Issue Update: Attention to Railcar Shortage Continues to Increase

Concerns that the 2013 crop will not be moved prior to the Fall harvest due to a lack of locomotives and railcars continue to be at the heart of a dilemma faced by farmers, local elevators and agricultural cooperatives.

When coupled with low commodity prices due to bumper crops, the added costs due to the railcar, as well as fines imposed on some farmer-owned cooperatives for not making grain deliveries on time, are further eroding profits. According to the University of Minnesota, losses to Minnesota farm income from March 2014 to May 2014 were approximately $100 million.  A study by North Dakota State University estimated similar lost farm income for North Dakota farmers.

At its core, the issue is an infrastructure issue. The shortage of pipelines has forced oil from North Dakota’s oil fields onto the rails, resulting in distribution bottlenecks.  During a recent field hearing held by the Surface Transportation Board, farmers and policymakers expressed concerns that increased crude oil and freight shipments from North Dakota’s western oil fields are largely the cause of shipping delays throughout the region.

A bill authored by Senator John Rockefeller (D-WV), Chairman of the Senate Committee on Commerce, Science, and Transportation Chairman and Senator John Thune (R–SD), the committee’s ranking Republican would provide the NTSB with enhanced authority.

The Surface Transportation Board Reauthorization Act of 2014 (S. 2777) would increase the board’s authority to conduct its own investigations (instead of waiting for a complaint), improve rate review timelines and increase the number of members from three to five.

In addition to the introduction of the above-referenced legislation, the Senate Committee on Commerce has also held a hearing regarding the locomotive and railcar shortage.

Lance Peterson, a soybean farmer from Underwood, MN and current American Soybean Association (ASA) Director, provided testimony during the STB field hearing on behalf of the ASA and the Minnesota Soybean Growers Association (MSGA). Mr. Peterson noted that “farmers are suffering losses in the hundreds of millions of dollars through increased basis levels, lower cash market prices, and storage losses because of the current rail situation.”

He requested that the Surface Transportation Board require the railroads to submit metrics showing past dues, average days late, turnaround times, etc. for agricultural shippers, the oil industry, and other customers in order to garner a clear picture of railroad service issues.  “Based on the size and scope of the rail shipment problems being faced in the upper Midwest, this is not too much to ask” said Peterson.

Mr. Bob Dinneen, President & CEO of the Renewable Fuels Association (RFA), noted in his testimony that “The recent crisis of congestion that has seemingly overtaken the rail industry has become a huge and costly problem for shippers of all commodities, including the U.S. ethanol industry”.

On behalf of the RFA, Mr. Dinneen called for “greater transparency…to help regulators oversee and monitor how logistics and contracting decisions are being made by rail operators.”

Railroads, primarily the Burlington Northern Santa Fe (BNSF) and Canadian Pacific (CP) have denied they favor one sector over another.

Stevan Bobb, executive vice president and chief marketing officer for BNSF Railway, warned against policies allowing other railroad companies or private cars to use BNSF tracks, or to prefer some regions or commodities over others. Instead, he suggested the board assess the total volumes the railroads are handling and hold the companies accountable for their capacity to increase the volume.

Mr. Bobb noted that, as of August 31st, the BNSF Railway has added 339 locomotives out of a goal of 500 for the year, as well as hiring 2,419 employees of the planned 3,000 in its train, yard and engine service – and another 2,305 engineering and mechanical staff, thereby exceeding its goal of 2,000 for the year.

John Brooks, vice president for bulk market products for CP, noted that CP handles only 20 to 23 percent of the region’s agricultural shipping but has moved 5 percent more than the three-year average. He stated that “allegations and implications” that CP has been strong-arming or bullying elevators to cancel orders are not fact-based and that CP will invest $400 million between Canada and St. Paul, Minn., – as well as attempting to hire 400 new employees.

A copy of Mr. Peterson’s testimony can be accessed by clicking on the following link:

https://www.dropbox.com/s/2bh6yexn7hwmtuo/Peterson-Testimony1.pdf?dl=0

A copy of Mr. Dinneen’s testimony can be accessed by clicking on the following link:

https://www.dropbox.com/s/n3jbzsmrgc817li/Bob%20Dinneen%20Testimony%20to%20Senate%20Committee%20on%20Rail%20Service.pdf?dl=0

A .pdf of this “Issue Update” can be accessed by clicking on the following linke:

https://www.dropbox.com/s/79jh83w5nqnyk6r/Issue%20Update%20%28September%202014%29.doc?dl=0

Additional Information

Please send questions, comments and suggestions to:

Dave Ladd, President

RDL & Associates, LLC

e-mail:            daveladd66@gmail.com

LinkedIn:        http://www.linkedin.com/pub/dave-ladd/0/b87/11

Blog:              https://rdlassociates.wordpress.com/

Twitter:          DaveLadd37

Copyright © 2014 RDL & Associates, LLC. All rights reserved.

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