USDA AMS Grain Rail Service Update
Date Posted: April 10, 2014
This article is reprinted from the USDA's April 10 Grain Transportation Report.
Railroad service to grain shippers, which has deteriorated this fall and winter for several rail carriers, is expected to recover by late summer or fall, but could continue into 2015.
Much of the rail service problems in the United States are centered on the BNSF Railway (BNSF), but similar problems have been reported for the Canadian National (CN) and Canadian Pacific (CP) railways’ lines in Canada and on portions of their lines in the United States.
Problems associated with deteriorated rail service include grain shippers paying up to $6,000 to obtain empty railcars, grain piling up on the ground outside elevators awaiting rail transportation, and some grain shippers either paying ocean vessel demurrage charges, or missing vessels that departed before the delayed grain shipments could be loaded.
Early on, some of these additional costs were likely borne by the exporter through reduced margins, but more recently are likely reflected in the prices paid to farmers for their crops.
Since October 1, the amount of grain shipped via U.S.-owned Class I railroads is currently behind expectations given past performance following previous grain harvests.
Grain carloads are about 42,000 carloads behind the 2009-2010 harvest and about 111,000 carloads behind the 2007-2008 harvest.
Both harvests set records in terms of corn, wheat, and soybean production.
Some grain traffic has switched from BNSF to other U.S. Class I carriers. Kansas City Southern and Norfolk Southern are hauling close to their all-time highs as a percentage of total grain rail traffic.
Train speeds for BNSF grain trains have decreased and cycle times to Pacific Northwest markets have increased.
BNSF grain train speed has decreased 15 percent, from 23.8 miles per hour in February 2013 to 20.3 miles per hour during February 2014.
During January, grain unit trains from Minnesota or Iowa to the Pacific Northwest were taking as long as 22 days, compared to a normal transit time of 12 days.
Consequently, BNSF grain shippers have paid record-high rates for delivery of empty grain cars in the secondary railcar markets (reportedly as much as $6,000 per empty grain car —approximately $1.65 per bushel), which could make U.S. grain less competitive in world markets and/or reduce the amount of revenue earned by agricultural producers and exporters.
Bids in the secondary railcar market for empty grain cars continued to climb with new records being set in December, January, February, and March.
This indicates empty railcar supply was increasingly inadequate relative to demand during this period. However, bids have fallen recently, indicating some improvement.
Bids represent an additional premium to securing guaranteed railcar service during a specific time period.
Because only a limited number of guaranteed railcars are made available by railroads for a given month, shippers will bid higher and higher premiums to secure railcars as demand increases.
Inadequate supply relative to demand has also driven up bids for service on Union Pacific Railroad (UP) as shippers switch carriers.1
These costs are in addition to what shippers must pay BNSF directly through tariffs and fuel surcharges, which currently total between $4,000 and $6,000 per car on key grain routes.
BNSF states that poor service has resulted from a simultaneous combination of strained capacity and increased demand for rail service.
On the supply side, current capacity has been reduced by track work to expand future capacity, which involves shutting down lanes at least 10–12 hours daily while the work is being done.
In addition, the extreme winter has compounded and made the backlog situation even worse.
When temperatures are below -15o F, trains cannot be as long because the cold diminishes the effectiveness of air brakes.
This means that railroads require more crew and locomotives to move the same amount of traffic.
On the demand side, annual traffic on the BNSF network has recovered from a low of 79 percent in 2009 to 95 percent in 2013 relative to the peak achieved in 2006.
Annual farm product traffic has varied significantly with harvests, falling 73,088 carloads between the 2011/2012 harvest and the 2012/2013 harvest.
However, farm products jumped 25,604 carloads between the third and fourth quarters of 2013 with the unexpectedly large harvest.
Coal traffic was 158,985 carloads less in 2013 than in 2009, but coal had its first increase in 3 years, adding 56,167 carloads in 2013.
Chemical traffic has grown fairly steadily since 2009, 153,026 carloads higher in 2013 than in 2009.
Petroleum and intermodal have grown consistently since 2009, 315,203 and 603,162 carloads higher, respectively, in 2013 than in 2009, with petroleum carloads doubling between 2012 and 2013.
Together, constrained supply and traffic growth have consumed the extra capacity in the network that existed in previous years to handle any seasonal demand surges, such as the unexpected record harvest.
On March 21, BNSF reported that 16,761 grain railcars were past due by an average of 23.4 days.
North Dakota had 7,474 grain railcars past due by an average of 21.4 days, Montana had 3,322 grain railcars late by an average of 25 days, South Dakota had 1,300 grain railcars past due by an average of 25.9 days, and Minnesota had 1,463 grain railcars past due by an average of 23.3 days.
However, BNSF has shown recent improvements, reporting that North Region dwell time improved 11 percent since the first week of February and North Region train speed improved 1 percent during the same period.
Although there have been recent signs of improving rail service, there is concern that this year's crop will not be moved before the new crop has to go into storage, which could create major problems during the upcoming 2014 harvest.
There are reports of elevator operators storing millions of bushels of grain on the ground and refusing to buy more from farmers.
Reports from North Dakota co-op managers indicate 50 to 70 percent of this year’s corn crop is still in either on-farm or warehouse storage.
1 USDA does not have secondary railcar market prices for empty railcars originating on CP and CN.
For more information, call Surajudeen (Deen) Olowolayemo, USDA, at 202-694-3050.