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A longstanding feud between shippers and railroads that’s heated up all the way to Congress has taken an even more costly turn with skyrocketing fuel costs rumbling their way to consumers.

Louisiana relies heavily on rail to transport freight. It’s the only way available to haul products such as chemicals, and the most affordable way to haul products such as grains in bulk—especially as trucking struggles with diesel prices near $5 per gallon.

When the latest wave of fuel surcharges hit, shippers had already been accusing railroads with runaway charges, maintaining it warranted more state and federal regulation. Until this year, shippers mostly absorbed the cost, but that’s drastically changing.

In May, Dow Chemical announced two price increases in a single month. Early in the month, the chemical giant announced a 20% increase effective June 1 on its 3,200 products. Later that month, it followed with another 25% hike effective in July.

“The magnitude of these increases and immediacy of the impact to our costs have required action,” says Gary Cambre, Dow spokesman at the company’s Plaquemine operation. “Also, the fuel costs are not just a cost with Dow. It affects every point of the value chain from suppliers to consumers to end-users.”

Surging costs for raw materials and transportation—at the root of it, fuel charges—brought on the increases, as well as Dow applying its own freight surcharges to its deliveries. As of Aug. 1, every truck shipment will have a $300 surcharge and a rail shipment, a $600 surcharge. And these charges could change again on Nov. 1 because they rely on the U.S. Department of Energy’s average diesel cost, which is adjusted quarterly.

At the Plaquemine site, railroads and trucks make up 75% of Dow’s shipments, with the rest being barge. Their surcharges primarily reflect ballooning freight costs, which Cambre says have been steadily rising since 2003. From 1994-2002, diesel prices averaged a 2.5% increase a year. Since 2003, they have risen 22.5% a year; diesel prices increased by a whopping 67% last year.

To Cambre’s knowledge, this is the first time he’s seen Dow announce the surcharges, which reflects the much higher cost of doing business today. That’s also why the company is encouraging the U.S. government to look at alternative fuels and options to lower energy costs.

Dan Borné, president of the Louisiana Chemical Association, says many of his member companies are in a similar situation as Dow, with rising rail costs eroding profit margins. It is worsening an already stressed relationship between shippers and railroads, which spurred shippers to appeal to Congress to bring railroads fully under the Sherman Antitrust Act. Members of the Louisiana Congressional delegation are supporting rail reform bills moving through the House and Senate.

“It’s yet another straw that’s been levied on the camel’s back,” he says. “But the real problem is many companies are captive to the railroad. It’s a situation that desperately needs fixing. For many of our members, it is a competitive issue that is penalizing their manufacturing sites because of either unreasonably high rates or poor services, or a combination of the same. Eventually, this type of problem backs into whether or not a company continues to commit dollars to their manufacturing sites.”

Raquel Espinoza, spokeswoman for Union Pacific Railroad, says the company has developed a fuel surcharge program to recover the cost, which Espinoza says started rising rapidly in the past several years. As with Dow, Union Pacific is basing its surcharges on the average price for highway diesel fuel from the Department of Energy, calculated on a per-mile basis.

“The surcharges are going up because the price of fuel continues to escalate,” Espinoza says. “We want to work with our customers, and have even modified our fuel surcharges on suggestions from our customers.”

Despite the feud between shippers and railroad companies, she maintains demand for rail is rising as a more affordable alternative to trucking, beleaguered by diesel costs. “We can haul freight much farther on less diesel. Freight trains are three times more efficient over road trucks. Rail can move a ton of freight 436 miles on a single gallon of diesel.”

In 2006, the major rail-carried commodities [in terms of ton miles] included coal at 35%, intermodal traffic at 13%, transportation equipment at 10%, farm products such as grains and soybeans at 9% and chemical products at 9%. That same year, the freight railroad industry produced more than 1.77 trillion ton miles that generated revenue of $54 billion. Seven major railroad systems accounted for 93% of the industry’s total revenue, even though the rail industry is comprised of more than 550 carriers.

At Placid Refining, General Manager Joey Hagmann says they’ve been affected by rising costs—and the company doesn’t even use rail. A supplier just increased the price of chemicals that the company uses to inhibit corrosion in fuel refining. The increase was in response to Dow’s substantial increases on raw materials.

“It’s increasing the cost of our chemical treatment programs,” Hagmann says.

Borné maintains railroads are overcharging, particularly on “captive rail.” It’s rail monopolized by one carrier, a vestige of railroad deregulation in 1980. Some 20% to 35% percent of the nation’s freight moves on this rail, which he argues has led to unfair pricing and poor service, which is hurting shippers of coal like Entergy, grain and chemicals [the Capital Region has a concentration of petrochemical companies]. According to his figures, captive rates can be nearly twice more than competitive rates.

“Many Louisiana shippers are captive to one railroad and must take or leave the price dictated by the railroad,” he says. “It’s like Jesse James in reverse. They have shippers over a barrel. It’s that simple.”