Canadian farmers who are unhappy with the job the railways are doing hauling grain should be thankful they don’t live south of the border.
During testimony at a recent U.S. Senate hearing into rail service, a spokesperson for a coalition of U.S. farm groups said grain growers in their country look with envy at the Canadian system.
Dale Schuler, president of the National Association of Wheat Growers, said grain producers and shippers in the United States are facing a “horrific” situation as the major railways fail to meet their common carrier obligations.
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“High rates and lack of service continue to be especially frustrating for producers in my region who need only look across the northern border to see a much more effective system,” said the Montana wheat grower.
He said U.S. shippers pay 50 percent higher freight rates on westbound grain movement than do their counterparts in Canada, which is hurting the industry.
“We grow some of the highest quality wheat in the world, yet we are rendered residual suppliers against our Canadian counterparts and find ourselves at a significant competitive disadvantage in both domestic and foreign markets because of these shipping issues,” he said.
Schuler was testifying on behalf of a number of agriculture groups, including the Dry Pea and Lentil Council and the National Barley Growers Association, before a Senate subcommittee that is studying Bill S-919.
That legislation, introduced by Montana senator Conrad Burns in April 2005, would change rail shipping rules to the benefit of shippers.
Its provisions include:
- Setting up a system of final offer arbitration, under which shippers or railroads could submit to the Surface Transportation Board any dispute over rates, service or other issues for a binding decision.
- Requiring rail carriers to provide a rate quote for service between any two points in their system.
- Allowing the free interchange of traffic among Class 1, 2 and 3 railroads.
- Allowing the transportation board to designate a state as an “area of inadequate rail competition,” which would then require the board to take appropriate remedial action.
A report by the federal Government Accountability Office warned that U.S. policy-makers face difficult decisions.
“Significant increases in freight traffic over the next 15 to 25 years are forecast, and the railroad industry’s ability to meet future demand is largely uncertain,” said the GAO report, adding any new policies must allow railways to earn adequate revenue while at the same time protecting captive shippers from unreasonable rates.
Bill S-919, along with similar legislation before the House of Representatives, is strongly opposed by the U.S. rail industry, which says the net effect would be to allow the federal government to artificially lower freight rates for a limited class of shippers.
The Association of American Railroads also said the legislation would reduce the industry’s already slim profits and prevent the railways from investing in infrastructure improvements.
In 1980 there were 40 Class 1 railroads in the U.S. Today, following a series of mergers, failures and takeovers, there are seven, with just four of them – Union Pacific, BNSF, CSX and Norfolk Southern – controlling more than 95 percent of the business.
Entire states, regions and industries have become captive shippers to one railroad, including major cereal and pulse-producing states such as Montana, Wyoming, North and South Dakota, Minnesota, Kansas, Oklahoma, Colorado and Texas.
Schuler told the subcommittee that the cost of shipping grain by rail can consume more than 30 percent of the grain’s value, up from about 16 percent when the U.S. rail industry was deregulated in 1980.
He said rail rates in Montana and North Dakota are 2.5 to 4.5 times higher than the railways’ variable costs, compared with 1.7 times costs in competitive points in Nebraska. The transportation board considers 1.8 times to be a reasonable rate of return.
Service has also deteriorated and it is not uncommon to see delays of three weeks or more when getting rail cars spotted.
While farmers try to diversify into new crops and new value-added ventures, the railways are interested only in large block movements of a single grade of grain from a single point of origin to a single destination, said Schuler.
“Poor service, a lack of available cars, increased rail rates and a regulatory agency that does not meet the needs of shippers are making it difficult for agriculture producers to remain competitive in a world marketplace.”
Transportation board chair Douglas Buttrey told the subcommittee that the board is trying to address captive shippers’ concerns, but said a balance must be struck between helping shippers and maintaining a healthy rail network.
It’s unclear whether either bill will come up for a vote before the end of the 2006 session of Congress, although NAWG spokesperson Melissa George said the organization is confident the bill will eventually become law.
“We feel this is important legislation, not just for wheat growers but for a lot of agricultural producers and a pretty wide coalition of other shippers, like chemical companies, electric companies, coal and so on,” she said.
