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Railroads ready to handle this year’s large harvest

TAGS: Policy
Senate hearing looks at impact of COVID-19 on rail traffic and discusses opportunities for improving in STB reauthorization.

In light of the COVID-19 pandemic, the agriculture sector continues to do well and has relied on the nimbleness of the rail industry to continue to transport its product, according to those who testified at the hearing, “Passenger and Freight Rail: The Current Status of the Rail Network & the Track Ahead,” hosted by the Senate Committee on Commerce, Science & Transportation on Oct. 21. As industries come roaring back, the railroad sector looks to communication to handle the anticipated large harvests this fall.

In the agricultural market, about 24% of grains and oilseeds now move by rail, down from 50% when the Staggers Rail Act was enacted in 1980. Of the remaining agricultural tonnage, 62% typically moves by truck and 14% by barge. Rail shipments remain particularly important to certain agricultural commodities and regions. For instance, 54% of U.S. wheat and barley, 21% of soybeans and 19% of corn typically move by rail at some point before reaching their ultimate domestic or export destination, National Grain & Feed Assn. (NGFA) president and chief executive officer Randy Gordon testified.

Gordon publicly commended the actions of the rail industry in continuing to provide service and communicating with its agricultural customers during the pandemic. “Our member companies generally have been pleased with both aspects – service and communications – from their rail carriers during this challenging time,” he said.

Ian Jeffries, Association of American Railroads CEO and president, said during the pandemic, despite a dramatic decrease in traffic, rail operations were able to continue without missing a beat. He said the agriculture sector continues to do well, and intermodal use has ramped up as rail has demonstrated its ability to compete with highway traffic when it makes sense.

Jeffries noted that overall rail traffic dipped 30% at the depth of its low this spring. “Fortunately, some of that traffic has come back, but not at the level we had hoped it would,” he said. Overall, rail traffic is down 10% from year-ago levels, but year-over-year intermodal numbers are up from last year, he added.

“Ag shipments have been one of the few bright spots in rail traffic,” Jeffries said during the hearing. He noted that rail companies have made an immense investment in the last 10 years to make sure they’re prepared for peak seasons as well as constant communication with customers.

“We know harvest is coming. Customers and carriers need to work together to effectively forecast when shipments need to go,” Jeffries said. “I think we’re seeing that, as hiccups pop up, communication allows it to be addressed quickly. With communication and investment, we’ll be able to get this done.”

Gordon said NGFA members are starting to see some issues with delayed shipments crop up in the Pacific Northwest and Upper Plains areas. One rail carrier is already three to four weeks behind. “As agriculture ramps up with harvest, it requires a lot of strong communication and that need for nimbleness from railroads to respond,” he said.

However, Gordon said two major issues that existed before the COVID-19 pandemic continue to contribute to what many NGFA member companies consider to be a “tipping point” concerning the extent to which rail service is reliable and cost effective for agriculture. He specifically cited the lack of rail-to-rail competition, with Class I railroad duopolies now operating in the East and West that haul 80% of grain and oilseed traffic, with many grain facilities captive to a single carrier and with railroads’ adoption of an operating model in which carriers drive their operating ratios to potentially unsustainably low levels to reward shareholders at the expense of customers.

“In looking to the near-term future this fall and winter, there is nervous apprehension within our industry about whether railroads will be able to keep pace with what we all hope will be a very robust demand for rail service, given strong grain and soybean sales and a rebounding economy, complicated by the vagaries of winter weather,” Gordon said. A longer-term concern, he said, is “the potential effect on service of the implementation of the so-called ‘precision scheduled railroad’ (PSR) operating model by six of the seven Class I carriers.”

The adoption of the PSR operating model “has resulted in increasingly arbitrary, abrupt and disruptive changes to operating plans, service schedules and the type of rail service offered,” Gordon said. “Further, by reducing crews and customer service personnel and idling locomotives – both more quickly and sharply than before – PSR has raised questions about whether railroads have enough surge capacity to respond quickly to increased demand for service,” he said.

Given the major role transportation costs play in determining whether U.S. grains and oilseeds are competitively priced in domestic and export markets, Gordon testified that it is critical that the Surface Transportation Board (STB) have standards and procedures to efficiently determine reasonable freight rail rates and establish guidance and precedent regarding what constitutes acceptable rail service.

NGFA commended STB for “being extremely active and making considerable strides under chairman Ann Begeman’s leadership” in implementing the STB Reauthorization Act of 2015 and attempting to create a more workable regulatory framework within the agency for addressing and resolving disputes between railroads and their customers.

NGFA offered two specific policy matters for the committee to explore with STB with respect to its future rail regulatory framework:

Clarify common-carrier obligation of railroads. NGFA said there is a pressing need to clarify what the railroads’ common-carrier service obligation means in the 21st century, which is characterized by reduced rail competition and PSR-related operational changes that raise questions about whether carriers are indeed providing “transportation service upon reasonable request.” The rail common carrier obligation – required under federal law – has never been defined by Congress, STB or its predecessor, the Interstate Commerce Commission, NGFA noted.

Reprioritizing the importance of rail-to-rail competition in U.S. rail transportation policy. NGFA also said Congress should consider giving a higher priority to the importance of rail-to-rail competition within the Staggers Rail Act’s Rail Transportation Policy. Forty years after enactment of the Staggers Act, NGFA said believes it is important “to enshrine the importance of promoting rail-to-rail competition as part of the rail transportation policy to encourage competitive switching and other pro-competitive policies.”

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