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US railroads struggle to collect crops
From the Financial Times of Mon, 20 Oct 2014 14:33:33 GMT
Wheat ready for harvest is seen September 29, 2010 near Tioga, North Dakota. AFP PHOTO/Karen BLEIER©AFP

There is no disguising the anxiety in the voices of Mark Larson, a farmer, and Jeremy Burkhart, a senior manager at CHS Sun Prairie, an agricultural shipper, as they discuss prospects for moving this year’s expected bumper harvest.

A year of poor rail service has left CHS’ giant storage elevator in Minot, North Dakota, with only 50,000 bushels of room – about 15 railcars’ worth – as the annual soyabean harvest starts to come in. The two discuss how best CHS might free up some space.

The Minot elevator and CHS’ other storage facilities are close to full because rail service to the company’s facilities has deteriorated drastically. Demand to move grain soared after a record harvest last year, creating congestion on railroads. Growing demand for North Dakota’s oil, part of the shale energy revolution, has added to the rail problems, as did last year’s harsh winter.

The congestion has spread beyond North Dakota to affect huge swaths of the rail system in the US and Canada, which handles about 40 per cent of the two countries’ freight movements.

However, the white plastic bags in the fields around Minot, full of grain for which there is no room either in storage elevators or farm buildings, testify to how North Dakota is worst affected.

“Last year was the worst it has ever been,” Mr Burkhart says of the service the company received from Burlington Northern & Santa Fe and Canadian Pacific, the two railroads that serve its nine facilities. “We had facilities that went three, four months without even getting a car to load.”

The rail congestion has meant many farmers’ crops moved far more slowly off their farms than they wanted – or not at all.

Mr Larson, who works for a credit union as well as the family farm, says the money supply for farmers is already “a little tighter” than it would otherwise be and fears the effects will grow worse. “They’ve not been able to market their grain the way they’d like to,” he says.

The railroads’ responses reflect their differing analyses of how the congestion problems arose.

Steve Bobb, BNSF’s chief marketing officer, says the company, operator of North America’s second-biggest rail network and owned by Warren Buffett’s Berkshire Hathaway, simply could not spend money fast enough to alleviate the problems.

North Dakota’s rapid growth came after years of BNSF constantly speeding up infrastructure projects and it had exhausted its capacity to accelerate more.

By the time congestion had set in, sending extra locomotives and railcars into the area would only have further exacerbated the problems, Mr Bobb says. “That’s the point where we reached this year and in 2013,” he adds.

CP attributes its problems to its old, now-abandoned system for letting customers order railcars.

John Brooks, head of marketing and sales for CP’s bulk business, says its old system allowed customers to flood the company with orders that far exceeded their real needs. It has been replaced with a more rigorous alternative.

“There has been a concerted effort between CP and our shippers to really understand what needs to be moved and when it needs to be moved,” Mr Brooks says.

The railroads’ responses are provoking contrasting reactions.

BNSF now has a track-laying machine gradually working its way across the great plains as part of an ambitious project to add a second track along much of the 278 miles of the company’s single-track main line between Minot and Glasgow, Montana.

The project, part of a record $5bn in capital investment BNSF is undertaking this year, makes many customers optimistic that the company’s service in future will be better as trains move faster and can pass each other more easily.

“You’re going to see the trains coming out quicker,” Bob Wentz, general manager of Bakken Transload, a terminal handling equipment and other supplies for the North Dakota shale industry. “It’s going to be huge.”

Bakken Transload has nearly tripled over the past year the number of railcars, from 600 to 1,500, it tries to handle every month.

Yet, for railroads with less capacity to invest than BNSF, the route back to smooth service is likely to be more difficult.

Mr Brooks insists CP has “far greater visibility” over demand for its services as a result of changing its ordering system and is now able to tailor them more closely to customers’ needs.

However, the Surface Transportation Board, the US rail regulator, has expressed concerns about the robustness of CP’s plans to improve service and asked it to “clarify ambiguities”. Customers, including Mr Burkhart, whose facilities mainly rely on CP, say the company’s service remains far more problematic than BNSF’s.

Mr Burkhart is consequently already making calculations based on receiving only half the number of trains he needs to move crops. With another bumper harvest due, he expects things to “get ugly”.

“I’m afraid it’s going to end up being the same as last year,” he says. “It’s just all going to depend on how cold it gets and how much snow we get.”

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