AMERICAN CHEMISTRY COUNCIL
Summary of Findings and Important Points about the Potential Effects of a Shutdown of Freight Rail Service
Under the Rail Safety Improvement Act (RSIA) of 2008, railroads are required to implement Positive Train Control (PTC) on lines that ship certain hazardous materials and carry passengers by rail by December 31, 2015. Despite the efforts and investment that are ongoing to implement PTC, the Association of American Railroads (AAR), Government Accounting Office (GAO), and the Federal Railroad Administration (FRA) have clearly stated that the railroads will not be able to fully implement PTC by the deadline. Most railroads have publicly stated that they will be forced to shut down large portions of rail service unless the deadline is extended. Though the requirements for PTC under the RSIA are directed to passenger rail and the shipments of toxic inhalation hazard (TIH) chemicals, the rail shutdowns could extend to the shipments of all freight that would normally be transported on those lines. As a result, an extensive proportion of the nation’s rail network would effectively be shutdown or curtailed.
Rail shippers depend on railroads to deliver coal, farm products, automobiles, chemicals, building materials, and many other essential products. A major disruption of rail service would have direct and immediate as well as cascading impacts on the nation’s food, energy, and water supplies. It would also impact transportation, construction, and nearly every sector of the U.S. economy. It would hit every point across our nation’s supply chain.
The costs of a major disruption of rail service would be felt immediately in terms of public health impacts, plant and business shutdowns, lost jobs and income, and a drop off in tax revenues for states and local governments. Should the disruption persist for an extended period of time the economic and social costs would be substantial and the harm caused, irreparable.
The recovery of the U.S. economy from the Great Recession has been slow and steady and lacking the robust pace to safeguard it from real vulnerability to a negative shock that could knock it off course. A negative supply shock arising from PTC regulation-induced rail service disruptions will most severely affect the industrial sector, resulting in less production and through various transmission channels would ripple through the U.S. economy fostering contractionary forces across wide spectrums of the economy. There would be ripple effects to associated industries and to production, employment, wage and salary income, and spending by consumers and business – inciting a vicious cycle. Consumer spending and business investment would falter. The ripple effects would be most manifested in manufacturing, mining and utilities, and industrial production would fall even further than the broader economy. The impact of a major rail service disruption would be crippling, pushing a modest pace of economic expansion into one of contraction during 1st quarter 2016. Should the curtailment of rail service be prolonged, it would be truly catastrophic, likely resulting in a recession – the first regulatory-induced recession in American economic history.
This report presents several assessments of how a rail service disruption would negatively impact the U.S. economy. There are four analytical components to the underlying analysis that are presented in this report. The first two provide an examination of the impacts related specifically to the inability to ship TIH chemicals, the latter two use different approaches to assess the impact of a broader disruption of all freight rail service to the economy. A brief description of each analytical approach follows here.
- Qualitative assessment of the uses and applications of the TIH chemicals
This section of the report provides an explanation of the criticality of TIH materials to national commerce, public health and our modern way of living. Delivery of TIH chemicals is essential to clean water, agriculture and many other important segments of the economy.
- Quantitative assessment of the economic footprint of TIH chemistry
The industries that consume TIH materials employ 2.4 million people (with an annual payroll of $155 billion). Together, the gross output of these industries is $2.1 trillion. The combined value added of these industries amounted to $735 billion (equivalent to 4.6% of U.S. GDP). These economic contributions are at risk if deliveries of TIH chemicals are disrupted.
- Macroeconomic assessment of how the rail-induced supply disruptions will adversely affect the U.S. economy more broadly
Rail service disruptions lasting only one month will engender a 2.6 percentage point hit to U.S. real GDP growth during 1st quarter 2016 and could thrust the U.S. economy from one of modest expansion into one of contraction. The shock will generate ripple effects throughout the economy and put nearly 700,000 jobs at risk. Should the curtailment of rail service be prolonged, it would be truly catastrophic, likely resulting in a recession – the first regulatory-induced recession in American economic history.
- Economic footprint of the sectors of the broader economy that rely on rail service to ship their products
Rail-shipping goods producers directly employ nearly 600,000 people and produce $345 billion annually of agricultural products, minerals, fuels, and manufactured goods. Inability to move their products by rail puts these jobs at risk. Additional jobs are at risk in the supply-chain and payroll-induced segments. All told, more than 3 million jobs are tied to the industries that ship their products by rail.
The economic and social costs resulting from a major rail service disruption would be long-lasting and widespread, hitting many sectors of the economy. This could include major losses in the chemical industry, including the 20,000 people that manufacture TIH chemicals and specifically, to households and the businesses who rely on TIH chemicals which employ nearly 2.4 million people. Clearly, the economic fallout due to the curtailment of TIH chemical shipments would be substantial. But, because TIH chemicals are critical inputs to goods and services that are essential to public health, the stability of our domestic food supply, clean water in our homes, schools, and hospitals, and the reliable provision of electric power, a rail shutdown would quickly and directly impact our everyday modern lives. Many shippers choose to distribute TIH chemicals by rail considering both safety and efficiency for transporting these hazardous materials. The railroad industry is making steady progress and is committed to installing PTC to help ensure that shipping and travel by rail is as safe as possible. While installing PTC will yield important safety benefits, it is also very complex and must be installed on a realistic and workable timetable. Congress must act immediately to provide for a reasonable, workable extension for PTC to avoid this massive disruption to freight rail service and the potentially dire consequences for the U.S. economy that would come with such a shutdown.
About the American Chemistry Council
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