U.S. grain shippers will ‘get hammered’ by coal, oil exports

Legislation needed to fix rail service: consultant

Grain shippers in the Pacific Northwest region of the United States are getting poor rail service and it’s about to get a whole lot worse, says a transportation consultant.

Terry Whiteside co-authored a report for the Western Organization of Resource Councils that forecasts a massive increase in coal and oil shipments on railways in the region.

The report, Heavy Traffic Still Ahead, forecasts 74 to 99 million tonnes of coal exports by 2018.

“That’s all new tonnes,” said Whiteside.

To put it in perspective, total grain movement on rail out of the Pacific Northwest is about 39 million tonnes a year, so the additional coal traffic would be two to 2.5 times the annual grain volumes.

Regulations on coal power plants implemented by U.S. president Barack Obama’s administration has forced power plants to shift to natural gas or shut down.

That has lead to a significant reduction in coal demand.

“What the coal companies started doing was simply looking for other markets and they found them in South Korea and China,” said Whiteside, who is chair of the Alliance for Rail Competition.

The Port of Longview, the Port of Cherry Point and the Port of Morrow are all working on building coal export terminals. They are in the environmental review stage and could be built quickly once regulatory approvals are in place.

In 10 years those ports could be shipping out 128 to 170 million tonnes of coal, according to the report.

Coal isn’t the only new commodity that will be moving by rail. Whiteside estimates 60 million tonnes of oil from the Bakken oil fields will travel to market by rail.

That’s an extra 200 million tonnes of coal and oil that will eventually need to move on a rail system that is already at full capacity.

The extra traffic is going to lead to capacity constraints, poor service and higher rates for grain shippers.

“If there’s a capacity problem who pays more, coal or grain?” said Whiteside.

“Coal. Coal is the big one. So what’s going to happen is the grain people are going to get hammered.”

Canadian growers who think the U.S. system may provide some relief when Canada’s rail lines are over-crowded need to think again, he said.

“What they’re going to find is there’s going to be just as much capacity problems for different reasons as there is north of the border.”

Some of that U.S. coal will be shipped through Roberts Bank’s Westshore Terminals Ltd., causing more congestion on Canada’s West Coast.

Whiteside said the U.S. rail system is far from a panacea. Deregulation of the rail industry that was ushered in with the Staggers Rail Act of 1980 has been a disaster for captive shippers.

Four Class 1 railroads control 95 percent of U.S. rail business.

“That by most terms is at least an oligopoly. I will suggest to you that by their geographic areas they’re a monopoly,” he said.

Burlington Northern Santa Fe Corp. and Union Pacific Railroad control the West while CSX Transportation and Norfolk Southern Railway rule the East.

Out West, BNSF dominates the northern tier states while UP controls the south. Whiteside said rail service is pathetic.

“Right now on the Burlington Northern in northern tier states, we’re having the greatest service meltdown we’ve ever had in 30 years,” he said. “The railways have no sense of urgency to serve plugged elevators. The grain will still be in those elevators this summer. They know that.”

Whiteside said there are only two ways to address abusive market power.

“A legislative fix is required to open up our systems down south,” he told his Canadian audience.

There needs to be some sort of regulated system for prices and service but U.S. Congress can’t agree on anything these days, so that solution is unlikely for the time being.

The other solution is to introduce more competition on rail lines.

“That’s what running rights are all about,” he said.

But once again that will require legislative intervention.

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