Rising rail rates, demurrage burden US scrap firms

US scrap metal recycling companies fear they may not keep up with future demand as they say widespread adoption of Precision Scheduled Railroading (PSR) makes shipping costlier.

Multiple scrap recycling companies operating more than 170 facilities nationwide met with the Surface Transportation Board (STB) in June to request its intervention as increased fees and unreliability harm their ability to conduct business along the US rails, according to STB summaries of statements and testimony from shippers.

Topping the list of concerns was increased demurrage and the lack of recourse against railroads, especially when fees are caused by railway events like bunched cars and missed switches. Shippers said these events are now more frequent as PSR is implemented.

PSR has been adopted by the nation's largest railroads as a way to optimize operations. The railroading principles intend to ship the same amount of freight at greater efficiency by eliminating unneeded lanes and equipment and ensuring all trains leave on time. But service to some scrap companies is suffering as railroads eliminate lower-volume lanes to boost efficiency as part of the PSR.

Sims Metal Management, which operates 20-25 yards in North America served by rail, said one-third of its facilities are serviced by a single railroad, and railroads have stopped serving three of its California locations. Between the reduced service and increased fees because of PSR, SIMS said it may not be able to grow in tandem with any potential increase in US demand.

Oregon-based Schnitzer Steel attributes more than $500,000 in outstanding demurrage bills to a reduction in free days for private cars and bunching on the railway. The late delivery of cars on Fridays has also led to automatic demurrage over weekends, when Schnitzer's southeast yards are closed. Demurrage refers to fees charged shippers when they fail to load or unload a car within the contracted periods.

Schnitzer said it never incurred demurrage charges prior to PSR.

Rocky Mountain Recycling said it owed $58,000 in demurrage within the first four weeks of the year for its sole Colorado scrap yard. The company incurred just $80,000 in demurrage for all of 2018 and as little as $4,500 a year as recently as 2014.

Tucson Iron & Metal said it is incurring demurrage for the first time since 2015 after its Class I railroad reduced service to just two days per week. Tuscon said it cannot absorb the increased costs as a small business.

Shippers are also contending with increased rates along Class I railroads, which include the largest North American railroads such as CSX, Union Pacific, Norfolk Southern and Canadian National.

Schnitzer reported a significant increase on a lane running between New York and Boston, where it operates a deep-sea export yard for ferrous scrap. Reserve Management Group said another Class I railroad increased rates by more than 300pc on a lane from Chicago to Toledo, Ohio.

Reserve Management Group believes the rate hikes might be an attempt to de-market those lanes by reducing volumes.

Large recyclers Sims Metal Management and TMS International both told the STB that the average annual rate increase by Class 1 railroads of 6-7pc was unsustainable.

The companies unanimously agreed that shifting facilities to rely more heavily on trucks would not be viable because of limitations on volume, drivers and trucks, in addition to trucking being uneconomical for long hauls.

Shippers said the commodities exemption that currently prevents the STB oversight on these issues leaves companies without leverage to negotiate fees and service with the railroads.

The STB's first step should be handling the demurrage issue, which would not require the revocation of the exemption, said Billy Johnson, chief lobbyist for the Institute of Scrap Recycling Industries (ISRI). Restoring free days to give more time to unload and return rail cars would solve many of the problems, he said.

The STB asked the railroads to work on resolving customer issues with demurrage after meeting with shippers in the first half of June, and Johnson believes the board will issue a ruling on the demurrage hearing if that request is not honored.

A 2016 STB proposal to revoke the exemption was met with agreement from the scrap industry, and Johnson said the industry was hoping this could be put into action soon. The ability of the STB to intervene in disputes between railroads and shippers would give shippers leverage to negotiate an even playing field, Johnson said.