Grainnet

NGFA Tells Congress of Concerns Over Rail Capacity

Washington, DC—The National Grain and Feed Association (NGFA) voiced to Congress recently its “paramount concerns” over rail capacity constraints and their impacts on service predictability for agricultural shippers, particularly smaller firms.

“The days of surplus rail capacity are over,” testified NGFA President Kendell W. Keith at a hearing conducted May 1 by the House Small Business Committee, chaired by Rep. Nydia Valazquez, D-N.Y.

“In the last four years, there have been growing signs that the rail industry is nearing its capacity limits, at least in some shipping corridors,” largely as a result of increased intermodal shipments, particularly for transporting manufactured goods imported from Pacific Rim nations.

Keith noted that rail carriers have responded by rationing rail transportation capacity, in part by increasing freight rates to levels intended to discourage the use of rail service.

The NGFA noted that average revenue-per-unit for agricultural shipments received by Class I rail carriers increased by a range of 27 percent to 52 percent over the last three years.

Further, with the exception of the BNSF Railway, the revenue-per-unit was greater for agricultural shipments than for the average of all other types of shipments.

“While one cannot conclude with certainty that agricultural shippers are incurring generally higher freight rate increases…compared to other rail customers, it is a situation that should be monitored over a period of years to see if current trends continue and how increasing rail rates may affect rural communities and small businesses,” Keith said.

To enhance rail capacity, the NGFA said it intended to support legislation (H.R. 2116) that would amend the Internal Revenue Code to allow tax credits to help finance up to 25 percent of the cost of new qualified freight rail infrastructure property, provided shippers also are eligible and the funds are used solely to add capacity rather than replace existing track and equipment.

“While railroads already are reinvesting some of their increasing profits into expanded infrastructure, we think that legislation like this could encourage higher levels and more rapid investment,” Keith said.

The NGFA said it also may request assistance from Congress if, as expected, the federal Surface Transportation Board’s (STB) recent changes do not make the process for filing smaller rail rate complaints more viable and less costly.

The NGFA estimated that the cost of challenging an unreasonable rail rate at the STB via the method most likely to be used for typical agricultural shipments still will amount to about $250,000, and noted the agency had capped at only $1 million the maximum regulatory relief that could be obtained through a successful rate complaint.

“This cap is much too low, and effectively will put many potential agricultural rail rate cases out of reach economically,” Keith said.

While the NGFA said it does not anticipate a significant increase in the number of rail rate cases being brought by shippers even if the STB’s rules were more practical, “we do think it’s important to have access to reasonable litigated solutions so that carriers are encouraged to negotiate with customers over rates.”

The NGFA also cited the impacts that changes in rail practices are having on agricultural shippers.

It noted that only about one-third of domestic commercial grain shipments now move by rail, down from more than 50 percent in 1980 when the landmark Staggers Rail Act was enacted by Congress. By comparison, nearly half of domestic grain shipments are transported by truck and 20 percent by barge.

Further, the NGFA said, physical access to rail service has become more limited in rural areas, reflecting rail carriers’ preference for large unit-train loading facilities. This, in turn, has led to an increasing concentration of grain handling at fewer loading points, causing the average farm-to-market distance to be longer.

“So, the efficiency gains accruing to rail carriers by moving to larger unit trains has had the effect of putting added traffic on highways and local roads, whose repairs are borne by taxpayers,” Keith said.

For more information, call 202-289-0873.