Ed Lotterman: Accidents spotlight transportation costs, benefits

July 12, 2013 

External costs of transportation are making news. The first is tragic, Saturday's train derailment and fire in Lac-Megantic, Quebec, that as of Thursday was believed to have killed 50 people.

The second, buried in the back pages, is the ongoing controversy about more restrictive rules that went into effect this month on the number of hours truckers can drive.

The common element between the two is that transporting things, whether crude oil or groceries, inevitably has some external costs. The practical public policy question is how to limit those costs to third parties while still meeting demand for goods.

Petroleum, whether crude or refined, is flammable, and it also is harmful to the environment. It is usually not explosive in the way natural or LP gases are, though in Quebec, there evidently was an explosion. So when spilled in inhabited areas, life and property are threatened. Most oil is moved by pipeline, but shipments by railroad tank cars are making a remarkable resurgence largely because new pipelines are not being built fast enough to keep up with expanding production in nontraditional areas like North Dakota.

In general, the direct costs of moving oil and gas by pipeline are much lower than by rail. But even though thousands of new tank cars have had to be produced and terminals constructed, rail capacity can be ramped up faster than that of pipelines.

Furthermore, rail is very flexible. The North American rail network allows crude to be picked up in nearly any region and delivered in any other one.

The pipeline network radiates from the traditional Louisiana-Texas-Oklahoma oil producing areas and is not well suited to moving products from new production areas. So much of the burgeoning rail transport of crude involves shipments, like that through Lac-Megantic, from North Dakota and Canada's Prairie Provinces, to refineries in New England and eastern Canada. The transport costs themselves are higher than they would be if there were a direct pipeline linking the two districts, but the refineries can get supplies that otherwise would be unobtainable for years. Economic efficiency sacrificed to higher transport costs is recouped, at least in part, by more efficient use of refinery capacity.

The data on which mode of transport poses the greater danger to life, property and the environment is not clear. Pipeline spills tend to be larger, with many thousands of gallons often spilling before the leak is detected and the line shut down. Natural gas pipeline accidents cause more deaths than ones of crude oil, though leaks of gasoline, like that in Mounds View in 1986, also cause death and property destruction.

Derailments are frequent, but few involve leakage from more than one car or two, and these spills are often easily contained. Again, leaks of compressed gases are a larger safety problem.

Virtually no one wants a pipeline going through their property. Opposition by landowners combined with more general opposition by environmentalists is the principal reason constructing new pipelines takes so long. But the fewer pipelines built, the more oil must be carried by rail.

Those directly harmed by new pipelines are well aware of the potential harm. But most people are unaware of increased numbers of tank cars rolling down already well-used rails. Tens of thousands more carloads of crude now roll through the Twin Cities than even five years ago, along with thousands of cars of ethanol. Yet there has been no public outcry about this anywhere along the rail lines the way there has been about the proposed Keystone XL pipeline through the middle of the continent. Railroads have a well-established legal right to haul tank cars, and people are used to that.

The trucking hours-of-service rule changes are pretty specialized, and concern is limited to the trucking industry. Limits on the number of hours drivers can be behind the wheel and stipulated minimum rests have been around a long time. They stem from the LaFollette Hours of Service Law for railroad workers signed into law by Theodore Roosevelt in 1907, an era in which it was progressive Republicans who pressed for government regulation of business.

The railroad law was intended to protect railroad workers, but also the public who were often harmed by railroad wrecks caused by engineers, brakemen, telegraphers and signalmen who fell asleep because they had been on duty for long periods.

A similar law was instituted for truckers in 1938. But trucking is more complicated in that there are many owner-operators whose income is directly proportional to miles driven. And many drivers employed by others similarly are compensated on a per-mile basis. Limits on hours of driving translate directly into lost net income in a way that was not true for wage-earning railroad employees.

Either per-mile compensation to owner-operators or employee trips must go up or these people will see their incomes go down by driving fewer hours. To the extent that it goes up, transport costs will rise.

Fewer hours driven per week means that a larger number of drivers would be needed to produce the same number of vehicle-miles. In theory, a larger number of drivers could be spread around the same number of trucks. But since such a high proportion of trucking is done by owner-operators, the practical result of fewer hours for drivers is fewer hours on the road for most trucks. So the existing capital stock of trucks is less productive and there will be a smaller amount of goods and services produced from the same amount of resources used.

Nevertheless, tired drivers do cause accidents. Truckers are correct when they argue there a many fewer accidents per ton-mile carried than only a few decades ago and that most car-truck accidents are caused by auto drivers rather than truckers. And yet news of fatalities caused by sleeping truckers frequently are in the news. Such incidents stick in the public mind, even if truckers are correct that they are becoming less frequent without tighter restrictions.

The truckers probably are correct that the cost of the new rules exceeds the benefits. I personally think the same about mandatory tire-pressure sensors and the required rear-facing video cameras for cars that will be coming soon. But federal rules place a very high value on human life, and if you do that, many regulations will pass a benefit-cost test.

Write Ed Lotterman at ed@edlotterman.com.

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