TRANSPORTATION
Page 9 Monday, August 19, 2013 FarmWeek
Energy cushions rail sector; competition, policy issues arise BY MARTIN ROSS FarmWeek
Much of America’s energy still rides the rails. But it’s a far different mix today. And biofuels are helping make the ride less bumpy for major rail carriers, according to transportation consultant Kendell Keith. Amid declining coal volumes and with service to other sectors “a little bit more unpredictable” as trucking
and rail compete for freight transportation, a “booming” petroleum industry has played a key role in cushioning carriers, Keith told FarmWeek. Heavy investment in rail ethanol infrastructure from 2007-09 has also helped provide added stability in rail flows. Keith cites the industry’s “resiliency” in adapting rapidly to new growth areas and notes “a lot of investments took place to get
Rail, regs and rates: STB taking hard look
In the midst of rail capitalization and commerce, Federal Surface Transportation Board (STB) Chairman Daniel Elliott stresses the need for shipper cost-effectiveness and competitiveness. Elliott notes his agency’s heightened efforts to “strike a balance among all stakeholders,” enabling rail carriers to reinvest in infrastructure while ensuring ag interests can “ship their goods anywhere, any time, at reasonable rates.” He called the U.S. freight rail sector “a model of business efficiency” and argued major carriers are among “the most profitable entities in this country,” due in part to rail deregulation under the 1980 Staggers Act. “Deregulation worked so well that many shippers feel there’s now a lack of real competition,” Eliott nonetheless conceded. “They argue mergers have left the country dominated by two regional (carrier) duopolies that increasingly offer high, take-itor-leave-it rates to customers who have no other transportation alternative. ‘Deregulation “I have asked our stakeholdwo r ke d s o we l l ers how, if and where the board that many ship- should update its rules and procedures in light of the many pers feel there’s changes in the rail industry that now a lack of real have occurred in the wake of deregulation.” competition.’ Following a 2011 hearing featuring testimony from rail and — Daniel Elliott shipping interests, the board began formulating rules for Chairman, Surface improving “rail-to-rail” compeTransportation Board tition through use of reciprocal switching, where inbound or outbound cars are switched by one railroad to or from another’s rail siding. The STB is reviewing a proposal to grant shippers who lack effective alternatives greater access to competing rail lines. Elliott cited concerns about the plan’s impact on rail economics, shipper rates and services, and “captive shippers” often limited to a single carrier and unable to benefit from the new rule. Meanwhile, the board is working to help enable captive shippers to challenge rates. Many shippers have been reluctant to file disputes because of high legal costs related to the board’s “complex” standards for determining reasonable rates, Elliott said. The STB has developed a simplified test that factors case-bycase variables and a “three-benchmark test” that compares disputed rates to those for similar rail traffic. Because simplified procedures are less precise than previous tests, the board capped the amount of rate relief available to shippers who file under them. This fall, the STB will review possible new grain rate dispute/relief procedures. No grain shipper has filed a rate complaint with the STB in 30-plus years “despite the fact that a great number of these shippers are captive to a single railroad,” Elliott noted. STB’s proposal would “automatically reflect economies of scale” relative to shipment size increases and rail unit costs and more accurately assess rail variable costs to “ensure rates that should be subject to challenge indeed are,” he said. — Martin Ross
ethanol shipped by rail.” “Now we’re seeing a lot of investments in fracking and (tar) sands oil delivery,” he reported. “The energy sector is truly a basis for growth in the U.S. economy. “And the biofuels sector is steadier today. Growth in biofuels, if we allow it to happen, is tremendous for rail. It’s helping to fill in some of the blanks coal has left.” According to the U.S. Energy Information Administration (EIA), increased use of rail for oil transport is due largely to heightened crude oil production in North Dakota and Texas that’s exceeded pipeline capacity. The amount of petroleum products transported by rail totaled close to 356,000 carloads during the first half of 2013, up 48 percent over that period in 2012. However, EIA notes the pace of that growth is leveling out. Ethanol moves from plant to blending and export terminals primarily by rail. Creation of federal Renewable Fuel Standard ethanol man-
dates in 2005 spurred a boom in rail tank car lease rates and tank car production that subsided after the 2008 recession and a drop in gas consumption. But several biofuels producers are poised to launch new cellulosic ethanol operations, adding millions in new gallons to the rail network. And with crude oil-by-rail becoming a “bigger piece of the pie,” John Grassley, rail services director with farmer-
owned grain and energy firm CHS Inc., questions “what happens to (rail) capacity.” At the same time, Grassley warns federal biofuels policy shifts could impact the cushioning effect of railed biofuels. “Thirty-five to 40 percent of U.S. corn acreage is now used for biofuel,” he noted. “What happens if the government mandate changes? That would have a huge impact not only for agriculture but for the rail industry, as well.”
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