Rail delays cause more than headaches

Rail delays cause more than headaches

Railcar delays cost grain handlers $10-20m, and farmers could lose hundreds of millions in form of lower crop prices.

LANCE Peterson, a soybean farmer in Underwood, Minn., brought in $40,000 less income in 2013, but it wasn't due to poorer-quality soybeans.

With inadequate rail service driving up the cost per railcar by thousands of dollars, grain and processing companies can no longer afford to absorb the rail costs themselves. So, Peterson's bottom line took the hit instead.

Income lost on next year's crop on Peterson's farm is projected to be much larger, in excess of $100,000. That's the loss for just one producer.

The Upper Midwest, in particular, has experienced a significant railcar shortage for transportation of agricultural commodities due largely to a rapidly growing energy sector and the prioritization of railcars for oil, coal and container shipments over grain.

This shortage has led to costly delays and penalties for late shipments that grain elevators then pass on to farmers.

Several National Grain & Feed Assn. (NGFA) member companies reported costs to their individual firms ranging from $10 million to $20 million during the October to March period.

Farmers are bearing the brunt of the rail disruptions in the form of lower prices. When tabulated for the thousands of farm operations across the Upper Midwest, the losses will be in the hundreds of millions and potentially could exceed $1 billion, the American Soybean Assn. estimated.

The cost of rail shipping delays amounts to approximately 40 cents to $1/bu. of wheat, which translates to a minimum loss of $9,600 per average farm. Peterson, meanwhile, said farmers in his area are being offered 60 cents/bu. less than historical averages. The futures prices nine months from now are 50 cents less than average.

"This is making lenders hesitant and could make it difficult for farmers to get operating loans to finance their business. A restriction on operating loans would have a devastating impact on farmers and on the rural economy," Peterson said.

 

Impact evaluated

On April 10, the Surface Transportation Board (STB) held a hearing to gather facts regarding the extent to which delays in service are affecting shippers in the upper Great Plains region. Peterson was joined by others from the region who have seen firsthand the devastating impact of insufficient rail service.

Kevin Thompson, assistant vice president and transportation lead for Cargill's grain and oilseed businesses, testified on behalf of NGFA that the sheer gravity, magnitude and scope of rail service disruptions being experienced now are "unprecedented and have rippled through all sectors of grain-based agriculture."

For instance, Thompson said grain processors and export elevators have idled or significantly reduced operating capacity because of an inability to predictably source sufficient quantities of grains and oilseeds.

Other grain processing and animal feeding operations, particularly in the eastern U.S., are shifting to comparatively inefficient and much costlier long-haul trucking in an attempt to obtain sufficient quantities of grains and oilseeds.

Grain sales are made and freight is locked in on the assumption that shuttle trains will operate with a turnaround time of roughly three trips per month. Recent shuttle turnaround times have been much worse, and now, there is a great deal of uncertainty regarding future service, Peterson testified.

Thompson said in the West, Canadian Pacific (CP) has been 60 days late or more in providing 100-car unit trains and up to four months late on non-shuttles. Meanwhile, BNSF Railway only now is starting to provide the certificate-of-transportation trains that shippers paid to have delivered in late January and early February.

 

Where from here?

Those testifying recognize that an increase in demand and severe winter weather have contributed to the rail service disruptions but say companies and STB need to ensure that the service provided for agricultural commodities is in balance with what's provided for other sectors.

National Farmers Union president Roger Johnson called on STB to hold railroads responsible for the losses incurred due to delayed railcar delivery and ensure that there is greater future investment to compensate for the increased demand.

Johnson also called on BNSF and CP to guarantee that a certain portion of shipments will be dedicated to agricultural products.

NGFA, in its final written comments, actually advised against the directed-service approach the Canadian government has implemented, explaining, "We fear that such measures could exacerbate and further slow the recovery and restoration of predictable, reliable freight rail service."

Instead, NGFA asked STB to "exercise very vigilant oversight during this period of disruption."

NGFA also called on STB to require Class I rail carriers to report and make public various service-related metrics, including real-time information on train velocity and cycle times, as well as realistic projections on restoring service, weekly car loadings by product and state, weekly average dwell times for trains hauling grain, grain products, coal and crude oil from January 2012 onward, level of capacity utilization by rail corridors and breakouts of capital spending by Class I carriers.

After the hearing, STB stepped in and called on the rail industry to report by April 18 their plans to make sure fertilizer is delivered to farmers for spring planting. The board also directed CP and BNSF to provide weekly status reports over the next six weeks, beginning April 25, regarding the delivery of fertilizer on their respective networks.

Volume:86 Issue:16

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