Perfect Harvest, Perfect Logjam

January 12, 2011 08:32 AM
Perfect Harvest, Perfect Logjam

Despite ideal harvest conditions and high-quality grain this past fall, rail shipping problems created overloading and more on-the-ground storage, says Roger Fray, executive vice president of grain for West Central Cooperative in Ralston, Iowa.

“It’s not cool when it’s $5 corn,” Fray says. West Central, with 25 locations, stored more than 16 million bushels on the ground in 2010, or 23% to 28% of its total capacity.

Fray says the biggest problem was balancing shipper demands and railroad policies, which he says can be unfair at times.

“We had seven to nine days of rail delays and added 400,000 bu. to our ground piles,” he says. “It increases our financial exposure and challenges our standards to maintain quality. In short, it puts
us at larger risk.”

Fray was able to voice his concerns directly to Daniel Elliott, Surface Transportation Board (STB) chairman, who visited the Midwest recently for a firsthand look at grain movement. Elliott says he believes it is important to look at on-the-ground facilities, and his primary goal was to strike a balance between railroads and shippers.

“We’re a complaint-driven agency,” Elliott says. “We want to move away from expensive and lengthy litigation and invent avenues to get both sides talking.”

Elliott’s agency handled 1,450 cases in 2009. Communication between parties is a better way to resolve complaints, he adds.

Farmers Depend on Rail. In its annual report released in November 2010, the Soy Transportation Coalition (STC) found that 24% of soybeans, 43% of soybean meal, 67% of soybean oil and 99% of biodiesel produced in the U.S. are transported by rail. The report also stated that 41% of soybeans moved by rail (9.8 million tons) and 60% of biodiesel are transported at potentially excessive rates.

If rail transportation becomes too costly, farmer profitability and agricultural exports will be diminished, says Dean Campbell, chairman of STC. Transportation costs can be passed back to farmers by increasing the basis spread.

With the economy down, capacity was less an issue than a couple of years ago, says Delbert Christensen, who farms near Audubon, Iowa. He sees rail shipping coming under more pressure in the future. Christensen just returned from a grower trip to China and notes that Asian export markets are being accessed by rail shipments from the Midwest to the West Coast.

“As we open new export markets, capacity becomes a very difficult issue to solve,” Christensen says.

“The question is not whether we can achieve an abundant harvest. It is whether our transportation system can absorb it,” says Mike Steenhoek, STC executive director.

For shippers, the biggest concerns are unpredictable scheduling, crew timing, inconsistent service, managing price risk, maintaining quality when grain is stored on ground, capacity, rates and infrastructure investment. Processors are more worried about timely delivery of grain to avoid processing plant shutdowns and the domino effect of end-user shutdowns, leading to costly restarts for both.

Shuttle Solutions. One solution to moving grain by rail with greater efficiency is the growing use of shuttle trains. These trains consist of a committed set of equipment that moves grain from one point (shipper) to another point (processor or export market).

Shuttle trains evolved in the early 1980s when railroads recognized the efficiencies in pulling several cars instead of one. Shuttle trains have increased in size from 25 to 110 cars, with two or three crew members. Capacity has increased from 200,000 lb. to 220,000 lb. per car (about 40,000 more bushels per train). Load incentives for shippers range from $75 to $150 per car when preset loading times are met.

Fray believes greater loading efficiency can be achieved by investing in improved loading technology and allowing shuttle trains to add more cars. Currently, capacity per car is at limit due to weight restrictions on existing railroad bridges. Another challenge is scheduling crews to load shuttles when cars don’t arrive at the scheduled time.

“Shuttle trains are a challenge to manage, but I don’t see how on earth we could handle the volumes we do without them,” Fray says.

Shuttle trains have also introduced a new tier of risk management, operations management and labor necessity to moving grain both at origin and destination.

Fray says this past fall there were instances when the value of a shuttle train moved $2,300 per car in less than 72 hours because of grain market volatility.

“That’s risk exposure the railroads have successfully shifted to the grain producer,” Fray states. He estimates 85% to 90% of whole grain moved by rail west of the Mississippi is moved by shuttle train.

More Transparency. In an effort to better manage concerns voiced by all factions of the grain industry, STB established the Rail Customer Public Assistance Program, which aims to resolve disputes before they give rise to formal legal action.

Complaints can be submitted on the program’s website at or by calling the hot line at (866) 254-1792 and speaking with the knowledgable staff.

Chairman Elliott explains that presenting oral arguments in this manner has led to parties settling before going to court.

“We want to be more transparent, more open and more user-friendly,” Elliott says.

BNSF Leads Rail Customer Satisfaction

Leading U.S. grain and oilseed shippers handed out mixed grades to the nation’s largest railroad companies on the first annual Soy Transportation Coalition Rail Customer Satisfaction Index. The survey was anonymously completed by grain and oilseed shippers of various sizes and scales of operation.

While respondents overall provided higher ratings for the rail industry’s customer service efforts, concern was consistently expressed with the costs of rail service and how they are communicated.
In addition to mixed ratings being given across the three performance categories, respondents also provided different ratings for U.S.-based railroads and their Canada-based counterparts.

The survey was comprised of 11 questions categorized under on-time performance, customer service and costs. For most questions, respondents were asked to rate each of the seven Class I railroads on a scale of 1-10, with 10 being the highest and 1 being the lowest.

After combining the results from the 11 survey questions, BNSF Railway received the overall highest rating from grain and oilseed shippers, with Union Pacific finishing second. Both Canadian Pacific and Canadian National received, on average, a 25% lower score than the remaining five Class I railroads, and finished in the bottom half in all 11 questions.

Overall Ratings for Rail Customer Satisfaction
1.) BNSF Railway
2.) Union Pacific Railroad
3.) Norfolk Southern Railway
4.) CSX Transportation
5.) Kansas City Southern Railway
6.) Canadian Pacific Railway
7.) Canadian National Railway

Top Producer, January 2011

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