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Transportation: Key to Competitiveness

by Glen W. Squires
Wheat Life, May 2003

Infrastructure and cost of trans-portation and handling directly affect grower returns. Speakers at the USDA Ag Outlook Forum focused on transportation as a key element to a producer’s bottom line and U.S. market competitiveness. Physical productivity (yield, quality of land, technology, genetics, capital equipment, management); world supply and demand (differences among crops); market access (trade agreements); exchange rates and government support were also noted as other factors that affect returns to the grower.

A common theme emerged, suggesting that if infrastructure deterioration causes an increase in export costs, U.S. participation in world export markets would decline. In the past, the U.S. has been well equipped to sell transport-intensive crops, and our transportation system has protected that efficiency. However, a quick look around the globe reveals competitors are pouring funds into their infrastructure, and, coupled with land availability that enhances competitiveness in many countries, these efforts will seriously threaten U.S. competitiveness in markets.

It becomes evident that the transportation system is what makes the U.S. competitive over production systems. Yet, USDA’s Outlook ForumTransportation—key to competitivenesswhile mobility is essential to competitiveness, a few looming questions strike at the heart of U.S. competitiveness to move product. Speakers expressed concern that the U.S. government seems to be stepping out of transportation, particularly when it comes to the inland navigation system. At severe risk are the 27 locks allowing barge movement from the heartland of America to the U.S. Gulf, along with locks on the Snake River in the Pacific Northwest that provide transportation to the West Coast. If the government retreats from its role and mandate to maintain navigable waters and barges become idled, competition will cease. Lost capacity to move grain will then directly increase costs and could drive out agricultural production, seriously eroding economic base in many regions of the country.

On land, will shortline railroads survive in the short-term, and can Class I railroads survive in the long term to move grain overland? The benefits of the shortline rail system as a service-oriented, product-gathering system has been well documented, yet in many areas the system was run into the ground previously by Class I carriers as expendable assets and the cost for new owners and states to now rehabilitate is daunting and often beyond reach.

Meanwhile, Class I carriers are facing mature markets with limited profit margins and no more cost savings available from rationalization. As such, industry efforts are underway that are aimed at simplifying the Class I rail system. For example, ownership of rail cars is progressively passed to private ownership. Establishing fewer nodes in the system using shuttle trains is a goal as well, a trend that pushes bottlenecks and costs further back into the system, upon growers and communities. Even so, capital continues to flee the railroad system. Ironically, amid the drive to move larger bulk quantities, opportunities for growth are most often touted as not being in bulk but in value-added products. This theme reverberated throughout all Forum sessions. Even the USDA’s chief economist suggested little growth in bulk exports and the need for further processing before export.

Actions seen as enhancing U.S. competitiveness include elimination of bottlenecks, even those regulatory in nature, such as safety and quality inspections, security measures and even cabotage restrictions, or dysfunctional supply chain bottlenecks such as labor work rules and information incompatibility. The use of containers for bulk commodities was also discussed as a workable solution, in some cases being advantageous to overcoming transport system bottlenecks. Containers are being used to provide just-in-time delivery capability, identity preservation and to minimize product handling. The application of new technology is likewise considered essential to enhancing U.S. competitiveness, suggesting the transportation landscape could look much different in 20 years.

The bottom line, however, is the critical need to raise awareness at the state and national level of the effects of transportation on the competitiveness of U.S. agriculture, and thus local, state and national economies. Infrastructure funding is essential. Even USDA has finally realized the importance of the issue, as evidenced by transportation finally having a seat at the table this year at the Ag Outlook Forum.

Glen W. Squires
Transportation: Key to Competitiveness
Wheat Life, May 2003

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