Federal regulators are indicating they do not want to exercise their emergency powers to remedy service issues on US railroads.
The poor service levels on Class I railroads do not yet warrant the issuance of emergency service orders, Surface Transportation Board (STB) vice chairman Ann Begeman said at a 10 April hearing on recent rail service problems.
“I realize some folks think we are already at that point,” she said.
But STB did not rule out issuing emergency orders if congestion on the rail network worsens or fails to improve soon.
The board could provide relief for shippers by allowing them to move product with the help of a different carrier, STB chairman Dan Elliott said.
Elliott’s and Begeman’s comments came during the lengthy hearing held to address recent service problems on the rail network. The hearing provided shippers an opportunity to air their grievances with carriers, particularly BNSF and Canadian Pacific (CP), and allowed railroads to outline their plans to improve the network’s fluidity.
Grain shippers told the regulators that their farms are suffering because railroads are prioritizing intermodal and energy traffic. Farmers are running out of storage capacity and a significant portion of this year’s bumper crop could rot if fluidity is not restored to the network soon, they said.
And the 2014-15 crop could suffer because rail delays are preventing fertilizer suppliers from moving their product to farms in North Dakota, South Dakota, Montana and Minnesota in time for this year’s planting season, they said.
The American Soybean Association’s Lance Peterson said his costs have already risen by 60¢/bushel because of rail delays, and next year his farm could miss out on hundreds of thousands of dollars in sales if service does not improve.
One farm cooperative in the northern midcontinent was told it would only receive 66pc of the fertilizer it paid for last fall because of the rail network’s poor fluidity, according to Full Circle Ag chief executive David Andresen. The delays could cause corn farmers to miss their planting season.
“If we are concerned about there not being enough rail service to haul corn out this fall, we may have just fixed the problem because it is not going to get planted,” Andresen said.
Berkshire Hathaway-owned BNSF assured farmers it would be able to move “nearly” the entire 2013-14 crop and that it would be ready to go this fall when the harvest season starts again. The railroad admitted its service has not met its customers’ expectations partially because it was not adequately prepared for the volume growth it experienced, particularly on its Hi-Line route across North Dakota and Montana.
But the persistent belief that the railroad is prioritizing crude and energy product shipments out of North Dakota is simply false, chief market officer Steve Bobb said.
“The reality is that crude volumes have seen a velocity reduction as well,” he said.
The railroad is “aware” it needs to move fertilizer to farmers throughout the northern midcontinent, but is anticipating “a real challenge,” he said.
BNSF is investing a record $5bn in capital projects this year to improve fluidity. Service in the south should improve as the weather warms, but delays in the northern midcontinent could last into 2015, Bobb said.
The problems are not confined to BNSF, with a refinery in Minnesota telling the board that CP missed 21 of 30 daily switches in March.
The Canadian railroad’s service should return to normal over the next four to six weeks as congestion in and around the Chicago gateway improves, CP chief operating officer Keith Creel said. The railroad had over a dozen trains held outside the Chicago terminal on the day of the hearing because terminal and switching carriers in the city could not handle all of the traffic. Creel blamed most of CP’s problems on the Chicago terminal because 40pc of its traffic uses the gateway in one form or another.
Utilities in the midwest and Texas said some of their plants have less than 100 days of coal left, meaning they may run out of product to burn during the summer’s peak coal consumption period if service remains poor.
BNSF is working with utility customers to stabilize their stockpiles, BNSF’s Bobb said.
Some shippers used the hearing as an opportunity to encourage the board to introduce more competition into the rail business.
Carriers have been able to consistently raise rates despite worsening service levels and that indicates they have too much market power, Consumers United for Rail Equity’s Paul Gutierrez said. The board should approve a National Industrial Transportation League (NITL) proposal that would allow captive shippers to move traffic onto a competing railroad, provided certain conditions are met, he said.
But the railroads said service levels would have been worse than they are now had the board adopted NITL’s proposal. The winter gave the industry a feel for what NITL’s proposal would do to the rail network, CSX vice president Cressie Brown said.
“Essentially we would be dealing with a perpetual winter,” she said.
It is not clear what the board’s next move will be, as railroads assured shippers service will improve in most places, with the exception of BNSF’s Hi-Line, as temperatures warm.
STB’s Elliott encouraged railroads and shippers to communicate with each other in the coming weeks and indicated the board will hold several more meetings with shippers “in the field” soon.
If you would like to see more high quality news and analytical commentary on the railroad industry, request a free trial of Argus Rail Business.
mv-ee
Send comments to feedback@argusmedia.com
If you would like to review other ArgusMedia.com content options, request more information about Argus’ energy news, data and analysis services.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
