Market Matters Blog

The Surface Transportation Board (STB) has scheduled a public hearing on recent rail service problems and recovery efforts involving several Class I carriers. For well over five months now, agriculture, livestock, fertilizer, food and beverage, coal and all shippers who use rail to move their product have complained about the poor rail service they have been receiving.

Trains have been sitting full at elevators, empties for loading have been way behind schedule, among other service-related issues (see link below for all Class I rail service reports). Because of the poor service, non-ag shippers have been unable to get their products to the consumer and we have all seen the empty store shelves as proof. For grain elevators, some have been unable to take in farmer grain because they fill up and their cost to move that grain to waiting buyers/end users has skyrocketed.

Grain and oilseed shippers have had to turn to the secondary freight market to buy cars to move grain they owe to a buyer/end user, costing them an exorbitant amount of money. The extreme high costs of the secondary freight for quite some time cuts heavily into their margins. Secondary freight is railroad ag covered hoppers traded between railroad customers. That freight is bought at railroad auctions or car programs, which is where the primary cars are purchased.

Late Friday, April 22, the cost of secondary freight on the Union Pacific (UP) for returns was bid at $4,500 per car over tariff, last-half April was bid at $4,000 and first-half May was bid at $3,500 with no offers quoted. Burlington Northern Santa Fe (BNSF) secondary for last-half April was bid at $1,500 per car against no offers, while May was at $500 over bid against offers of $1,300. Just to give an idea of the extra cost, if you need to by a 110-car train and have to pay $4,500 per car, that train will cost a shipper close to $500,000, and that is before the cost of the railroad tariff assigned to the destination it is moving to.

The North Dakota Grain Dealers Association (NDGDA), in an April 22 filing (ID 304364) to the STB said, "The service issues plaguing North Dakota grain shippers include late car orders and delayed shipments along with missed train arrival/spot times (ETAs) and poor communication. We believe the reasons for these problems are related to railroad labor shortages and while the service issues in North Dakota have not resulted in facilities being shut down, they have caused many excessive costs to shippers and created a critical labor issue for North Dakota elevators.

"The issue of communication with railroads goes hand in hand with the service issues we are experiencing. Lack of communication on the part of the railroads is probably the most common complaint of North Dakota shippers. Railroads expect their shippers to operate on a 24/7 basis but are not available to address problems outside of normal work hours and even then, it is very difficult to get answers."

NDGDA added, "Perhaps it is time to shift some of the risk for non-performance back to the railroads. One suggestion would be to revise the rules for demurrage to allow shippers reciprocal charges for missed spot times and late car orders. Another suggestion is to require railroads to pay a portion of the penalties incurred when contract shipment deadlines are missed due to poor rail service."

A shuttle loader in central North Dakota told me there is a lack of labor and especially engineers. Destination Efficiency Trains (DET) trains are now 60 days late, rather than the 40 days of a month ago. "Shuttles, if power stays connected, the turn time isn't normal by any means but only a couple days lag. Trick is to not see locomotives pulled off the shuttles as once that happens there have been seven- to 10-day sit times, which is basically a loss of a trip that month."

Landus Cooperative, the largest farmer-owned cooperative in the state of Iowa, representing more than 7,000 farmer-owners throughout the state and accounting for 200 million bushels of grain movement in Iowa, filed a letter (ID 304385) on April 22 to the STB stating their concerns. "Current rail transit times from our facilities have more than doubled from average seven- to 10-day turn times, to 20-day turns at best. This delay in March consisted in a total five trains being delayed into April, which is a total shortage of grain shipments in that month alone of 2,250,000 bushels. In addition, we process soybeans into value-added products utilized by the dairy industry and biodiesel industry, serving customers worldwide."

Landus said in the letter that if the poor service was not resolved, "the potential is for livestock producers in California and other states potentially running out of feed; ethanol plants and soybean crush facilities potentially not having the ability to ship product; farmers unable to deliver old-crop grain to elevators or ethanol plants, which will place enormous pressure on harvest success this fall, only further disrupting the food and fuel supply chains in the months ahead, and U.S. grain exporters will not be positioned favorably to compete in global marketplace."

U.S. Wheat Associates, National Association of Wheat Growers and North American Millers' Association filed a letter (ID 304383) on April 22 saying, "The severe rail service challenges over the past six months have had negative impacts on many rail customers. These impacts are particularly significant for U.S. wheat producers, exporters and flour millers, as U.S. wheat production is generally located great distances from export facilities and population centers, while a majority of U.S. flour mill capacity is located in urban areas. Those distances mean wheat shippers have few alternative transportation options and no options that are cost competitive with transportation by rail.

"With record high U.S. food inflation and global wheat supply challenges increasing food insecurity now, more than ever, U.S. wheat farmers need a reliable and cost-efficient transportation system. The long-term effects of less than favorable railroad treatment has meant that U.S. farmers have

responded to lower wheat prices over time, with U.S. wheat plantings just barely off century lows and exports projected to near 50-year lows. These dynamics are particularly problematic as U.S. food inflation sets record highs and global wheat prices push millions into risk of hunger due to the conflict in Ukraine."

The letter added, "At a time when our country and the world needs U.S. wheat production more than ever, U.S. rail rates and service issues are increasing costs and decreasing access to wheat. U.S. wheat is also being supplied at dramatic premiums especially when compared to prices paid to U.S. growers."

On April 7, the STB announced they will direct executive-level officials, including operating and human resources officials of BNSF Railway Company, CSX Transportation, Inc., Norfolk Southern Railway Company and Union Pacific Railroad Company to appear. The STB said they also invited and welcome the attendance of executive-level officials from Canadian National Railway Company, Kansas City Southern Railway Company and Canadian Pacific Railway Company. In addition, other carriers, rail customers, labor organizations and other interested parties are welcome to report on recent service issues, noted the press release.

Late Friday, April 22, the STB announced that Secretary of Transportation Pete Buttigieg is expected to provide testimony at the scheduled STB hearing on Urgent Issues in Freight Rail Service, beginning on April 26, 2022. "Secretary Buttigieg will be the first speaker and will be followed by Deputy Secretary of Agriculture Dr. Jewel H. Bronaugh, and on behalf of himself, Commissioner Carl W. Bentzel of the Federal Maritime Commission."

The STB is also announcing a revised start time for the second day of the hearing, to ensure that all witnesses will be called within the scheduled two-day hearing. On Wednesday, April 27, only, the hearing will begin at 9:00 a.m. EDT. On Tuesday, April 26, the hearing will begin as previously scheduled at 9:30 a.m. EDT. The hearings will be available for viewing on the STB's website https://www.stb.gov/…

Here is a link to the April 7 press release from the STB announcing the public hearings with comments from Board Chair Martin Oberman: https://www.stb.gov/…

Here is a link to all the filings sent to the STB about the poor rail service issues everywhere that rail is used, including the ones mentioned in this story: https://www.stb.gov/…

Here is a link to the schedule of speakers at the meetings on April 26 and 27 before the additions announced April 22 stated in this story: https://www.dtn.com/…

Here is a link to the weekly reports containing data on all Class 1 rail service performance such as weekly average terminal dwell time and overall system dwell time; grain cars ordered, car orders filled, cars past due and other service metrics. https://www.stb.gov/…

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

Follow her on Twitter @MaryCKenn

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