Plains Shipping in Dire Straits

FARGO, N.D. -- A wide range of officials and industry leaders urged the Surface Transportation Board here on Thursday to make sure the BNSF and Canadian Pacific railroads provide rail cars to ship wheat corn, soybeans and other commodities from the Upper Plains this fall or risk farmers and agribusiness losing billions of dollars and the United States losing its reputation as a reliable supplier of agricultural products.

The witnesses did not have to convince the three-commissioner board of the problem.

"Ag in the Upper Plains is in dire straits," STB Chairman Daniel Elliott said in an opening statement. The board, Elliott added, was holding the hearing to have a "conversation" on how the railroads can work with their customers.

He also noted the STB has broad powers to act in the case of emergency, but said he does not want to take actions that could make the situation worse.

The shortage of rail cars and slowness in transportation, which began last winter and also causes problems for coal, ethanol and propane, has already led the STB to require the railroads to submit reports on the movements of their cars and the backlogs of requests for them.

The STB also issued an order last April requiring the delivery of fertilizer in time for spring planting.

The backlog has shortened, but with a huge crop being harvested, farmers are worried the problem has not been solved.

North Dakota Gov. Jack Dalrymple read a letter from the Wilton, N.D., Farmers Union grain elevator that said it is still waiting for cars that were ordered last spring, and the elevator and its customers stand to lose millions of dollars in business.

The letter "is typical," Dalrymple told Elliott, Vice Chairman Deb Miller and Commissioner Ann Begeman.

The situation "is about the individual elevators and farmers out there who have no place to go -- they have no power, no influence over the situation except for you," Dalrymple added. The STB, he said, has an obligation to make sure the railroads live up to their obligations as common carriers to provide service for all commodities.

The problem is centered in North Dakota, but stretches from Minnesota across North and South Dakota and Montana, all the way to the ports in Washington state that serve the Asian markets. Rail congestion in St. Paul and Chicago also cause problems for eastward shipments.

If soybeans cannot be shipped from the West Coast to Asia by February, the Asian customers will turn to South American suppliers, North Dakota Agriculture Commissioner Doug Goehring testified. A series of commodity leaders said they fear that years of market development in foreign countries will be wasted if they cannot deliver their products.

"Loading more cars in North Dakota will solve only part of the problem" if there is still congestion in the Twin Cities and Chicago, Rep. Kevin Cramer, R-N.D., testified.

Farm leaders and the grain industry have complained for months that the basic problem is the railroads are serving the rapidly developing western oil and gas industry. Railroad officials denied they are favoring one commodity over another, but both BNSF and CP officials noted that demand for their services has skyrocketed.

Sen. John Hoeven, R-N.D., said, "We need a bigger railroad."

Hoeven, Sen. Heidi Heitkamp, D-N.D., and other witnesses generally praised BNSF for its efforts but were highly critical of the CP. Hoeven and Heitkamp both said their meetings with BNSF had been more productive, and that BNSF seems to have made more plans for long-term improvements.

"Unlike Burlington Northern [the former name for BNSF], I think CP thinks this is cyclical. That this is temporary," Heitkamp said. "We can't seem to nail down what their investment plans are in North Dakota."

Stevan Bob, the BNSF chief marketing officer, said the company has not been able to meet the demand of its energy customers or its farm customers.

"There are allegations that crude is favored, but both crude and grain shipments are slower," he said. The company is buying locomotives and other equipment and hiring people, he added.

John Brooks, the general manager of U.S. grain and biofuels for CP, said the severe winter and the congestion in Chicago were responsible for the worst of the problems last year. Brooks also said CP has had unprecedented demand for its services and has now developed a new order system that includes dedicated trains for certain products. A series of witnesses said this new system was too new for them to know whether it will work.

Brooks said CP is trying to hire more staff but is finding that difficult in North Dakota, where the economy is so robust.

Most of the discussion Thursday was about the immediate future and its threats to this year's crop.

North Dakota Public Service Commissioner Julie Fedorchak testified that producers and others in her state are "captive shippers."

"They have a perishable product with no other rail options," Fedorchak said. "They are beholden to railroads who are charging premium prices for inferior service, all the while boasting in reports to stockholders about the business's effective planning and productivity."

She said captive shippers feel the railroads are falling short of "reasonable service," and they need better information to make their plans, and asked the STB to require more detailed plans and service commitments.

Fedorchak also said the STB should open a field office in North Dakota to serve as a liaison between the producers and the railroads, and that the STB should "hold the railroads and any other responsible parties accountable for fixing Chicago."

Ed Presser, the vice president of agricultural trading at Gavilon, an Omaha-based grain, ingredient and fertilizer distributor, said the problem of high prices for transportation services has moved beyond railroads.

"What started as inflation in the rail freight market has led to a doubling of truck freight rates and high prices for container boxes and barges," Presser said. "What started as a regional crisis has turned into a nationwide tax on agricultural commodities."

"This tax has to be paid by someone in the supply chain. Today it has pushed interior price levels much cheaper than expected, which comes out of farmers' pockets. On the sell side of the transaction, the increased freight that we must pass on has pushed export prices to levels that make us uncompetitive against our world peers."

Several witnesses asked the STB to require railroads to file reports on how much of many of their cars are devoted to energy product shipments compared to agricultural commodities.

At the end of the nine-and-a-half hour hearing that included only one 15 minute break, BNSF and CP officials told the customers they had benefitted from listening to the issues raised by the shipper customers.

After the hearing, Elliott told DTN that the STB has no further action planned but that the board will continue to require the reports on commodity rail shipments and the backlog "until we get significant improvement."

Jerry Hagstrom can be reached at jhagstrom@njdc.com

Follow Jerry Hagstrom on Twitter @hagstromreport

(BAS)

Copyright 2014 DTN/The Progressive Farmer. All rights reserved.