While "shortage" is disputed, agriculture industry suffers from tightening of rail care supply

David Fettig | Managing Editor

Published March 1, 1990  | March 1990 issue

The nation's railroad freight lines had three strikes against them coming into this year's grain hauling season.

First, between October and December last year, many barges on the south Mississippi River could not be loaded with cargo due to low water brought on by the recent drought. That increased demand for rail cars.

Then, in December, temperatures plunged below zero over much of the Upper Midwest, freezing rivers and lakes earlier than usual and closing shipping lines. Again, more demand for rail cars.

And third, unexpected calls for corn exports to the Soviet Union meant more corn had to be shipped to the Pacific Northwest, in addition to the Gulf of Mexico, than had been anticipated. Railroads picked up the demand.

The result: when grain farmers decided to sell their crops between late fall and early winter, they usually found their local elevators already full and waiting for railroad grain cars. Some farmers were lucky—they sold their grain to elevators at a high price before a rail car shortage was realized. But, in some of those cases, that only meant the elevator was left holding the grain—desperately trying to sell while the price was high.

Transportation Problems Compound Ag Industry's Frustrations

In an industry that is influenced by the whims of the weather, world markets and fluctuating levels of government assistance, grain transportation problems only compound the frustration for agriculture. That is especially true in Montana, which is served by just one rail company—Burlington Northern (BN).

"We are feeling the effects of being held captive," said Gene Radermacher, a Billings transportation consultant, about Montana's reliance on one rail company.

Estimates vary, but through the fall and winter there were reports of shortages ranging from 4,000 to 8,000 rail cars. Radermacher said BN was running 11 to 12 weeks behind schedule in Montana. The transportation consultant is quick to add, however, that he is not in opposition to BN's service, and that he understands the problems of meeting peak loads. However, he believes Montana should be offered more than one alternative.

A Shortage By Any Other Name ...

BN officials, for their part, don't like the word "shortage" and maintain that the events leading up to this winter were unpredictable.

"These were macro events we had no control over," said J.B. Elliott of BN in Fort Worth, Texas. Elliott said the increased demand for rail cars should "play itself out by the end of April." BN moves about 60 percent of the Upper Midwest's total railroad grain shipments, with Soo Line moving most of the rest.

"From a rail transportation standpoint, we do not believe there is a shortage, by any definition," said Roger Sperry, also of BN's Fort Worth office.

Sperry said that during February there was a market demand for 4,000 rail cars to haul grain, but grain elevators had actually ordered 11,000. "To me, it appears to be over-ordering," Sperry said, and over-ordering only exacerbates the problem.

Mark Schutt, information officer for the Montana Wheat and Barley Committee, said some elevator operators have over-ordered in the hopes that by doing so they will at least receive some cars. But he does say that there has been a rail car shortage this season—the first since 1984-85.

...Would Have Negative Impacts

Shortage or not, farmers, elevator operators and rail companies have been affected by this season's turn of events. Schutt estimates that within the next two to three years about 25 percent of the existing grain elevators will be out of business. One of the reasons for the increased number of elevator bankruptcies, Schutt said, is the increasing financial strain placed on elevators that must borrow money to buy grain from farmers, then try to sell that grain as soon as possible to receive top dollar and to begin paying back their loans. If they must hold the grain too long, or if the price drops significantly, they can't survive, Schutt said.

And farmers face the same sorts of problems. If their local elevators are not receiving any more grain, they must truck their loads further distances. "Unfortunately, the farmer will suffer a penalty eventually," Radermacher said.

(Of course, increased trucking distances—with larger and heavier vehicles—addresses another transportation issue: the impact on rural roads. "Every time there is a rail breakdown in service, there is an adverse impact on highways," Radermacher said.

"Everybody will have to address the road issue," Schutt said. "There will be more public costs.")

BN plans to add 1,000 grain cars to its 25,000-car fleet by the fall of this year. BN also leases about 19,000 additional cars as needed, according to Sperry. Even so, because of the limited number of grain cars available nationally, there are still not enough cars available for leasing to meet all of the demand. Also, about 1 percent of BN's fleet must be retired every year, due to aging.

Carol Perkins of the Association of American Railroads in Washington, D.C., said this season's demand for rail cars, which peaked in December, was "not good, but not a crisis." She said a true shortage occurred in the late 1970s, at a time when grain shipments with Russia began. At that time there was a shortage of about 30,000 cars, she said.

An Annual Affair

But, usually, it doesn't matter what year it is, officials say—there always seems to be a rail car shortage somewhere. Ninth District congressional offices are regularly besieged by calls from agricultural constituents asking for help.

And, if one rail company official's prediction is correct, those calls will become even more intense in coming years. During a recent conference in Washington sponsored by the U.S. Department of Agriculture, a representative of one of the nation's largest freight railway companies said one of the biggest agricultural problems of the coming decade will be a shortage of railroad cars.

The rail representative said railroad companies don't make enough profit from hauling grain and that more rural lines will continue to be abandoned for lack of business.

Officials at the U.S. Department of Transportation said that may mean more shortline rail companies may grow to meet the demand. However, some officials believe the opposite may occur—that as highways become more congested and weight restrictions become stricter, railroad companies will be encouraged to reenter markets they had previously abandoned.

Predictions aside, Radermacher believes that the transportation industry must be prepared to meet the demands of the agricultural industry. With the easing of trade restrictions between the United States and Eastern European countries, not to mention the Soviet Union and other countries, there will be an increased demand for U.S. ag products, he said.

"The transportation industry must be retooled," he said.