Diesel fuel vs. crude oil chart
Diesel fuel vs. crude oil

Railroads recover from 2013-14 winter

The U.S. Department of Agriculture in its Oct. 1 Grain Transportation Report said average October shuttle secondary railcar bids/offers per car in the week ended Sept. 24 were $650 above tariff, up $246 from a week earlier but $3,975 lower than last year. Non-shuttle secondary railcar bids/offers were $72 above tariff, up $28 from the prior week but down $2,929 from last year.

A year ago rail shipping costs soared as the grain industry bid rates sharply higher in part out of fear that rail cars may not be available with memory of the 2013-14 winter rail shipping debacle still fresh. That winter a combination of increased demand for rail resources from the booming shale oil industry in the Upper Midwest, severe weather and to some degree a lack of planning by the grain industry after a couple of years of ample rail freight availability, left grain and other agricultural shippers unable to get rail cars at any price in some cases. Not enough trucks were available to fill the gap. Rail freight rates were driven up. Grain basis levels were up sharply at delivery points while prices in the country were pushed lower. Changes were made as a result, including additional spending on resources by railroads, new government regulations on reporting rail performance and other measures and better focus by the grain industry.

At the 2015 Ag Transportation Summit in August, the Surface Transportation Board’s Debra Miller said the railroads achieved a “stunning turnaround” from a year ago, going from not being able to move goods fast enough to not having enough to move.

Also aiding recovery for the rail industry were less severe weather in the Upper Midwest last winter and the noted plunge in crude oil prices that slowed production of shale oil, and thus reduced demand for locomotives and crews. Sagging grain exports also have reduced shipping needs.

Grain exports, though, which involve truck, rail and barge freight to get grain to ports, are down from a year ago. Cumulative grains inspected for export as of Oct. 1 totaled 14,875,088 tonnes, down 12% from the same period last year, the U.S.D.A. said last week. Of the four major grains/oilseeds, corn exports through Oct. 1 at 3,220,726 tonnes were down 20%, wheat exports at 8,028,028 tonnes were down 16%, soybean exports at 2,563,533 tonnes were up 2% and sorghum exports at 1,041,122 tonnes were up 29%.

Ample global supplies and uncompetitive U.S. grain prices, in part related to the strong value of the dollar, have hindered export sales of U.S. corn and wheat. There also are concerns the economic slowdown in China, the world’s top soybean importer, and strong production in Brazil may slow foreign demand for U.S. soybeans. The U.S.D.A. projected 2015-16 U.S. corn exports at 46.99 million tonnes, down 1% from 2014-15, wheat exports at 24.49 million tonnes, up 5%, and soybean exports at 46.95 million tonnes, down 6%. Combined exports of the three major crops in 2015-16 were projected at 118.43 million tonnes, down 2% from last year and down 6% from 2013-14.

Also a factor affecting transportation needs is the amount of grain stored on farms, which delays transport by truck to country and terminal elevators as well as to mills, processors and other users. As of Sept. 1, on-farm stocks of corn were up 28% from a year earlier and soybeans were up 133%. On-farm wheat stocks were down 9%, but total stocks were up 10%. Grain stored off-farm also will require transport at some point, either to processors or for export, with the exception being grain stored by mills and processors.

As a result, rail transport of grain through the summer and into the fall has been relatively smooth with trade sources indicating only scattered, minor delays. And the railroads appear ready for the fall harvest, which is well under way.

“BNSF continues to make strong gains in velocity and operations across the agricultural network,” John Miller, group vice president, agricultural products for BNSF Railway, said on Oct. 2.

“We have completed our preparations for the soybean harvest,” Mr. Miller said. “The last of the shuttle sets will be assembled by this weekend (Oct. 3-4), bringing the total count to 129. Power and crews continue to be in ample supply. The PNW corridor is fluid. Velocity continues to increase as shuttle service expands across the system. Our seven-day velocity
average was 20% higher than the overall monthly average recorded in August. Past dues remain at a minimum, but we do anticipate a moderate increase throughout the month of October with more equipment being allocated to shuttle service.” He said shuttle turns overall averaged 2.6 trips per month in September with the Pacific Northwest average at 2.5 trips.

A major issue facing the rail industry is Positive Train Control (P.T.C.) mandated in the Rail Safety Improvement Act of 2008. P.T.C. involves computerized technologies designed to automatically stop a train before certain accidents caused by human error occur. It pertains to rail lines that transport passengers or toxic-by-inhalation materials, including anhydrous ammonia, a critical crop input. The deadline for P.T.C. completion is Dec. 31, 2015, and railroads have indicated they will not be able to meet that deadline. Rather than incur significant fines, railroads indicated they will shut down rail services to complete P.T.C. installation. Such a shutdown has the potential to cripple both freight movement and the economy, according to the A.A.R.

A bipartisan bill (H.R. 3651) was introduced in the House of Representatives on Sept. 30 that would extend the Dec. 31 deadline by three years and give the D.O.T. discretion to allow two more years for railroads dealing with circumstances beyond their control. Railroads said the bill must be extended by Oct. 31 to avoid a shutdown as the process would begin well before the deadline.