CattleNetwork.com, KS
05-16-06
FOCUS: Big US Crop, Usage Create Shipping Challenges
CHICAGO (Dow Jones)--Record-large U.S. crops, coupled with new sources of
demand, have increased the challenges associated with moving domestic
supplies and focused more attention on transportation costs and reliability issues.
The need for transportation to serve export markets is well understood, but it may
be less obvious that many top grain-producing states require transportation to
ship to out-of-state domestic markets, particularly in the western Midwest.
With increasing use of soybeans and corn for energy production, transportation
will be a key issue, and moving ethanol, biodiesel and their byproducts will lead
to new challenges, according to a research report prepared for the Iowa Soybean
Association.
The greatest impact of domestic transportation challenges maybe felt in late
summer to fall, when the bulk of record old crop corn and soybeans move into
the pipeline, said Bob Wisner, an agricultural economist at Iowa State University.
The increased movement of non-agricultural products and the rapid expansion of
ethanol plants have increased competition for shippers of traditional grain and
oilseeds.
Railroads are a key component in the movement of agricultural products
domestically, but railroad efforts to achieve lower cost and more efficient
operations through unit and shuttle trains are shifting costs and reducing service.
With the railroad industry and public policy makers focusing on freight railroads,
investment priorities tend to be on container shipment rather than bulk
commodity shipping, according to the National Grain and Feed Association.
The key problem for agricultural shippers is railroads are making more money
transporting electronic products from the West Coast than moving agricultural
supplies for shorter distances, said Joe Victor, analyst with Allendale Inc. in
McHenry, Ill.
However, Kevin Kaufman, group vice president of agricultural products for
Burlington Northern Santa Fe (BNI) said while he can't speak for the railroad
industry as a whole, BNSF is bullish on agriculture and is investing $2.5 billion
into infrastructure, including track and equipment as a result of increased
demand from the domestic agricultural, coal and industrial production sectors as
well as intermodal.
Intermodal is a transportation system connecting or including different modes of
transportation.
Rail movement is most important in the western Midwest, as the areas don't have
the option of using river barges, which are the cheapest form of grain movement,
Wisner said.
The NGFA is urging the Surface Transportation Board to institute more balanced
regulatory oversight of the rail industry, warning that U.S. agriculture presents a
huge freight capacity challenge in the years ahead.
The Surface Transportation Board is an economic regulatory agency that
Congress charged with the fundamental mission of resolving railroad rate and
service disputes and reviewing proposed railroad mergers. The board was
created in the Interstate Commerce Commission Termination Act of 1995 and is
the successor agency to the Interstate Commerce Commission.
The NGFA argues that Staggers Rail Act of 1980 has allowed carriers to
concentrate an increasing share of rail assets into certain types of highly
profitable traffic in a way that has raised major concerns about the future of rail
service and the ability of U.S. agriculture to compete for needed rail capacity at
reasonable rate and service levels.
The act led to substantial rail consolidation, with a sharp reduction in competitive
routes and options for shippers and receivers of bulk commodities. Since its
enactment, the volume of commercial rail shipments of grain and other bulk
agricultural commodities declined to 35% from 50%, according to NGFA.
Agricultural shippers continue to face difficulty in obtaining consistent or
predictable rail service, said NGFA President Kendall W. Keith.
"While the railroads have become more efficient at moving grain volumes
between points through their use of shuttle and unit train operations, there is
concern whether this trend in declining rail volume will continue and how
agricultural shippers can compete effectively with other industries for available
rail service," he added.
BNSF's Kaufman said shuttles were prompted by demand from corn shippers as
corn is the most uniform grain shipped and as corn productivity increased, corn
shippers demanded a more efficient way of moving grain.
Since shuttle trains turn around two and one-half times faster than non-shuttle
trains, they increase capacity to ship by 250% and the shuttles have added
thousands and thousands of carloads of capacity to BNSF for shipment of corn,
Kaufman added.
BNSF said 85% of its corn shipments are shipped via shuttles and of a total
29,000 grain railcars, one-third are dedicated to shuttle service, which equates to
65% of total whole grain carloads that they ship.
The NGFA lists several trends in rail service and rates that bear out U.S.
agriculture concerns. The fastest growing segment in rail traffic is intermodal,
where train speeds exceed those for other types of movements by as much as
50%. The influx of intermodal traffic has made many agricultural movements
dispensable to the railroads.
Meanwhile, BNSF's Kaufman said there's no questioning that intermodal
container demand continues to grow, but agricultural business at BNSF grew at a
double-digit pace last year and BNSF will continue to grow there railroad to meet
customer demand.
BNSF plans continue to growth its agricultural business by adding more large
capacity rail hoppers for grain transport and by increasing shuttles, added
Kaufman.
The impact of disruptions in movement of other forms of transportation have
significant impacts on rail movement as well, particularly with tight rail capacity as
evidenced by last year's hurricane-related transportation disruptions that resulted
in rail car premiums as high as $2,000 or more - equating to 50 cents per bushel
for corn - being charged in some markets desperate to secure rail equipment,
NFGA said.
Source:Andrew Johnson Jr.; Dow Jones Newswires; 312-347-4604;
andrew.johnsonjr@dowjones.com