Reduced shipments of grain and oilseeds in 2013 and lower freight rates in most cases reflect the impact of last summer’s drought on lower crop production and higher grain prices, reducing domestic movement and export demand for some commodities. At the same time, stronger shipments of other types of freight and commodities suggest continual economic recovery.

In May 2012 the transportation industry was bracing for the potential of strained capacity due to the U.S. Department of Agriculture’s forecast of record high total U.S. grain and oilseed production, mainly due to an expected huge corn crop of 14,790 million bus, up 20% from 2011. It its May 2012 World Agricultural Supply and Demand Estimates, the U.S.D.A. projected combined production of corn, wheat and soybeans at 20,240 million bus, up 16% from 2011 estimates at the time, 2012-13 exports at 4,555 million bus, up 13%, and domestic use at 14,903 million bus, down slightly.

But the worst drought the U.S. Midwest has endured in more than 50 years sliced the three-crop production total for 2012 to 16,064 million bus, down 21% from the initial projection and 8% below 2011, for 2012-13 exports to 3,175 million bus, down 30% and 20%, respectively, and for domestic use to 13,358 million bus, down 10% and 4%, respectively, based on the U.S.D.A.’s April 2013 WASDE.

The result of the sharply lower crop production, especially of corn, and higher-than-expected prices, was reduced grain movement and exports and consequently reduced shipping demand for trucks, rail cars, barges and ocean freight, and in some cases reduced rates due to excess capacity. But the overall transportation picture was mixed, as production of most commodities, including sugar beets, produce and others, increased, albeit at volumes much lower relative to corn, wheat and soybeans.

“Over the past two years our short crops and subsequent reduction in grain exports has not placed a burden on our transportation infrastructure or capacity,” said Jay O’Neil, senior agricultural economist, International Grains Program at Kansas State University. Mr. O’Neil also owns O’Neil Commodity Consulting and will make a transportation presentation at the 36th annual Sosland Publishing Purchasing Seminar June 2-4 in Kansas City.

Slow export shipments, especially of corn, have been reflected in the U.S.D.A.’s weekly grain export inspection data. The most recent report showed marketing-year-to-date inspections as of May 2 for corn at 488,654,000 bus, down 56% from the same period last year, and wheat at 919,030,000 bus, down 3%. Soybean export inspections of 1,252,440,000 bus actually were up 14%, reflecting stronger- and longer-than-expected demand from China.

The U.S.D.A. projected 2012-13 (ending May 31) exports of U.S. wheat at 1,025 million bus, which actual shipments may reach or at least come close. Soybean exports, although expected to slow seasonally as shipments from a record large harvest in South America increase, are expected to reach or exceed their 2012-13 (ending Aug. 31) projected total of 1,350 million bus, given the strong pace of exports to date, which have averaged about 157 million bus a month in the first eight months of the marketing year and need only to average about 25 million bus a month in the final four months to reach the projection. But for corn to reach the U.S.D.A. 2012-13 projected export total of 800 million bus, the pace of exports would have to increase from the first eight-month average of about 61 million bus to nearly 78 million bus per month. Given expected strong corn exports from South America, and continued high U.S. corn prices, analysts see that increase as unlikely, even if prices decline once the slow pace to spring corn planting picks up and a large 2013 corn crop becomes more likely.

Overall the past two years have been “light” as far as snowfall or heavy rains that can affect shipping are concerned. Some heavy snow during the past winter across much of the Great Plains and parts of the Midwest had generally short-lived impact on grain shipments, in part because of light grain sales by farmers or movement from elevators during the winter months.

“Other than some isolated weather related logistical issues, U.S. shippers and receivers have enjoyed rather smooth rail and barge service over the last 12 months,” Mr. O’Neil said. “Rail cars and barges have been in plentiful supply and, for the most part, logistical efficiencies have allowed quick turn times for transportation equipment.”

Diesel fuel prices down from year ago

Average diesel fuel prices have declined about 5% from a year ago and were down slightly from the first of the year. The U.S. Energy Information Administration said on-highway diesel fuel prices averaged $3.845 a gallon the week ended May 6, down 21c from a year earlier and down 7c since Dec. 31, 2012. Diesel fuel prices obviously are critical for trucks, which continue to add fuel surcharges to per-mile rates, but also are used by railroads to calculate fuel surcharges, even though the actual price railroads pay for diesel is less than the on-highway price because railroads do not pay certain taxes since they maintain their own tracks compared to state or federally maintained highways for cars and trucks.

In its latest monthly outlook, the E.I.A. forecast retail (on-highway) diesel fuel prices to average $3.88 a gallon during the “summer driving season” of the second and third quarters of 2013, down 6c from its April forecast and down 7c from the 2012 season, mainly due to lower crude oil prices.

For all of 2013, the E.I.A. forecast West Texas Intermediate crude oil prices to average $93 a barrel, down slightly from $94 in 2012, and then slip to $92 in 2014 as “several pipeline projects are expected to come on line, reducing the cost of transporting crude oil to refiners.”

Truck rates fall, total tonnage rises

The most recent quarterly data available for grain truck rates show mostly lower values from a year ago. In its latest Grain Transportation Quarterly Updates, the U.S.D.A. said the national average truck rate for hauling grain 25 miles was $4.01 per mile, down 20% from the third quarter and down 5% from a year earlier, $2.76 per mile for 100 miles, down 15% from July-September but up 5% from the fourth quarter of 2012, and $2.50 per mile for 200 miles, down 13% from the third quarter and down 2% from a year earlier. The largest declines were in the north central region, while south central rates were mostly higher.

Grain truck availability had become much easier in the fourth quarter of 2012, both from the third quarter and from a year earlier, the U.S.D.A. indicated. National grain truck usage was about average (2.3 on a scale of 1 to 5), but was down from the previous quarter and from a year earlier.

The American Trucking Associations’ March For-Hire Truck Tonnage Index gained 0.9% from February and was up 3.8% from March 2012 on an advanced seasonally adjusted basis, and was up 11.5% from February on a non-adjusted basis, which reflects the actual tonnage hauled.

“Tonnage has now increased in four of the last five months,” the A.T.A. said. “Specifically, since November 2012, the index is up 7.6% (seasonally adjusted).”

The A.T.A. index includes all types of freight and may be seen as an economic barometer since trucks represent 67% of tonnage carried by all types of domestic freight transportation.

“Fitting with the expectation for solid gross domestic product growth in the first quarter, tonnage was strong in March and the quarter overall,” Bob Costello, A.T.A. chief economist said in the April 23 release of the March index. “At 3.9% year-over-year growth, the first-quarter increase was the best since the final quarter of 2011.”

But Mr. Costello cautioned, “Expect freight tonnage to slow in the months ahead as the federal government sequester continues and households finish spending their tax returns.”

Concerns persist about the number of truck drivers, which have declined as the number of new truck drivers has failed to match the number of drivers retiring or leaving the industry.

“Truck drivers have been the only item in short supply,” Mr. O’Neil said, noting an element restricting truck availability relative to the supply of other modes of shipping.

Rail shipments down, rates up

Fuel surcharges applied by railroads for moving agricultural products declined slightly from last year. Fuel surcharges may add thousands of dollars to grain shipments. For example, as of May 1 the fuel surcharge for shipping wheat from northwest Kansas to the Galveston-Houston port in Texas was $390 per car, or $39,000 for a 100-car unit train, and from northwest Kansas to Portland, Ore., was $640 per car, or $64,000 for a 100-unit shuttle train, according to the U.S.D.A.’s latest Grain Transportation Report. The freight or tariff rate for the same example was $3,912 per car to the Texas port ($391,200 per 100-car unit train) and was $4,880 per car to Portland ($488,000 per 100-car shuttle train), according to the U.S.D.A. The total cost (tariff and fuel surcharge) to ship wheat from northwest Kansas to the Texas gulf port was $1.16 per bus and to the Pacific Northwest was $1.49 per bus, both up 3% from a year earlier.

Of the 19 routes each for unit trains and shuttle trains listed in the weekly U.S.D.A. Grain Transportation Report, shipping costs for all wheat and corn routes as of May 1 were unchanged to up as much as 11%, mostly 2% to 3% higher, while rates for shipping soybeans were up 5% to down 6%, mostly up 2% to 5%.

The Union Pacific mileage-based fuel surcharge is 40c per mile for May, down from 41c in April, and falls to 37c in June, compared with 41c in May and June last year, according to the company’s web site. The Kansas City Southern Railway posted fuel surcharge will be 45c per mile in June, down from 49c in May and 50c in April.

Railroads move grain for both domestic and export demand and originate about 30% of total U.S. grain shipments. During the four weeks ended April 20, total rail carloads of grain were 65,096, down 19% from the same four weeks in 2012, down 25% from the three-year average and the lowest on record for the period, the U.S.D.A. said in its Grain Transportation Report.

“In addition to the drought’s impact on grain production, Rail Business (Argus) reports that lower grain shipments are possibly being influenced by producers unwilling to sell surplus wheat at current prices,” the U.S.D.A. said.

Despite reduced demand, rail freight rates during the most recent reported week were up from a year earlier. The U.S.D.A. said the average non-shuttle secondary railcar bids/offers per car were at tariff the week ended April 25, unchanged from a week earlier and up $5 from a year ago. The average shuttle bids/offers for the week were $104.50 below tariff, up $108 from the prior week and up $224.50 from last year.

U.S. rail movement of grain totaled 295,287 carloads for the year through April 27, down 16% from the same period in 2012, according to the American Association of Railroads. In contrast, shipments of petroleum and products totaled 229,919 carloads during the period, up 54%. Intermodal shipments totaled 4,046,935 units, up 4% from last year.

Barge movement and rates decline

For barge grain movement, both volume and costs were down from a year ago. The cost of shipping grain southbound from St. Louis to the Gulf was $8.78 per ton on April 30, down 9% from last year, from Cincinnati it was $9.05, down 32%, from lower Ohio river locations it was $7.80, down 32%, and from Cairo, Ill./Memphis it was $5.65, down 15%, according to the U.S.D.A. Compared with the three-year average, costs were down 13% from St. Louis and were down 29% from Cincinnati and lower Ohio, but were up 1% from Cairo/Memphis. Posted barge freight rates for May were unchanged from late April while July rates showed a slight increase from May.

Year-to-date total barge grain movement (Mississippi, Illinois, Ohio and Arkansas rivers) was 6,667,000 tons through April 27, down 37% from the same period in 2012, the U.S.D.A. said. Barge shipments of corn totaled 2,029,000 tons, down 66% from last year, while soybeans totaled 3,173,000 tons, down 18%, wheat totaled 1,375,000 tons, up 230%, and other grains totaled 90,000 tons, down 22%.

Total down river barge grain tonnage in 2012 was down 3% from 2011 and down 9.5% from the five-year average due to decreased export demand, drought-reduced production and distressed navigation conditions, the U.S.D.A. said.

River conditions for barge movement varied widely. There was flooding on the Illinois river, which crested April 30 but was slow to recede due to new rainfall and flooding on the Mississippi river. The lower Illinois river was reopened May 1 after speed restrictions were enacted to limit levee-damaging waves caused by barge movement. The upper Illinois river remained closed due to a damaged dam at Marseilles, Ill. The Mississippi river has crested north of St. Louis and locks were reopened, the U.S.D.A. said, while crests during the first half of May on the lower Mississippi were not expected to affect navigation, the U.S.D.A. said.

Bulk ocean freight capacity in excess

“Excess vessel supply and lagging demand for bulk shipments are keeping ocean freight rates for shipping bulk commodities — including grain — moderately low,” the U.S.D.A. said in its April 25 Grain Transportation Report. In addition to reduced grain shipments, also contributing to lower ocean freight rates were weather disruptions to coal exports in Australia and labor disputes in several countries.

First-quarter ocean freight rates for bulk grains from the U.S. Gulf to Japan averaged $46.73 per tonne, down 7% from a year earlier and 10% below the four-year average, the U.S.D.A. said, citing O’Neil Commodity Consulting data, while rates from the Pacific Northwest to Japan were $24.84 per tonne, down 12% from 2012 and 16% under the average, and rates from the Gulf to Rotterdam were $19.57 per tonne, down 2% from last year and 8% below the four-year average. On April 26 the freight rate from the Gulf to Japan was $46.50 per tonne, down 14% from the same time last year, and from the Pacific Northwest to Japan was $24.50 per tonne, down 20%.

“The rates may be lower for the foreseeable future due to many factors that play into market dynamics,” the U.S.D.A. said. “Movements on the demand side of the market have been mixed, which, along with the excess supply of ships, contributes to lower prices.”

The U.S.D.A. cited lower wheat production in Argentina and reduced coal shipments by Indonesia as factors reducing ocean freight demand. At the same time, reduced prices for low quality iron ore in India and efforts to increase exports of some bulk commodities, including sugar, by that country, along with restocking of iron ore by China and recovery of coal exports by Colombia may increase demand for ocean freight, the U.S.D.A. said.

A growing bulk vessel fleet in recent years has made it difficult for “lackluster demand to catch up with supply,” the U.S.D.A. said. The total global dry bulk fleet grew by 70 million deadweight tons (mdwt) in 2012, and it is expected to grow by another 6% in 2013. The global dry bulk operating fleet was 687.7 mdwt in March, up from 625 mdwt in March 2012, the U.S.D.A. said, citing Drewry Shipping Consultants data.

“Although the rate has slowed, owners are still placing orders for new deliveries,” the U.S.D.A. said. “About 126.86 mdwt capacity of new dry bulk vessels are scheduled for delivery between now and 2016 — 18.4% of the existing fleet.” The rate a year ago for delivery from 2012 to 2015 represented 31.9% of the existing fleet.

“Even ocean vessels have been in an oversupply situation,” Mr. O’Neil said. “But this will most likely change over the next year or two if we indeed get back to producing bumper crops.”

That change may begin this fall as initial U.S.D.A. projections for record large 2013 corn production comes to fruition and outturn of many other crops increases in the absence of another widespread drought.

But there is nothing that indicates export port facilities or the modes of shipping to get grain and oilseeds to ports — trucks, trains and barges — or to domestic users should be taxed for the remainder of the 2012-13 crop year.