Bulktransporter 5086 Ammonia Story
Bulktransporter 5086 Ammonia Story
Bulktransporter 5086 Ammonia Story
Bulktransporter 5086 Ammonia Story
Bulktransporter 5086 Ammonia Story

Tank trucks benefiting in ammonia shipments

April 30, 2018
THE market for tank trucks transporting ammonia is staying strong—and perhaps could get even better—as a result of changing dynamics in the rail industry.

THE market for tank trucks transporting ammonia is staying strong—and perhaps could get even better—as a result of changing dynamics in the rail industry, according to Justin Louchheim, director of government affairs for The Fertilizer Institute (TFI).

“The modal shift is happening,” he said during a recent tank truck industry conference. “In some cases, it means less ammonia is being shipped. And in other cases, it means less is shipped on rail and more on tank trucks. If you are shipping ammonia in a tank truck, then my understanding is that business is good right now. I would anticipate that trend is going to continue for ammonia shippers in the tank truck world. That’s because of a lot of rate regulatory challenges. 

“The reason less maybe shipped: Some of our members will make strategic decisions to build ammonia plants right next to another plant where they’re going to take that ammonia and turn it into something else, and then they can ship urea. Ammonia is a building block for all nitrogen fertilizers. You need ammonia to get to all other nitrogen fertilizers. It’s also used for a bunch of industrial purchases.”

Louchheim said the Association of American Railroads’ (AAR) Tank Car Committee (TCC)–an authority unchecked by the Department of Transportation (DOT)—enacted a phase-out of pre-interim tankcars by 2023 that will cost the fertilizer industry $300 million.

He said TFI is a voting member on the TCC, but is “always outgunned.” TFI was against the phase-out of the toxic inhalation hazard (TIH) materials tankcar, which is used to transport ammonia.

“We strongly argued that there should be cost-benefit analysis for this,” he said. “Any time the government does a regulation, you want to see a cost-benefit done to see how the benefits stack up relative to costs. Well, the tankcar community does not have to do a cost-benefit analysis. So they’ve done what they’ve done.’

“I can tell you the estimated costs by TFI indicate that it will cost our industry $300 million, which is a big deal for us. That’s just the immediate costs. We have a longer term problem that plays into the sense of regulatory uncertainty. If the tankcar community can do this now, 15 years down the road, are they going to do something similar? When the latest new steel comes out, will they say, ‘We don’t want these cars?’ 

“These rail tankcars have a useful service life of around 35 years. When the current phase-out goes in, the forced retirement of cars is going to be around 17 years. That’s what adds into the $300 million cost for our industry. There’s a long-term problem: We’ve been working with DOT to try to figure out how to deal with the tankcar community authority. It’s been a real challenge.”

He said railroads no longer want to transport TIH materials, one of which is ammonia.

“It’s under pressure and in gaseous form,” he said. “If there is a release, it can kill you. It can be dangerous. Common carrier obligation requires them to transport TIH materials. They’d rather not, but federal law says they need to, as long as it is a reasonable request, which means everyone is being reasonable. There is a lot of gray area.”

Louchheim said rail rates have increased at three times the rate of inflation over the past 15 years. Surface Transportation Board (STB) rate cases cost $5 million and take three years. 

“STB is working to update its oversight, but change is slow,” he said.

He said the ammonia rail tank fleet in 2023 will be 3,500 cars, with virtually the entire fleet being leased: 2,200 legacy cars and 1,300 interim cars.

“Interim cars are what everyone is moving toward,” he said. “You’ll basically see everyone pick interim cars. The imposition of the TCC TIH phase-out may be having the following impacts: adoption of the interim car is accelerating and the downsizing of the ammonia rail tank car fleet.”

Louchheim talked about the history of commercial fertilizer, saying that “after penicillin, it’s probably one of the biggest developments that changed the trajectory of population growth in the world.”

“We all need to eat,” he said. “Food has to be grown. Food that grows takes nutrients from the soil. You have to replace those nutrients. That’s where fertilizer comes in.”

The NPK connection:

• Nitrogen (N). “It’s a primary building block for all organisms. It is essential to making proteins, helps keep plants green, and is a critical component of soil structure. It comes from the air.”

• Phosphorus (P). “It’s found in every living cell. Phosphorus is a component of DNA and it also plays vital roles in capturing light during photosynthesis, helping with seed germination, and helping plants use water efficiently. Plants also use phosphorus to help fight external stress and prevent disease. It comes from ancient sea life: phosphate rock.”

• Potassium (K). “It is essential to the workings of every living cell. It plays an important role in plant’s water utilization and also helps regulate the rate of photosynthesis. Other aspects of plant health influenced by potassium include the growth of strong stalks, protection from extreme temperatures, and the ability to fight stress and pests such as weeds and insects. It comes from evaporated oceans.”

Why is fertilizer important? He cited a quote by Bill Gates: “Two out of every five people on Earth today owe their lives to the higher crop outputs that fertilizer has made possible.” 

“That’s because 50% of crop yields are attributable to fertilizer,” Louchheim said. “We can’t grow the food we need to support the world population—to feed ourselves—without fertilizer. It prevents famine and conserves land and water.” 

The future challenge: feeding the world. Global population estimates are eight billion by 2025 and 9.4 billion by 2050, he said, citing a quote from a 2015 article in The Economist: “In the next 40 years, humans will need to produce more food than they did in the previous 10,000 years put together.” 

He said the US fertilizer industry includes manufacturing, wholesale, and retail agribusiness sectors, and provides $154 billion in economic activity and 88,000 direct American jobs .

Manufacturing fertilizer is a “big investment,” with about 70 manufacturing facilities in the United States, most of them concentrated in Florida, Oklahoma, Iowa, and Louisiana. They account for 23,000 fertilizer manufacturing jobs. 

Natural gas is a major feedstock for producing nitrogen fertilizer, he said.

“Fifteen years ago, natural gas prices were high,” he said. “Some facilities were closing. It’s done a 180 these days, so there is more natural gas production. It’s good for your lawns and the fertilizer industry. In terms of pricing, we’re at a low point. But supply is strong and demand is anticipated to be steady for the next few years.

“In general for the fertilizer industry, in terms of demand, it’s too early to determine the impact of the new administration. In terms of regulations, it’s a more favorable administration, generally speaking. An item of potential concern is trade. NAFTA negotiations … the way that shakes out for agriculture will have a big impact for a lot of things. We’re watching that with some concern.

“In terms of policy, we’ve had positive things. There’s been a lot of talk about infrastructure, and that’s good. But there are not a lot of details yet. We’ve had talk about a trillion-dollar plan, $200 billion coming from the federal side, $800 million from state and public partnerships. There are a lot of details to come. We’ll see how that flushes out.”