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Rail-rate Rise Boosts Trucking

by Dave Wilkins
Capital Press, May 21, 2010

Increased rail freight rates and declining service for some shippers have pushed more grain onto trucks, according to a new study on rural transportation.

Nationally, rail rates for grain and oilseeds are higher than for other commodities, and those rates have increased rapidly since 2003, the USDA study found.

Rail rates for grain and oilseeds rose 46 percent from 2003 to 2007, while rates for all other commodities increased 32 percent during the same period.

The 500-page study released April 27 was mandated by Congress as part of the 2008 Farm Bill. It focused on the four major modes of transportation commonly used to move agricultural products -- truck, rail, barge and ocean vessel.

Ocean shipping and railroads are exempt from antitrust rules, and those exemptions have the potential to "decrease competition, reduce service and raise rates," authors of the study said.

While higher rail rates have in some cases pushed more freight onto trucks, rail remains the only cost-effective transportation available to many ag producers, the study pointed out.

In Idaho, about 50 percent of the state's wheat is exported, but there's only a single major rail carrier, Union Pacific, that provides service in both northern and southern Idaho.

Shipments to Portland for export to the Pacific Rim must either go by rail or by barge via the Port of Lewiston, said Scott Brown, president of the Idaho Grain Producers Association.

Rail is also the only reasonable transportation option for shipping barley malt from the Modelo plant in Eastern Idaho to Mexico, he said.

The level of rail competition for grain and oilseed shipments has decreased significantly, according to the study.

Nearly 75 percent of agricultural areas lost rail competition from 1992 to 2007, and the percentage of areas in which a railroad had a monopoly in transporting grains and oilseeds increased from 10 percent to 15 percent.

The findings provide further evidence that the major railroads enjoy monopoly pricing power and that more competition is needed, said Bob Szabo, executive director of Consumers United for Rail Equity, a coalition of freight rail customers pushing for federal law changes.

Rail industry officials said the study points out the vital link that railroads provide to agricultural shippers.

"USDA took a comprehensive look back and reinforced what railroads are seeing in the market place -- since deregulation, the health of the railroad industry has improved, in turn benefiting America's farmers and rural areas," Edward R. Hamberger, president of the Association of American Railroads, said in a press release.

Related Sites:
USDA: Study of Rural Transportation Issues

USDA/USDOT Study Reinforces Vital Link Between Rail, Agriculture
Financial Health of Nation's Railroads Supports America's Leading Role in Global Marketplace

Changes in average prices paid by farmers for various farm inputs: 1990-2008 WASHINGTON, D.C., April 28, 2010 -- The Association of American Railroads (AAR) today said the U.S. Departments of Agriculture (USDA) and Transportation (DOT) study on rural transportation shows how the vital link between railroads and agribusiness supports the U.S. economy, and our nation's economic recovery.

"USDA took a comprehensive look back and reinforced what railroads are seeing in the marketplace -- since deregulation, the health of railroad industry has improved, in turn benefiting America's farmers and rural areas," said AAR President and CEO Edward R. Hamberger. "Railroads provide that vital link for our nation's grain and coal to be sold on the global marketplace, and our efficiency and cost-effectiveness make that possible."

USDA noted that since the railroad industry was partially deregulated in 1980, rates for most shippers fell. However, the report also noted findings from the recent independent Surface Transportation Board study from Christensen Associates that showed recent price increases for some customers were in line with overall increases in the cost of doing business. While rail rates in recent years have gone up, the increase pales in comparison with other price increases farmers have seen from other inputs, particularly fertilizer costs, up 304 percent, fuel costs up 244 percent and seed costs up 154 percent. (See Chart)

"As USDA said, rail is the most cost-effective mode of transportation available to many agricultural producers. So maintaining a healthy rail industry is vital to meeting President Obama's goal of doubling exports," Hamberger said, noting that carloads of grain have been on the increase for the past five straight months. "Without railroads bringing America's high-quality, low-priced grain to the global market, we'll never achieve the President's goal and continue on our road to economic recovery."

Dave Wilkins
Rail-rate Rise Boosts Trucking
Capital Press, May 21, 2010

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