Repost from The Hutchison News
[Editor: An interesting insider look at the process of restoring aging DOT-111 tank cars.  Also interesting numbers on existing cars and the call for increased numbers of restored cars.  – RS]

Oil boom spurs need to restore rail cars

By John Green, November 1, 2014

When introducing a new business venture planned for Hutchinson by his company last week, Adam Mervis of Mervis Industries thanked his father and brother:

“For not throwing me out of the room when I told them we’d spend a heck of a lot of money to do something where it’s never been done – and something that’s never been done.”

The Illinois-based, family-owned scrap metal and recycling company plans to build a $35 million plant on 100 acres in the Kansas Enterprise Industrial Park to refurbish rail cars.

The focus will be tank cars designed to carry crude oil and other combustible liquids. The company projects employing 150 people within three years of opening.

The demand for the business, Mervis and his future Hutchinson plant manager Larry Culligan explained, is propelled by several factors.

Oil boom

First, the expansion of oil exploration and recovery in non-traditional fields in the U.S., thanks primarily to hydraulic fracturing, also called fracking.

U.S. oil production jumped from 5.0 million barrels per day in 2008 to 7.4 million last year, and is expected to average 8.5 million this year and 9.3 million next year, according to the U.S. Energy Information Administration. Current U.S. production is the highest in nearly a quarter-century and more than a million barrels a day higher than it was only a year ago, the EIA reported.

Existing oil pipelines are inadequate to move all that new oil to markets, both in terms of volume and location. While there are about 57,000 miles of crude oil pipeline in the U.S., there are nearly 140,000 miles of railroad.

So, there’s been a massive increase in shipping by rail.

U.S. railroads, which carried just 9,500 carloads of crude in 2009, shipped an estimated 434,000 tanker loads in 2013, roughly equivalent to 300 million barrels of oil. A May study by Congressional Research Service forecast 650,000 carloads of crude oil would to be carried by rail this year.

But the increase in transport by rail has also resulted in a significant increase in accidents involving crude oil shipment.

The most famous was a July 5, 2013, accident in Lac Mégantic, Quebec, where a trainload of oil parked on a shortline track came lose and rolled downgrade into a Canadian community, where it derailed and caught fire, killing 47 people and destroying much of the town’s center.

There have been a half dozen other accidents in the U.S. and several others in Canada over just the last two years, including a December 2013 derailment near Casselton, North Dakota, that spilled of more than 400,000 gallons of crude oil, sparked a huge fire and forced evacuation of nearby residents.

Changing standards

The tank cars that derailed at Lac Mégantic and Casselton were built before October 2011, the year the Association of American Railroads (AAR) mandated new safety enhancements to tankers – known in the industry as DOT-111 cars – which carry oil and ethanol.

The older cars lacked puncture-resistant steel jackets, thermal insulation, and heavy steel shields at each end of the car to keep couplers from punching through in a crash. They also have less secure valves on top and bottom of the cars, which might open or get ripped off in a derailment.

In July, the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed rules that, if finalized by Congress, will require tank owners to retrofit older cars to the AAR standards or remove them from the rails by October 2017. That same month Canadian regulators mandated DOT-111 tank cars built before 2014 be retrofitted or phased out by May 2017.

The industry is seeking an extension of that deadline out to at least seven years, Mervis said.

At present, there are about 92,000 DOT-111 tank cars used to transport combustible liquids of which only 14,000, or about 15 percent, were built after October 2011 and thus compliant with the latest standards.

Officials estimate the cost to retrofit the cars at $20,000 to $40,000 each.

Besides oil, there’s also been a surge in demand for plastic pellet and fertilizer cars, Mervis noted, thanks to low natural gas prices, as well as constant growth in demand for food grade cars, for shipping corn syrup, vegetable oil and molasses.

There are a half dozen tank car builders in the U.S., but recent estimates show there are more than 55,300 cars on backlog just to meet the growing car demand. With builder capacity of some 30,000 cars per year, the backlog will take close to two years to fill.

At Mervis Railcar, they plan to retrofit DOT 111s to meet the proposed requirements, to convert them for other non-hazardous uses, or destroy and recycle them, Mervis said.

Major customers, Mervis said, will include Exxon, Union Oil and ADM, as well as railroads themselves.

Besides cars that will need retrofits, all tank cars – there are about 171,000 DOT-111 cars in the North American fleet – must get a complete, top-to-bottom inspection every 10 years, Mervis said.

There’s a push by regulators, he said, to cut that to five years.

Either way, inspections will also be a big part of their business.

Plant layout

A preliminary layout of the plant includes four major buildings with combined floor space of more than 224,000 square feet and some 6 miles of rail line.

The first step in the process, Mervis said, will be to clean the cars.

“We’re not going to take any that held chlorine or any other thing that will kill you,” Mervis said. “Because we don’t want or need to.”

Once cleaned, the cars will move to the eight-bay inspection shop, where workers will closely check all welds, seams and liners, and conduct other tests as required by the type of car, such as dye penetration tests, and magnetic, ultrasonic or radiographic scans to find cracks or structural deficiencies.

They must also determine the thickness of the tank car shells, heads and protective housings and estimate how long they’ll maintain sufficient thickness to stay in service, whether to install or replace internal linings, Mervis said, “or to cut them up.”

“Every employee will have some certification,” said Culligan, director of railcar operations for the new company. Those include welders, inspectors, even record keepers.

“The only ones that might not are shot blasting the interiors of the cars,” he said, though even they’ll have confined space training.

From inspection, the cars will be moved via a transfer table into a 32-bay mechanical shop, where they can be jacked up and put on stands to modify them, while the wheels are removed and sent elsewhere to be refinished.

They’ll remove all valves on the cars to rebuild and then test, Mervis said.

If converted to a food-grade tanker, they may have a plastic liner sprayed on the inside, and then be heated to set it.

The repaired or retrofitted cars will then go to a paint booth, which includes heaters that bake the entire car at set temperatures and times, depending on whether it’s interior or exterior paint.

Part of the deal for locating the plant here included purchase of the Hutchinson & Northern Railway, a switching and terminal service that connects to the UP and BNSF railways near the Hutchinson Salt mine.

The 3 miles of line include links to Hutchinson Salt, Midwest Iron, Irsik and Doll and the K&O Railroad. The purchase from Hutchinson Salt was necessary, Mervis said, to link to the two national carriers.

Besides the rail line, it included 23 acres of adjoining land, one locomotive engine and locomotive storage building. Mervis plans to rename the line the AD&A Railway, after his children, Alec, Devon and Audra, and name the engine after a nephew.

Federal authorities must still approve the transfer.

Timeline

They’ve started engineering work on the plant design, and groundwork will likely begin in February, but building construction won’t start until spring.

“The buildings will be all prefabricated steel, but what goes inside the buildings will be a little different,” Mervis said. “The person who sells the system (whether cleaning, paint, etc.) will be responsible for installing the equipment and making sure it works. We don’t have time to manage all that as it’s going on.”

A number of national firms lay rail and he expects them, as well as utilities, to use Kansas workers, Mervis said.

“Our goal is to get most of the track laid and the mechanic building open by early summer,” he said.

In the interim, they’ll also work with Hutchinson Community College and the Hutchinson High School to identify and develop training needed. They’ll do non-tank work, such as repairing hopper cars, while they build and certify the staff.

“You can’t just throw someone into welding tank cars,” Mervis said. “There’s a lot of FRA-required training,” including working a minimum 240 hours under “Level 2” supervision.

They expect to add the 150 jobs over three years, though if training, ramp up and demand can make that happen faster, it will, Culligan said.

Of the 150 jobs, 65 to 70 will be welders. Others will do valve testing and rebuilding, others cleaning, painting, sandblasting and even hanging decals on completed cars, Mervis said.

He’s confident the company, which promises “above market wages,” will find enough qualified workers in the region to make the plant work, based on the training available and the work ethic the region and community are renowned for.

“You don’t make this kind of investment to repair hoppers or gondolas,” Mervis said.

“Outside the box”

Mervis is the fourth generation of his family to run the 90-year-old business, which now has metal, plastic and electronics recycling centers in eight cities spread over two states and employs nearly 400 people.

He started there when he was 12, Mervis said, and is now company CEO and president. His dad, in his 80s, still comes to work every day. A brother and sister are also in the business.

“There was way too much capacity for scrap,” Mervis said of the decision to expand into this newest venture. “From ’05 to ’08 everyone decided to add capacity. When demand isn’t growing 6 percent a year, you have to think outside the box.”

They’ve worked with the rail industry for more than a decade, first recycling cars and then reconditioning railroad castings, including couplers, yokes and side frames – “everything beneath the body but the wheels” – so he decided to leverage those relationships, Mervis said.

He came up with the idea more than a year ago, but it was when he hired Culligan in June, Mervis said, he really “felt this dream – almost – come true.”

A graduate of Ohio State in aviation engineering, Culligan worked for McDonnell Douglas for a number of years before joining a rail care building and leasing company. He worked first at American Railcar Industries and then Union Tank Car. He became chief fleet engineer there, running its repair shop in Valdosta, Georgia, then moved to Chicago to oversee eight facilities for Union Tank.

He then moved to TTX Company, a railroad cooperative which owns the nations’ largest fleet of freight cars which it provides to stockholding railroads. That’s where Mervis met him through a mutual friend, and lured him away.