Rail bottleneck for grain, ethanol shippers

Bumper corn, soybean and wheat crops last year, expansion of North Dakota's Bakken oil field, and a long, cold winter that affected the size and speed of the trains railroads could operate have joined to create a persistent bottleneck in rail shipping of ethanol and grain.

This is no way to run a railroad, rail, state and agricultural officials agree. But while BNSF Railway spokeswoman Amy McBeth says the problem is operational and not systemic, and the bottleneck will be cleared, Soy Transportation Coalition Executive Director Mike Steenhoek points to the continued growth of both oil and agricultural traffic and wonders how much more the rail system can absorb.

"It's a real concern. This is not something you can remedy with the snap of fingers," he said. "Even if the growth estimates are half-accurate, we're going to have to have a lot of infrastructure."

"Last year, there were 800,000 new units carried on all Class 1 U.S. railroads. BNSF had 400,000 units of that growth," she said.

McBeth broke down BNSF growth into component parts, including a rapid harvest of last year's near record crops that required a lot of grain to be moved in a hurry, an increase in truck-to-rail shipping, a 4 percent increase in the amount of Bakken oil hauled and a corresponding increase in materials to serve the oil industry, and increased coal hauling. "The result is slower velocity, which then impacts our ability to have either people or locomotives where and when we need them," she said.

Sen. Tim Johnson last week said he had not yet heard from South Dakotans about hardships caused by shipping delays. However, North Dakota agricultural officials already have pressed that state's senators on the problem, and Brian Jennings, executive director of the American Coalition for Ethanol, said 80 ethanol industry representatives planned to make shipping concerns an issue when they met with administration officials and members of Congress at their annual Washington, D.C., fly-in Tuesday and Wednesday.

"Some ethanol plants have had to slow production, some of them considerably," Jennings said. "Their storage tanks are plumb full, and railroads haven't delivered tank cars on time." Poet president of ethanol products and chief commercial officer Bob Casper seconds Jennings' assertion.

"We have a valuable fuel, and a lot of demand for it is on the coasts," Casper said. "Service problems by the railroads, coupled with adverse weather over the winter, has created some challenges in getting our product to those rail-based markets. Plants across the industry have had to maximize their ethanol storage. We hope the situation will ease soon so ethanol producers can start replenishing inventories in those areas."

The delay couldn't have come at a worse time, Jennings said. Blenders need ethanol now, because they are gearing up to formulate summer fuels.

It is not just ethanol that has seen shipping slow to a crawl. Normally, a round trip for a unit grain train from South Dakota to the Pacific Northwest ports is 11 to 12 days, according to Steenhoek. Now such trips are taking as long as 20 to 22 days.

State government unable help

The state's ability to improve the situation is limited. Jamie Crew, spokesman for the South Dakota Agriculture Department, said "we're staying engaged. We're listening to what we might be able to do. But there's really not much we can do to alleviate a logistical problem."

Bruce Lindholm, program manager for air, rail and transit for the South Dakota Department of Transportation, acknowledged "this is a national problem, and there's not a lot we can do." He likens it to a traveler from South Dakota caught in a Minneapolis traffic jam. "There is no amount of fixing traffic in South Dakota that is going to affect that traffic jam."

The flow of agricultural commodities is finely balanced, and shipping delays seriously destabilize it, Steenhoek said.

"Ethanol facilities are designed to run every day. If you don't have delivery of corn at a facility, and the plant is not operating that day, they don't have the luxury of saying, 'No problem. We'll make a double batch tomorrow.' Those facilities are designed to work consistently," he said, and the principle applies to every processor of corn, soybeans and wheat.

Soybean marketers face an additional problem, he adds. While corn and wheat exports tend to be timed more evenly over the course of a year, 80 percent of the U.S. soybean export sales take place between September and February. That's because the U.S. soybean market works in concert with a large South American soybean industry, where the crop year is the opposite of what it is here.

"You have a window, and you have to take advantage of that," Steenhoek said.

Other transportation sectors can take up the slack to only a modest degree. A 110-car unit train holds 440,000 bushels of grain, Lindholm said. A truck holds 900. "It's hard to make up in trucking one unit train, much less 20 of them," he said.

"I'm hearing there's a little more trucking going on," he added. But this is transporting grain from one railroad in South Dakota to another, where the shipping slowdown might not be as severe. "Nobody's trucking corn to Seattle," Lindholm said. "They may be moving it to a different railhead, but not to a destination that's far away."

2014 crop shipping in question

So far, ethanol and last year's crops have been affected by the shipping slowdown. If it continues, Steenhoek said, this year's crop also might be at risk.

"I'm starting to hear reports about the ability to forward contract to fall of 2014. There is not a lot of confidence in rail supply and in rail service. It's making farmers jittery. They can't forward contract, because the elevators are saying they're not comfortable purchasing now because they don't know if they can get rid of it," Steenhoek said.

The billions of dollars flowing through agriculture, he added, "are based on assumptions of service, production and demand. It's something quite unique about agriculture, and if you throw a wrench in one of those variables, you don't have certainty, and there is a seismic effect."

He is skeptical of BNSF claims its problems are operational.

"I was at a meeting last September when all the railroads were in a room. ...They all had confidence they could handle the 2013 harvest. That did not occur."

South Dakota's soybean industry alone is predicted to grow by 20 million bushels by 2020, said Steenhoek, and North Dakota continues to develop the Bakken oil field.

"All indicators I see show this is going to be a problem that persists," Steenhoek said of rail shipping. Even in dedicated rail corridors, laying additional track takes time. So does building new locomotives and new grain and tank cars.

McBeth, though, is adamant the problem already is on the way to being resolved.

"The extreme cold and the record snowfall in Chicago were the largest factors. Large snow accumulations make interchanging traffic with the other railroads very difficult," she said. "Then, in several locations in our northern corridor, we experienced a record number of days when the temperature was below minus 15 degrees." Because tracks get brittle and air brakes can freeze in such cold, the BNSF had to run shorter trains. Also, workers could be outside for only limited periods.

"The good news is that there is nothing systemically wrong with the system that cannot be corrected," McBeth said.

The BNSF has a plan in place to deal with growth. Of $5 billion to be spent on capital improvements this year, $900 million will be spent on expanding and maintaining the lines that serve the Dakotas, McBeth said.

"This added capacity will help all the commodities that make up the traffic mix in the northern corridor," she said.

In the meantime, "we are taking aggressive, short-term action in over-resourcing the railroad. We are bringing in extra crews, locomotives and equipment to increase fluidity to the system and work down the past due orders," McBeth said.

“While we do expect some short-term impacts to our business due to the service interruptions, we do expect to recover."

Source: Argus Leader