THIS year's abundant, wet harvest was a challenge not only for grain handling facilities but also for the U.S. rail system.
The late-maturing crop produced more grain than anticipated but also shortened the time transportation service providers had to move it. The combination of those factors with BNSF Railway's scheduled track work between the Midwest and the Pacific Northwest left shippers facing service delays and scrambling for empty grain cars.
The demand for empty railcars has sharply increased the cost of shipping harvested grain by rail. Since October, bids for the shuttle and non-shuttle secondary railcar market have been trading at large premiums. At this time last year, railcars traded at a loss due to the drought.
Since 2006, the secondary railcar market has played only a minor role in the overall price paid to ship grain by rail, and for the most part, the tariff rate and fuel surcharge were priced sufficiently for railroads to balance the supply and demand of railcars.
However, three major events spiked the demand for rail service beyond the rail carriers' forecast in 2007, 2010 and 2013. The increase in demand in 2007 and 2013 was the result of increased grain production, while in 2010, it was due to Russia's grain export ban, which all led to high premiums in the secondary railcar market above the tariff prices established by the rail carriers.
In general, rail transportation of grain has declined over the years. U.S. carriers have averaged 22,497 carloads during the past nine-week period, which is a decrease from 25,006 in 2010 and 26,767 in 2007.