Grain elevators and capacity

[gabe]

I remember reading a post over the weekend that mentioned Union Pacific was basically refusing to do business with grain elevators that did not have a capacity of 100 cars or more on its Omaha - Chicago main. The same post noted CN/IC and Iowa Interstate's Chicago - Omaha mains seemed to be able to make money on smaller consists.

I think this is a good topic for discussion and have been kicking it around in my head for a while. Here are my thoughts:

(1) I am empathetic to the contention that UP should accept business from less than 100-car grain elevators. As a rail fan, the thought of the local coming by an elevator just out side of a small town and picking up or dropping off four or five grain hoppers is one of the most romantic in all of railroading--and certainly brings me back to some of my childhood memories of railroading.

(2) I am more empathetic to UP's desire to make money off of what I now believe is a sound business decision--after all, I didn't chose my manner of putting food on the table on the basis of my views of romantic ideals; why should I hold UP to such a standard?

At first, I thought the person who noted that IC/CN and Iowa Interstate made money on smaller loads had a pretty good point. Here in Indiana and in my stomping grounds of Illinois, it is still common to see two or three grain hoppers shoved into a lonesome sidding near a rustic grain elevator (I still say it is a beautiful aspect of railroading). If that doesn't make money why would they do it?

Then I thought, well the VERY BUSY old Wabash main that went through my hometown didn't have a lot of that and neither does the CSX main in Indianapolis. I only tend to see the small shipments on short line, branch lines, or regionals.

Then it hit me: one of these things is not like the other. Although I could be persuaded otherwise, I think the issue with UP's decision is capacity. The IC/CN line and the Iowa Interstate are not nearly as busy as the UP main. It is not that UP can't make money off of smaller grain consists, it is that it doesn't make sense to turn away or slow down a money-making manifest train for a few grain cars with a low profit return. IC/CN, Iowa Interstate, and similar lines in Illinois and Indiana don't have to worry about turning away such revenue-ladden traffic because they are no where near capacity.

Under this line of thinking, UP's decision makes perfect sense to me.

Thoughts?

Gabe

[Randy Stahl]

I think UPs biggest problem is car supply. Or at least thats what I'm hearing from my FRA friends
Randy

[Anonymous]

I live a block and a half from the old Wabash main, now NS, in Sadorus, Illinois. There is a small elevator here right on the main that has several carloads a week or so. It has two sidings parallel to the main that are only used for grain cars. There are two similar elevators within a few miles either way, one at Ivesdale and another at Tolono. I doubt that the three of them would account for a hundred cars a month! Unless the ones mentioned above are way out in the boonies I think UP must have other concerns than just the volume, because NS seems to be able to handle these small operations.

[Anonymous]

Its time for regulation...The Railroads are trying to pu***he small farmer out of buisness again. railroads are common cariers and they cant do that. But the small farmer does not know that. Canada has a wheat board that would not put with this crap for a minute.

[bobwilcox]

Railroads retained their common carrier obligation after Staggers but they can virtually price the service at any level they see fit. Also, in grain, fertilizer, etc. they have never been obligated to supply covered hoppers. The car supply obligation died with the 40' box cars in the 1970s.

[gabe]

Mark,

I have often wondered the ratio that barges and trains are able to compete with one another when operating grain traffic on equal footing. Gathering from your conclusions, that ratio is barges 100/trains 0?

Naturally, I am not asserting your conclusion is incorrect. However, I seem to remember something to the effect that the Illinois Central hauls grain from Iowa over BNSF trackage rights to New Orleans--thus crosing the Mississippi. I also seem to remember that the Illinois Central tried to contract with the Indiana Railroad to take 20 to 25 unit grain trains a year from Indianapolis to Effingham, IL and, then, the IC would take it to New Orleans--instead of taking the grain to Cairo or something like that?

Are my facts incorrect, or is there an explanation why the IC main is able to take grain traffic that would otherwise be on the Mississippi? It occorred to me that the time and money spend unloading the grain car on to the barge and then having the barge load the grain onto the ocean liner might explain why railroads are able to compete--eliminates the middle man?

Once again, I am not challenging your contention, I am just wondering what makes these particular trains viable. Or am I incorrect about the destination of this IC traffic? Perhaps it just delivers it to Cairo or something? But if that were the case, why doesn't the Iowa grain be loaded on the Mississippi in Iowa? Perhaps the final destination is not the ocean and there is not a river servicing the destination? However, if the grain is heading south, that is hard to imagine.

Gabe

[Anonymous]

There are some small grain elevators on a rail line that runs North-east of Aberdeen, SD (to Fargo?) that from what I have heard, seems to be in the same situation as far as not being able to get any grain out via rail this fall. The line is operated by Dakota, Missouri Valley & Western. I don't know exactly what the issue is, but I am guessing that maybe it is related to a general shortage of grain cars(???)

What makes this issue interesting to me is that the line is actually owned by the state of South Dakota (purchased only a few years ago from BNSF), and I doubt that the line has any practical use, other than servicing the grain elevators. Also, last year, a LOT of time and money was spent upgrading the track.

I can't help but think that the state of South Dakota must be pretty annoyed at the situation, if it is as I understand it to be. They have a lot of money invested in the line, and it appears that not a whole lot of grain will be using it this fall.

BTW, as a note, South Dakota also has a nice pair of railroad maps for the state. They can be found at this website:

http://www.sddot.com/fpa/railroad/map.asp

FWIW, I have a number of images taken last year at the grain elevator in Amherst, SD (along with a bunch more farming shots):

http://www.juddspittler.com/gallery/harvestl

If you poke around long enough, you will probably find some train pictures as well.

Judd

[dldance]

barges and grain trains seem to co-exist along the Columbia-Snake River waterway - lots of grain goes by rail into Portland OR

dd

[jeaton]

Gabe

The routing of a particular movement of grain from the farm will tend to depend on the combination of costs or charges of the various services used. Grain produced close to the river and going for export will tend to move truck-river elevator-barge, because the combination of rates and charges will usually be lower than a truck-elevator-rail route.

Moving away from the river you may find that truck-elevator-rail (or truck)-river elevator-barge, becomes more expensive than truck-elevator-rail and thus the movement may be "all rail" even if the rail route crosses the river. If the all rail route becomes the choice, it means that the railroad has decided it can set a freight rate, usually on a unit train move, that will get the business AND meet their profit margin needs.

With the post Staggers flexibility, the railroads can also employ a certain amount of pricing strategy to get the business they want in the way they want it. Using the IC/CN and export grain from Illinois to the Gulf as an example, the railroad might only have single or small multiple car rates to Cairo, or if it exists, a unit train rate that is legal, but still too high to cause a diversion to a rail-Cairo- barge routing.

Let me caution that these are generalities. The complexities and all the players involved leave plenty of room for exceptions.

Jay

[jeaton]

Gabe,

See what I mean by complexities? (Thanks, Mark.)

Jay

[MP173]

Mark, Gabe, et.al.

Can I sign up for the economic's class?

Great stuff.

I grew up in a farming area, where this time of year elevators filled the IC boxcars full of grain. I remember "gleaning" corn after harvest, filling gunny sacks and selling it.

Years later I made trucking my vocation and was fascinated by movement of goods efficiently.

Then I turned to sales and became even more fascinated by how business works.

Economics is something we take for granted, yet affects us all greatly.

Keep up the continued discussion on this interesting subject.

MP

[Anonymous]

here in the north central IL area, since they've put up all the "high speed" (mendota, minonk, wenona, galva, IL and so on) truck to rail elevators the river terminals have been virtual ghost towns. other than the specialty grains...non-GMO, high oil, etc etc. which move by barge at certain times of the year, there's been a pretty good shift to rail over the river. i haven't heard much about the price difference, but obviously it must be better. the grain market is pretty slim lately, so even a penny a bushel goes a loooong way.

just a side note, most likely unrelated....south america has pretty quickly grown to be almost in a tie with the U.S. as a major exporter and grower of soybeans. i don't remember where i read this, but an article told of a hog farmer in the eastern US (south carolina i believe) who imports beans/beanmeal from south america. to harvest, ship to port, boat it up the atlantic, unload and to ship to the farm is CHEAPER than growing beans in the US, only a couple hundred miles away. doesn't seem realistic does it?

[jeffhergert]

On the UP's Omaha-Chicago main line, at least on the Iowa side, there is only one elevator that still ships by rail that can't take 75/100 cars at a time. It can and does take blocks of 25 at a time. If the cost is something that they can live with, I imagine they'll keep doing business.
And all those large capacity elevators? One at Denison is owned by ADM and can ship either by UP or IC/CN. One is owned by a co-op that has other elevators on other UP lines. The remaining 4 belong to one co-op, one of Iowa's largest. Railroads aren't the only things merging into larger, but fewer companies.
Jeff

[bobwilcox]

One reason you see few rail elevators in Eastern IA on the UP is that the grain processors in Clinton, Cedar Rapids, etc. take huge amounts of grain trucked in from farms. In Western IA large amounts of grain go to local livestock feedlots and never leaves the local area.

[jeaton]

Here is a link to an article about one of 5 new grain storage and unit train shipping facilities on the BNSF in Illinois. http://www.pjstar.com/news/topnews/b48o9l1u030.html

Among other things, the article mentions the market shifts that are an ongoing part of the grain business.

I am not surprised that the the UP's announcement to stop its service to less than trainload shippers on Omaha to Chicago line does not leave any significant number of grain elevators in the lurch. Once the railroads realized that unit trains, I believed first used for coal, were a very efficient means of growing profitable business, it was inevitable that there would be a massive shift from grain being shipped in single car lots to the high volume movements we see today. That is not to say that rail cost and rates were the only transportation factor. The development of high volume loading and unloading systems and larger truck trailers designed for rapid loading and unloading also contributed to the big decline of the country elevator as the primary truck to rail transfer facility.

Given that one cent per bushel can can make or break a sale, the grain industry has a powerful incentive to reduce shipping and handling costs.

Jay

[SALfan]

Here's another illustration of how transportation costs affect the crops grown in an area. A poultry company has their feed mill in my hometown, with corn as one of the main or the main ingredient of their feed. Most of the corn comes from Indiana in blocks of 10 hoppers, due to storage capacity at the mill.

However, the farmers within 50 miles or so of my hometown plant more of their acreage in corn than in most places in south GA. Why? The poultry company will buy local corn at the same price they pay for Indiana corn plus the transportation cost. The farmers who have combines and the local custom harvesters also have trucks they can use to haul to the feed mill, and a lot of farmers have grain bins to store the corn until the feed mill is buying. Farmers can make a profit at the price the feed mill will pay, and the feed mill needs many times the amount of corn that can be grown locally, so the demand is there.

[Anonymous]

Mark and all.

We should point out that, in theory, the lowest combo rate for moving grain to deep water ports for overseas shipment should be rail to barge, the next lowest would be the competition of all rail vs truck/barge, then truck to rail, then lastly all truck.

Some of that rail to barge combo transport does exist here in the Pacific Northwest. The lines that were mentioned as being taken over by the Washington DOT using the DOT's own grain hoppers sometimes run all the way to Portland et al, while at other times they run only as far as the Port of Wallula for transload to barge the rest of the way. I guess it depends on rail traffic in the Columbia Gorge and the willingness of the two Class I's in this area (UP and BNSF) to take on the grain shuttles from the shortline operators. It is interesting in that the shortline operator in this case has secured running rights over UP's Spokane line to reach the barge port. The UP Spokane line apparently does have excess capacity for them to allow this arragement.

It is also interesting that WSDOT officials involved with this line takeover admit that the current ratio of grain shipment by rail vs shipment by truck/barge (roughly 30% to 35% by rail, 65% to 70% by truck/barge) will not change appreciatively even with the state's take over of the lines. I pointed out to them that it would be cheaper in the long run to forego the cost of a state takeover of the branchlines and instead build a new connecting line between the branchlines and the barge ports, since that is the only way to effectively shift grain off the roads to the rails, and allowing the shortline operator to bypass the Class I's and ship direct to the barge ports would allow them to dominate grain hauling (albeit for the shorthaul shuttle only). Also, the local port districts (which are targeted to takeover the lines from the state sometime in the future) would be more willing to do so if they can also enhance the value of their barge port properties along the river rather than being forced to fund a competing (read: diverting) entity away from the river properties.

Also, the operators of the former Camas Prairie lines run shorthaul grain shuttles to the Port of Lewiston ID from time to time using older 80 ton hoppers which are not allowed off the shortlines' home rails.

If you think about it, it makes more sense for railroads (especially shortlines and regional's) to focus on competing soley with trucks for the haul to the barge ports rather than competing with the combined truck/barge rates by trying to run all rail to the deep water ports. Which scenario provides a greater revenue buffer: Competing with trucks at $0.06/ton-mile, or with the truck/barge combo rate at $0.03/ton-mile? Obviously, if they can achieve the same relative annual utilization of their rail hoppers, it would be the former. Would a railroader rather publish his cutthroat price at $0.05/ton-mile instead of $0.02/to-mile? Why shortchange yourself for the sake of pride?

How long did it take for the railroads to finally start working with the trucklines by running TOFC instead of trying to compete with them? How much longer will we wait until railroaders start working with barge lines instead of trying to undermine them via the environmentalist extremist movement?

The concept of rail/barge combo rates is one that has barely been scratched at the surface, and as capacity issues on mainline rails constrain the operation of grain trains, more Class I's might just choose to shorthaul themselves by transloading unit grain trains at a barge port and free up the mainlines for more intermodal.

[Anonymous]

Regarding grain crossing the Mississippi River, most of the corn loaded at Iowa Interstate (IAIS) served stations in western and central Iowa is destined to Peoria, Illinois (P&PU delivery) and thus crosses the Mississippi River. In addition, much soybean (and probably some corn) traffic has been moving this summer from Iowa, Chicago & Eastern's Corn Lines to the IAIS at Davenport, Iowa then to ADM Geowmark facilities in Creve Coeur on P&PU.

In additon, CN grain extras originating in Iowa that utilize BNSF haulage rights are destined to Decatur (via Peoria), New Orleans and NS (via Centralia). BNSF and CN interchange about 2 or 3 of these per week at Peoria alone.

DPJ

[Anonymous]

Hard Red Winter wheat is only grown west of the Mississippi Rv and crosses the Mississippi Rv in fair quantity as it moves to mills in the midwest, southeast and the midatlantic states. However, the general flow of grain is as discribed: north and west by rail to Portland, south by rail to Galveston or south by barge to NOL.
There is a market in grain trains from several midwest points,ie, Columbus, OH and Evansville, IN which serve to supply the south and south east corn demand with grain originating in southern Indiana and central Ohio. If anyone has more information on how these trains are traded and their values set it would be of great interest to have it explained along with volumes of grain traded and number of trains moved within the market segment.