freight rates have, of course, been established through formal litigation before state and federal regulatory commissions and, in many of these instances, carriers do not have it nithin their power t o change the rates except through formal proceedings with the federal regulatory commission. When this transpires, in many cases a year or more may be required before new rates can be established. One final comment with regard t o the level of freight rates i n connection with new plants and new products-when new plants are under consideration, the general rate levels should be established prior to the final selection of the site where the plant is t o be constructed. It is generally possible to obtain a n agreement from the carrier or carriers which will serve the proposed new plant site regarding the level of rates to be established. T h e same level of rates generally cannot be established after the final decision has been made and publicized regarding a new plant location. The desired rate level may be obtainable, but generally only through extended negotiation or in many cases formal proceedings before the state and federal commissions. This latter part is of vital importance and should never be overloolced, RECEIVED for review October 15, 1964.
ACCEPTEDMarch 2 5 , 1955.
Tank Transportation TANK CARS Tank cars, tank trucks, and tank vessels and barges play an increasingly important part in the transportation of chemicals in the United States. During the past decade the chemical industry has made appreciable use of the nation’s waterways for the shipment of heavy-tonnage chemicals, and this use is increasing. Tank trucks have been particularly useful for short-haul traffic.
T. H. CALDWELL The Dow Chemical Co., Ludington, M i c h .
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HE history of t h e tank car is a matter of record and t h e story has been told many times. Developments in construction from the iron-banded wooden tank of t h e 1800’s with a capacity of 1500 gallons t o t h e modern fusion-welded tank of the present day with a capacity of 19,000 gallons are positive proof t h a t a very active part has been taken in t h e development of equipment to meet industrial demands. The last general revision of Interstate Commerce Commission regulations covering transportation of chemicals was covered by t h e commission’s order of April 12, 1954, effective May 12, 1954, and known as H. A. Campbell’s Tariff #9. I n formulating the regulations for transportation of explosives and other dangerous articles, t h e Interstate Commerce Commission has included specifications for shipping containers. Incorporated therein are specifications for shipping containcrs to be mounted on or forming part of a car. These latter, spoken of as tank car tanks, are the concern of the Association of American Railroads’ Committee on Tank Cars. During 1954 t h e Association of American Railroads’ Committee on Tank Cars was called upon t o consider 179 dockets and applications for approval of design, material, and construction, for 5341 new shipping containers, 213 applications for alterations, additions, and conversions of 2759 existing Fontainers, and 41 applications for new appurtenances approved for general use when permitted b y the specifications. Regulations were changed ax follows : 1188
Amendment t o the regulations to prevent failure of interior pipes of the thermometer walls. Amendment t o provide for replacement tank domes fabricated by fusion Kelding, for installation on existing tank cars of riveted design. Amendment t o provide for the use of flange quality steel plates conforming t o ASTM specification A-212, Grade B, having a maximum carbon content of 0.31%. Amendment providing requirements for alloy steel plate material heat treatment for Class ICC-103C-\V tank car tanks. Amendment t o provide for t h e use of ASTM specification GR20A aluminum plates in fabrication of Class ICC-103AL-JV and ICC-103A-AL-W aluminum tank car tanks. Amendment t o Section 73.31 (g), notes 1 and 2, of t h e Interstate Commerce Commission regulations recommending t o t h e Bureau of Explosives that the effective date of these regulations be extended to December 31, 1954. Amendment t o Appendix C of Interstate Commerce Commission regulation t o provide for t h e revision of Figure 8 t o include new fabrication details and new material specifications for stud bolts. For some time t h e Interstate Commerce Commission, t h e Bureau of Explosives, and t h e Association of American Railroads’ Tank Car Committee have felt t h a t a complete revision of all specifications was very much needed. Work on this important job was started in 1953 by t h e committee and t h e report in docket form has been submitted t o t h e ilssociation of American Railroads’ Tank Car Committee for adoption. Fundamentally, t h e specifications have not been rad-
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