Market Matters Blog

Rail service has been failing for well over a month. Shippers who are unable to get empty cars to load out commodities or receive shipments of goods or are not receiving timely rail service are at a breaking point.

On Thursday, March 24, the National Grain and Feed Association (NGFA) urged the Surface Transportation Board (STB) to address the "significant rail service disruptions" negatively affecting the nation's supply chains.

In a letter to STB Chairman Marty Oberman, NGFA President and CEO Mike Seyfert said rail customers are not being adequately served by the Union Pacific (UP), Burlington Northern Santa Fe (BNSF), and Norfolk Southern (NS) railroads.

"NGFA's preference is to seek commercial solutions between individual rail customers and their rail carriers," Seyfert said. "However, the service issues that our member companies are raising indicate that the problem is a network problem affecting entire regions of the country."

NGFA reported that at rail origins, NGFA members are unable to purchase grain from farmers because they are waiting for loaded trains to be moved out by the railroad.

"Conversely, at rail destinations, NGFA members have run out of grain and have been forced to shut down flour and feed mills and cut off sales to customers while awaiting grain deliveries. In some cases, NGFA members have been unable to deliver feed to livestock producers that may not have alternative feed sources."

The letter noted that one NGFA member spent an additional $3 million on secondary freight in the last month to try and keep animals fed. This is additional freight they should not have to purchase, and this reduces available freight to others and makes the secondary freight market even more expensive. Another example is an NGFA member that had to stop selling feed while they waited on a train that sat loaded at origin for seven days due to a lack of available rail crews. Many other NGFA members have similar ongoing rail service-related issues.

The secondary freight market has been an obvious indication of the poor service, and just this week, a trade for returns/spot secondary freight on the UP was quoted at $6,000 per car over tariff, while a BNSF trade was quoted at $1,500 per car. Recent trades in the past month for BNSF secondary freight have been as much as two times that amount. Prices quoted Thursday evening, March 24, for UP secondary freight showed returns/spot were offered at $5,000 over tariff per car against no bids, and April at $2,000 over tariff per car bid against offers of $5,000 over tariff per car. BNSF secondary freight for April was bid $1,500 over tariff per car against offers of $2,800 over tariff per car. There also have been higher prices traded on both railroads that are not always reported.

In their weekly update provided to the STB on March 23, the BNSF noted that unfilled car orders in North Dakota totaled 1,289 cars past due in a 10-day or less timeframe, while 2,721 cars were past due in an 11-day or higher timeframe. Systemwide, there are 3,120 cars that are 10 days or less past due and 6,029 cars that are 11 or more days past due. Here is a link to the BNSF March 23 update: https://www.bnsf.com/….

The weekly updates have been requested by the STB since Nov. 30, 2016, when STB adopted a final rule to establish new regulations requiring all Class I railroads and the Chicago Transportation Coordination Office, through its Class I members, to report certain rail service performance metrics on a weekly, semiannual and occasional basis. The primary purpose of the rulemaking was to develop a set of performance data that would allow the STB and stakeholders to monitor current service conditions in the industry.

NGFA said it understands a variety of circumstances have contributed to the rail service disruptions, but "we believe the impact is much more drastic and prolonged due to rail carrier decisions to overly adopt certain principles of precision scheduled railroading and due to significant reductions in crew numbers. The ability to recover when normal rail operations are stressed has decreased significantly in the era of precision scheduled railroading and reduced crews, and rail customers and our nation's supply chains are negatively impacted."

In the short run, NGFA is asking STB to request plans from these rail carriers to bring rail service up to an acceptable level and to request weekly rail service updates on this issue.

"In the long run, NGFA requests for STB to have rail carriers provide annual service assurance plans to help reduce the probability of future widespread rail service disruptions."

Mary Kennedy can be reached at Mary.Kennedy@dtn.com

Follow her on Twitter @MaryCKenn

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