S.T.B. responds to grain industry's reports of diminished rail service

by Matt Noltemeyer
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WASHINGTON — The National Grain and Feed Association said the railroad oversight board has taken positive steps to push Class I railroads to reverse three months of decreasing rail service quality and “excessive charges” that shippers and receivers of grains, oilseeds and grain products say shifted supply chains to costlier, just-in-time deliveries.

These issues came to a head March 10 when Randall C. Gordon, president and chief executive officer of the N.G.F.A., submitted a letter to the Surface Transportation Board, the federal adjudicatory board responsible for regulatory oversight of freight railroads, including rates, service, carrier mergers and the construction, acquisition and abandonment of rail lines.

Mr. Gordon’s letter noted “severe rail service problems and excessive charges” that “degraded service to unacceptable levels and resulted in virtually non-existent surge capacity” to meet the needs of grain and grain product companies. That shifted supply chains and increased “reliance on costlier truck transportation just to get agricultural products moving,” Mr. Gordon said. Meanwhile, carriers have instituted “new and unprecedented fees and charges” in a drive to generate income.

Observations in the letter were drawn from surveys of N.G.F.A. members, which include suppliers of grain, feed and related commercial businesses, as well as input from the North American Millers’ Association.

“We began hearing from some of our shipping and receiving members back in December,” Mr. Gordon told Milling & Baking News on April 3. “And then those concerns continued, and seemingly intensified a bit, in January and February, particularly on some of the carriers.”

The letter addressed specific grievances against six railroad companies that “far transcend the routine imperfections in rail service performance” and “cannot be explained away by the vagaries of weather.” The companies are the BNSF Railway Co., Canadian National Railway Co., Canadian Pacific Railway, CSX Transportation Co., Norfolk Southern Railroad and Union Pacific Railroad.

Service deterioration of this magnitude is not unprecedented in recent years. An unfortunate combination of rail service problems emerged in the late summer and fall of 2013 when increased shipments of crude oil from North Dakota’s Bakken Formation coincided with a large grain crop and a spike in pre-holiday consumers goods demand spurred by a rebounding economy led to an uptick in intermodal rail shipments. Both were exacerbated by severe weather conditions through the winter into 2014.

“That was probably an even more severe situation than exists currently,” Mr. Gordon said, but reiterated a difference made clear in last month’s letter: A “fundamental concern” that an aggressive drive to satisfy investors is the “underlying root” of new and higher fees and changes that degraded service.

“I think the change here is some of the major railroads have made business decisions to basically reduce capacity and, seemingly, to reduce locomotives and crews to try to cut costs and operating ratios in order to impress Wall Street investors and shareholders,” Mr. Gordon said. “And that has caused, we think, a curtailment in their ability to serve their customers.”

Mr. Gordon excluded BNSF Railway from those motivations, and the company wasn’t among those drawing “the most numerous, consistent and persistent complaints.” Transit delays and increased dwell time for Pacific Northwest-bound trains, and power and crew shortages in other corridors, especially Houston, were the only BNSF trouble area cited.

“I think right now we’re hearing the biggest concerns involving the Union Pacific, the Canadian National and, to a degree, the Norfolk Southern Railway,” he said.

Most complaints regarded significant delays and detail each company’s consistently problematic locations and the cause. Locomotive and crew shortages were specified in many cases, which included manifest trains of grain products and flour remaining idle for up to two weeks. Other enduring problems included locomotive breakdowns; switching issues that caused plant shutdowns and production declines; misrouted cars and subsequent loading of incorrect product, which led to further delays and shortages while cars were cleaned; delayed movement of empty cars to origin; and first- and last-mile delays.

Mr. Gordon said some of the changes stem from the influence of CSX and late-c.e.o. Hunter Harrison. 

“The overall approach that some of the Class Ones seem to be taking right now certainly was led by CSX and Hunter Harrison’s precision scheduling railroading model,” Mr. Gordon said. “The jury’s still out on whether that could be successful.

“For U.S. agriculture to succeed, and for all sectors of the American economy to succeed, we rely very heavily on good rail service and affordable rail service and those are some things we obviously need to keep U.S. agriculture profitable and exports flowing into our international markets.”

Noted in the N.G.F.A. letter were “new and unprecedented fees and charges” that are “becoming endemic within the fabric and operating strategy of several Class I carriers.”

Some of the new and increased fees rail carriers have instituted drawing the ire of customers concern customs data, documentation, and processing; bill of lading corrections; safety appliance damage and faded stenciling; overweight rail cars; diversion of empty rail cars; use of privately-owned cars; invoice dispute investigations; weighing cars placed at destination; and the timing of broker entry filings for U.S.-bound shipments.

The letter further stated: “Rail customers continue to be subjected to the disparity in which rail carriers unilaterally impose on their customers costs and penalties for performance-related issues, with no commensurate reciprocal penalties imposed upon carriers when they fail to perform.”

Other industry groups expressed similar concerns in separate letters. The Alliance of Automobile Manufacturers, a trade association of 12 automakers, penned a similar letter March 12 detailing a shortage of bi-level and tri-level rail cars beginning in February and increasing in March. Performance deficiencies “cannot be attributed to a spike in demand for transportation of finished vehicles,” the group’s letter said, “as no such spike has occurred.” The Fertilizer Institute noted in a March 23 letter with reference to a March 6 letter that “rail service challenges have been ongoing and increasingly pervasive,” with an increasing reliance on S.T.B. oversight due to the lack of competitive freight options.

N.G.F.A.’s letter to the S.T.B. called for weekly dialogue between rail company senior management and for the S.T.B. to require date-specific service recovery plans from railroads.

In March 16 letters to all seven Class I rail carriers, including the six noted in N.G.F.A.’s letter along with Kansas City Southern Railway, the S.T.B. asked each company to aubmit nearby and full 2018 rail service outlooks. The S.T.B. asked each carrier to address locomotive fleet and acquisition plans; employee headcount and historical versus recent recrew rate; local service where performance is trending below historical norms; 2018 service demand expectations and accuracy of historical expectations; capacity constraints and actions to alleviate them; and proactive communication initiatives.

Mr. Gordon said the grain and feed association viewed the S.T.B.’s prompt actions as a welcome step.

“We commend the board for issuing the letter they did asking the railroads to respond with specific information and to respond to the concerns that we and the auto industry raised in a separate letter as well,” he said. “So (the board) cited both of our letters from two very different segments of the economy as reason to inquire of the rail carriers what their responses were and to provide more information. I think transparency of information is extremely helpful and helps on accountability as well.”

As of April 2, six of the seven carriers had submitted a 2018 outlook, which may be viewed in the E-Library section STB.gov under “Non-Docketed Correspondence.”

“Within N.G.F.A., we’ll be reviewing (the railroad responses) and having conversations with our members to determine how to respond, if at all,” Mr. Gordon said. “I think it’s important that Congress take note of this and the committees that have jurisdiction there have a role to play in terms of monitoring the situation.”

BNSF Railway, America’s largest grain mover by rail, responded March 22 with a six-page outlook noting a “robust” hiring plan and a 2018 capital expenditure plan of approximately $3.3 billion reflecting BNSF’s “continued focus on maintaining a strong, fluid network that allows us to meet changing customer demands.”

The letter, signed by president and c.e.o. Carl R. Ice, notes total volume moved by the railroad represents an historic high level for the time of year.  In addition, it covers derailments and other delays due to heavy snow and below-zero temperatures. Mr. Ice’s letter notes that BNSF’s agricultural shuttle business increased from 128 shuttle orders at the end of December to 140 shuttles currently operating.

“I think B.N.S.F. has invested a lot of money and made significant investments in their capacity, and I think they’re making an effort,” Mr. Gordon said. “They obviously had some crew issues and some locomotive power issues over the last couple of months that they had to address, but they’re coming back pretty strong.

“But I think they have at least to this point — and we have no reason to believe they would change — adopted a structural approach in terms of enhancing capacity and plugging resources into their railroad that maybe some other carriers aren’t doing as much of. So, I think that’s the basic dichotomy I would cite between them and some of the other Class Ones.” 
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