Transporting America’s bounty is becoming a problem.
To get a record harvest to market, America’s farmers need trains, a lot of them. A booming oil and gas industry also needs rail space for its tankers, something that wasn’t true less than a decade ago. The rail industry is racing to keep up, but demand has outpaced supply.
In parts of the Dakotas and Minnesota, the heart of America’s shale oil industry, rail capacity is so strained that up to 75 percent of last year’s record harvest is still sitting in storage, said Matt Roberts, an associate professor of agricultural economics at Ohio State University.
In Ohio, farmers haven’t seen the gridlock that is occurring in the upper Midwest, but they are wary of a ripple effect on crop prices, slower rail service and rising transportation costs.
“It is a definite concern for the farmers here,” said Patrick Knouff, who grows corn and soybeans in Shelby County. “This is the first year we are beginning to talk about it in the Ohio Valley.”
Half of Ohio’s soybeans and 40 percent of its corn is exported, so those crops need to move to ports in the South (New Orleans) and Southeast. To get there, farmers truck their harvest to elevators, where grain or beans are stored before being transferred to rail cars.
Some soybeans and corn are shipped down the Ohio River on barges, but most move by rail, said Knouff, who is the chairman of the national Soybean Transportation Coalition.
If train traffic slows too much, the elevators can’t take on new stock, leaving farmers with the choice of storing product on their farms or leaving it in the fields. The longer crops stay in the field until harvest, yields decrease, Knouff said.
Gridlock in the Dakotas is so bad that the Surface Transportation Board, a federal agency that regulates rail, held hearings this year and demanded action plans and frequent updates from the nation’s largest railroads.
Ohio’s big rail players, Norfolk Southern and CSX, issued letters to the board last month, summing up forecasts for the fall and plans to combat congestion.
“We currently project service challenges to continue at least through the first quarter of 2015,” wrote Charles Moorman, CEO of Norfolk Southern.
Moorman indicated that business was strong, and demand to ship freight, oil, coal and other goods by rail has risen faster than expected. Higher demand has slowed transporting, Moorman said, forcing the company to use more, and longer trains.
The company plans to spend $300 million on new locomotives this year and hopes to complete a $160 million expansion of its facility in Bellevue.
CSX volume has grown 20 percent this year, according to CEO Michael Ward’s September letter to the Surface Transportation Board. The uptick was not anticipated, and companies have found themselves reacting instead of being proactive.
“Network performance is not yet where the company or our customers want it to be,” Ward wrote.
CSX pulled 5,000 rail cars out of storage this year to meet demand and is investing in a facility in Kentucky to expand grain-harvest capacity. CSX is moving to 90-car trains, something unseen before 2007 but now the norm.
Both companies have access to the equipment needed to meet current demand, according to their letters to the board, but need more skilled manpower — specifically train and engine crews. CSX plans to hire 3,000 people this year, but it takes time to train crews.
“They can’t move it without crews,” said Tim Shank, vice president of grain services at Trupointe, a farm cooperative serving more than 4,000 members in Ohio and Indiana. “It’s not lack of equipment; it’s a lack of qualified people.
“It takes time to ramp up.”
The Andersons, based in Maumee, near Toledo, sees the issue from both sides. The company leases more than 20,000 rail cars and runs 40 grain facilities from Ohio to Iowa.
Timing is everything, said Jim McKinstray, vice president of central merchandizing and transportation at the Andersons.
“(Grain) facilities are dependent upon transportation to remove the volumes of grain that they receive,” McKinstray said. “You are captive to removal of inventory. That is where I would say that we have some risk.”
This year sets up to be tighter than normal because of rail demand and a bumper crop, McKinstray said. No one region the Andersons serves is any worse off than another, McKinstray said.
“I think there are going to be challenges everywhere,” he said, “and they won’t just be physical, and not restricted by mode.”
He sees a tighter waterway transportation market and a shortage of truck drivers.
Transportation costs are rising, Shank and McKinstray said, taking another bite out of farm income this year. Prices for barge space are nearing record highs, McKinstray said.
The rail crunch isn’t all bad news. Columbus Castings, which makes rail cars, is benefiting. The company announced last month a doubling of its workforce to meet production demands.
This year’s crop of soybeans and corn will be the largest ever, the U.S. Department of Agriculture says. That’s good news for consumers, who will see lower prices in stores in the years to come, and for farmers who raise animals.
But two bumper crops in a row, coupled to a squeezed logistics system, can spell trouble for commodity crop farmers. Prices have plummeted, especially in the Dakotas and Minnesota.
Relieving the capacity crunch is a long-term issue for both railroads and oil companies. More pipelines would help. More crews and rail cars and longer trains would also help.
The Andersons shifted every facility that serves CSX to handle 90-car trains. All of its grain facilities also invested in high-speed loading and unloading equipment.
CSX’s Ward noted in his letter to the Surface Transportation Board that 2014 has proved the need for much more rail capacity. Almost two-thirds of the 3,000 people CSX will hire this year will be for train and engine crews. The company will also buy 375 locomotives.
Though a major capacity crunch hasn’t hit Ohio yet, the harvest has not kicked off in a meaningful way, either. Recent wet weather has slowed field work.
“We are concerned about, if we get a good weather break, what service and what kind of timely shipments we will be able to make?” Shank said.
It’s never a good year to have a transportation hiccup, but this year, on top of booming oil shipments, rising freight demand and a hot automotive sector, a record crop is coming to harvest.
“This year,” Roberts said, “we have so much more grain that needs to be moved.”
jmalone@dispatch.com
@J_D_Malone
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