I don’t
believe that the process of shipping grain and other farm commodities
we produce in the Northern Plains gets
the attention it should. We in farm country tend to have stronger opinions about
biotechnology, hunting on private farmland and land easements than rural freight
issues.
But disturbing trends affect all means by which we move our goods, and those trends influence our prices and competitiveness.
Crude oil, over $40 a barrel as I write, affects all modes of grain transportation, but hits the trucking industry especially hard. The price at the pump for diesel today is about $1.70 a gallon, about 25 cents higher than a year ago. That’s a big hit for truckers, who operate on a thin margin of about two percent, according to the Owner-Operator Independent Drivers Association (OOIDA). Many in the trucking industry have no choice but to pass along the higher cost with a fuel surcharge. In fact the OOIDA (www.ooida.com) is urging Congress to pass fuel surcharge legislation.
The OOIDA points out that small-business truckers (operating six or fewer trucks) comprise over 70 percent of the motor carrier industry. Higher fuel costs are hardest on these small trucking firms and independent truckers. A decline in this segment of the trucking industry because of sustained high fuel prices could squeeze rural freight options and drive farm-to-market shipping costs higher.
“ Trucks are repossessed when you can’t make the payments, and you can’t make the payments if you can’t pay for fuel,” says Todd Spencer, OOIDA executive vice president. After a similarly dramatic jump in diesel prices in 2000, Spencer says, more than 220,000 drivers across the U.S. lost their rigs.
According to Ann Courtmanche, market analyst for U.S. Wheat Associates, freight rates to overseas destinations have more than doubled and even tripled since last fall, depending on the size of the vessel, timing and destination. Higher rates have been fueled by huge purchases by China and a limited supply of new ships. Ms. Courtmanche notes that since late February, freight rates have dropped 10 to 30 percent from record highs. But with no new supply available in the short term and China’s tremendous demand for raw materials expected to remain steady throughout the year, grain traders speculate whether ocean freight rates may simply be cooling temporarily.
Rail may be the most maddening of all rural transportation issues, driven in part by monopolies. The National Association of Wheat Growers (NAWG) points out that in 1980, when the Staggers Act, which deregulated rail service, was approved, there were more than 40 Class I railroads competing for business. Today, after mergers and consolidations, there are seven Class I railroads, and four of them control more than 95 percent of railroad business, with three controlling more than 70 percent of grain movement.
Going back to last year’s harvest and extending into this year, grain shippers who paid to preorder 26- and 52-car unit trains from Burlington Northern Santa Fe still found delivery of the cars 30, 40 even 50 days late. (The BNSF accounts for about 70 percent of the grain shipped from North Dakota by rail; the Canadian Pacific moves the rest.)
Meanwhile, the grain shipper incurs mounting interest costs, lack of storage and the risk of losing business with grain buyers. Still, the BNSF plans to raise its rates this year, likely about a dime per bushel.
Excess U.S. rail rates and poor service make U.S. grain less competitive for export. A study at North Dakota State University indicates that freight is the leading non-tariff trade barrier for North Dakota ag commodities.
To improve service, the BNSF has pledged to add bigger and better cars, speed delivery and even provide an ombudsman to work directly with grain dealers in the Northern Plains.
Still, the NAWG and other industries are lobbying for The Railroad Competition Act of 2003 (H.R.2924, S919), which would go a long way to ensure improvement in the transfer of grain and other commodities and, even more important, provide an element of competition back in the U.S. rail system.
A number of agricultural transportation interests are sponsoring a Rural Freight Transportation Conference in Minneapolis on September 8, 2004. The purpose of the conference is to “highlight economic, planning and policy issues associated with promoting effective and efficient multimodal export alternatives for rural economies.” For information: www.ugpti.org.
I hope the powers-that-be will participate in ag freight forums such as this and put rural freight issues on the Capitol Hill front burner. How efficiently and cost effectively farm goods are shipped from the Northern Plains may be a key to how competitive our northern ag production sector remains in the future.