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Shippers Seek Rail Competition

by Dave Wilkins, Staff Writer
Capital Press - January 17, 2003

AMERICAN FALLS, Idaho -- Growing wheat is the easy part for southeastern Idaho farmer Evan Hayes. Getting it to market is the hard part.

Hayes has been known to haul wheat by truck almost 500 miles to the Tri-Cities area in Washington state where it's loaded onto barge. Then it's another 200 miles down the Columbia River to Portland where it's transferred onto ship for overseas markets. It's a long haul, but Hayes figures that he has few other options.

There are a couple of mills in Eastern Idaho and Northern Utah where he cold sell the wheat, but about 70 percent of the wheat produced in Idaho is shipped overseas.

Like many other farmers in Eastern Idaho, Hayes also trucks some of his wheat to the Port of Lewiston (485 miles), but that's almost as long a haul as to the Tri-Cities (497 miles) .

He can haul it to a local grain elevator, and from there it can be shipped by rail to Portland. But rail freight rates in southeastern Idaho aren't nearly as competitive as they could be, Hayes said.

The region is served by a single railroad, Union Pacific.

In Northern Idaho, grain shippers pay much lower freight rates even though they too are served by a single railroad, Hayes said. The reason? Lewiston provides some competition with barge service.

It costs about 73 cents per bushel ($26.83 per metric ton) to ship wheat from Blackfoot, Idaho, to Portland by rail in loads of up to 20 cars. It costs about 23 cents per bushel ($8.45 per metric ton) to barge it from Lewiston to Portland. (see bargrate.htm)

Hayes is among those who strongly supports efforts now under way in Congress and through the Surface Transportation Board to make rail rates more competitive.

"I would hope that it would simply reduce freight rates for Idaho shippers so that we would be competitive with other areas in the United States," said Hayes, who serves on the executive board of the Alliance for Rail Competition.

"Anytime you have more competition it makes for a healthier transportation industry and lower rates," he said.

Changes Sought
The railroads were deregulated in the United States in 1980, but there are still large areas of the nation, especially in the West, where only a single railroad operates.

In 1980 there were 42 Class I railroads operating in the United States. After more than two decades of consolidation, there are only four: Union Pacific and Burlington Northern Santa Fe in the West, and CSX and Norfolk Southern in the East.

"We're down to four railroads handling 92 percent of the business in the United States," said Terry Whiteside, the Billings, Mont. -based chairman of the Alliance for Rail Competition.

Federal legislation that would have increase competition in the rail industry failed to make it out of committee last year, Whiteside said. Idaho Sens. Larry Craig and Mike Crapo were co-sponsors.

This year, another effort will be made at promoting competition between the railroads, proponents promise.

The rail alliance is taking a leading role in lobbying for a new bill. Begun in 1997, the alliance represents a diverse group of freight rail customers. Several industry trade associations have jumped aboard, including some representing agriculture, coal, forest products, minerals and petrochemicals.

One proposal is to force the major railroads to grant competitors access to their tracks in exchange for some kind of tariff or fee.

A few rail users might benefit from that kind of forced access in the short run, but all would be losers in the long run, Union Pacific Railroad officials said.

The inevitable effect of such proposals would be to "devastate the ability of the railroads to continue providing their present level of service, much less to make vitally needed investments for the future," UP officials said in a position paper.

Shared rail access is just one provision that's likely to be in a new bill. The new legislation could also include a provision to make it easier for growers and shippers to file rate appeals.

That's the most important issue for Idaho grain shippers, said Steve Johnson, executive director of the Idaho Grain Producers Association.

"If a shipper thinks he's being overcharged, this legislation would give him an opportunity to take his concern to a neutral third party," Johnson said.

Right now when a shipper brings a rate case to the Surface Transportation Board, it's incredibly time-consuming and expensive, said Mike Grisso, ARC's lobbyist in Washington, D.C.

"It can take three or four years and cost several million dollars. Most small shippers don't file (rate appeals) because it's cost prohibitive to do so," he said.

The rail alliance favors the same kind of arbitration used by major league baseball owners and players to resolve labor disputes. Both sides submit an offer, and a federal mediator simply picks one without making any changes.

"It gives both sides the incentive to make the best offer they can because they may have to live with it," Grisso said.

Despite opposition from the major railroads, the chances for passage of a rail competition bill this year "are the best they've ever been," Whiteside said.

"We have, for the first time in history, powerful members of the chemical, forest and paper, utility, manufacturing and agricultural industries all working together to promote and pursue legislation," he said. "That has never happened before."

A Question of Cost
Areas like Southern and Eastern Idaho are essentially being held captive b y a single railroad, rail alliance officials said.

Union Pacific's revenues for shipping wheat from several points in Southern Idaho to Portland range from about 250 to 270 percent of variable costs, Whiteside figures. Variable costs are those that vary with output - such as fuel, labor and wear and tear on equipment.

The Surface Transportation Board had determined that 180 percent of variable costs is the point at which a railroad's rates begin to be unreasonable, Whiteside said.

To cover their high fixed costs and stay viable, railroads must earn on average 150 percent of their variable costs, railroad officials said. Where there 9is head-to-head, origin-to-destination competition between two or more railroads, the average rate of return is only 106 percent of variable costs, they said.

"Clearly, if all traffic is forced into the head-to-head competitive mode, railroads simply will not be able to remain viable," UP officials said.

But advocates of more rail competition are undeterred. More competition is always better, they say.

The major railroads are charging customers based not on service, but "on how captive they are," Whiteside said. "Just because we're captive doesn't make it right."

Idaho is not in a unique position. Other grain-growing areas served by a single railroad include Montana, Wyoming, North and South Dakota, Colorado and parts of Oregon and Washington, Whiteside said.

"Everywhere there are captive rail customers they are at a disadvantage," he said. "We have a monopoly between us and our ultimate market, and it takes money away from everything we do."

Conversion: 36 bushels of wheat in a metric ton

Related Pages:
Shipping Wheat: Truck or Barge? by Ken Casavant
Snake River Barge Rates, Summer 1999 by Tidewater Barge Lines, Inc.

Dave Wilkins, Capital Press Staff Writer
Shippers Seek Rail Competition
Capital Press - February 21, 2003

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