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Rail Situation Worrisome

by Glen Squires
Wheat Life, October 2005

An inability to move products to market in a timely fashion, poor service, lack of equipment, and a perceived lack of concern for shippers has brought the railroads into the spotlight. These issues and common frustrations were expressed by attendees at an agricultural shipper's transportation roundtable held by U.S. Senator Patty Murray in Spokane last February. It became obvious that industry sector competitiveness in Washington is being compromised. Indeed, the rail-shipping scenario in the state is often a very difficult endeavor for shippers trying to move product to market.

In Washington, 85-90 percent of the wheat grown in the state is exported and approximately 35 percent moves by rail to export position. Rail is a crucial component of the transportation infrastructure, but one of on-going challenges. In fact, it was the lack of railroad service and rail cars that resulted in Washington beginning the grain train program--a system that provides grain hopper cars for shippers and also reduces road damage through decreased truck traffic. The program has worked extremely well.

Washington has also recognized the importance of shortline rail service. It has appropriated funding to rebuild the shortline infrastructure that the Class I railroads previously owned, but essentially ran into the ground with lack of maintenance. There are now just two Class I railroads in the West: Burlington Northern Santa Fe (BNSF), and Union Pacific (UP). While shortline carriers now operating the lines are customer-service oriented, their effectiveness is directly linked to the performance of these Class I rail carriers and the rate level set for pulling the smaller train units that originate on the shortlines. Without question, rail could be utilized much more if cars were made available to shippers with timely turnaround from the coast and back again to the shortlines carriers.

The Washington State Legislature acknowledges there is trouble with the rails. Not only has funding been made available for improving the infrastructure of the rail shortlines, the 2005-07 Transportation Budget also provided $1.1-million from the Multimodal Account to the Transportation Commission to conduct a statewide rail capacity and needs analysis. The scope of work for the analysis reveals efforts to determine institutional, operational and infrastructure impediments to the efficient movement of freight on Washington's railroad system, along with policy determinations and the development of a rail asset management plan.

It seems the scenario is developing that while the state has grain cars and a rebuilding shortline infrastructure, it will likely be the Class I railroads, by their rate setting and policy directives, that determines whether the state's cars are pulled and the shortlines are utilized.

Unfortunately, the state of Washington appears to have become a captive shipper and must itself address the issues faced by captive shippers throughout the country.

Currently, shippers must pay high premiums of $350 or more per car over the tariff rate to obtain freight and yet they have no idea when the cars will arrive. It wasn't that long ago that car orders were as much as 40 days behind. Some co-loading rates have been eliminated and cars allocated to the tariff pool reduced. On the export side, exporters also express frustration over train arrival times as they wait to load vessels.

Include high fuel surcharges and the overall cost pushes grain into trucks and onto roads that cannot withstand the additional weight and usage, bringing further costs to growers and the state. It has become apparent that Class I rail rates and the service provided (or lack thereof), can dictate how product moves and which shippers can or cannot ship by rail, regardless of rail access or elevator capacity.

For example, last summer BNSF cancelled its 52-car rates for shippers, contending that the move was market driven. Affected shippers were clearly alarmed and even the Governor of Montana raised concern that such a move would force many facilities out of business. Shippers from Illinois, Minnesota, Nebraska, North Dakota and Texas have responded to the Surface Transporta- tion Board (STB) that the steps would effectively abandon service to entire classes of shippers without formally abandoning the rail line on which those shippers were located. Growers' overall transport costs also increase as grain is trucked farther distances to rail facilities that remain. A subsequent railroad pricing update August 4 revealed that the PNW export wheat rates would be re-established for 52-car units effective mid-August after . . . discussing with customers our decision to eliminate 52- car rates. Shippers in Montana consider the new 52-rate still too high and thus there is continued incentive to bypass the elevators by truck.

Nationally, shippers from a wide array of industries, including coal, chemicals, plastics, forest products, electric utilities, steel, cement and agriculture, are working to address the challenges of shipping by rail. These shippers have a common link in that they are captive with one railroad that has sole control over their product movement.

In a recent letter to representatives in Congress, shippers emphasized that the problems are resulting in reduced income in the farm community, higher electricity prices, the export of manufacturing jobs overseas, and a lack of competitiveness for many American companies that do not have access to competitive rail transportation.

Two bills now before Congress, S. 919 and H.R. 2047, known as the Railroad Competition Improvement Act of 2005, are dedicated efforts to address shipper's concerns. Often mischaracterized by railroad companies as re-regulatory, the legislation actually promotes competition in the rail industry to place rail industry practices on the same footing as the practices of other deregulated industries.

The legislation focuses on railroad customers that are currently subject to railroad monopoly power for their transportation needs and are supposed to be protected by the current regulatory process. These shippers note that because of antitrust exemptions for the railroad industry, the only check on the abuse of railroad monopoly power comes from the STB. However, the STB is not doing the job Congress charged it to do--to protect captive rail customers from the abuse of railroad power. Thus, captive rail customers are approaching Congress because the status quo is not acceptable. They contend that the legislation builds on the partial deregulation act of 1980 to extend competition to those rail customers who, 25 years later, are still subject to unrestrained railroad monopoly power.

Legislators across the country are beginning to recognize there are serious challenges facing the myriad of shippers in their states and economies. Shippers suggest more elected officials need to step up to the plate, including Western senators, and support the Rail Competition legislation mentioned previously.

As Mike Grisso, executive director of the Alliance for Rail Competition, stated, the bills would create a streamlined binding arbitration process for disputes; end forced contracts that prolong monopolies and act as paper barriers to competition; mandate that carriers quote a rate across bottleneck segments and create the ability to designate areas of inadequate rail competition for special attention and focus of the STB to bring balance. The legislation would not cap rates or mandate open trackage rights and it is not re-regulatory. In fact, he says, the bill would finish the job of deregulation and take off the nice furry federal helmet that now protects freight railroads from the real world marketplace of competition.

The Washington Wheat Commission recognizes that addressing issues of rail transportation are crucial not only for growers, but for shippers, communities, states and the nation as a whole, as each level is intertwined and directly affected by transportation policy.

Glen Squires
Rail Situation Worrisome
Wheat Life, October 2005

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