Hat tip to Atrios for picking up on a NY Times article reported by Ron Nixon noting that farmers are battling Bakken Crude for rail capacity to move their crops to buyers.
FARGO, N.D. — The furious pace of energy exploration in North Dakota is creating a crisis for farmers whose grain shipments have been held up by a vast new movement of oil by rail, leading to millions of dollars in agricultural losses and slower production for breakfast cereal giants like General Mills.
The backlog is only going to get worse, farmers said, as they prepared this week for what is expected to be a record crop of wheat and soybeans.
More below the
Orange Omnilepticon.
This food fight (no pun intended) is the collision of a number of trends. Loss of railroad freight capacity due to mergers and line removals over the last few decades is one of the historical issues, as is belated investment in rail infrastructure. Combine that with a surging demand for oil shipments which are far more lucrative for the railroads, and it's pitting the needs of farmers against priorities set by market forces. Our old friend the Keystone XL pipeline is also in the mix, as we'll see below.
Finger pointing and buck passing is in operation as tempers flare. The situation is stark.
Railroads have long been the backbone of North Dakota’s transportation system and the most dependable way for farmers to move crops — to ports in Portland, Ore., Seattle and Vancouver, from which the bulk of the grain is shipped across the Pacific to Asia; and to East Coast ports like Albany, from which it is shipped to Europe.
But reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway — North Dakota’s largest railroad, owned by the billionaire Warren E. Buffett — had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars.
For farmers, the delays often mean canceled orders from food giants that cannot wait weeks or months for the grain they need to make cereal, bread and an array of other products. “They need to get this problem fixed,” Mr. Hejl said. “I’m losing money, and my customers are turning to other sources as a result. I don’t know how much longer we can survive like this.”
The Economist notes the problem has been building for some time;
it hit Canadian farmers last year, and the situation has not improved for them this year.
The railways blame the weather. Even by Canadian standards, this winter has been extreme. Once the temperature drops below -25°C, they must run shorter trains because it’s harder to pump air down the full length of the train to keep the braking system working. And they must run them slower because extreme cold can freeze switches and damage tracks. “You could say this is a one-in-a-hundred-years crop and a one-in-a-hundred-years crop winter,” said David Miller of Canadian National to a parliamentary committee.
The farmers aren’t buying that explanation. They claim the railways lack the capacity to deal with unexpected events like a record harvest or prolonged cold weather because they have reduced crews, locomotives and cars in a bid to make higher profits. The farmers also charge that the railways are favouring more profitable shipments of petroleum products—although still a small part of their business, oil shipments have increased by 28,000% between 2008 and 2013 because pipelines are running at full capacity.
Colorado is seeing problems, as not only grain shipments but coal for utilities is being held up by limited rail capacity as the Denver Post reports.
Eighty percent of Colorado's wheat crop is shipped out of state by rail, mostly for export to Asia and the Mideast.
At a shipping terminal in Byers, Cargill has filled its 720,000-bushel elevator with wheat and is now piling incoming deliveries on the ground as it awaits rail cars.
Terminal manager Michael Moore said a shortage of rail cars is an annual occurrence during and after the wheat harvest.
Wheat miller Ardent Mills, which recently established its corporate headquarters in Denver, said it hasn't yet experienced any impact from rail delays but is preparing contingency plans.
"We are working with our customer base to anticipate any supply chain disruptions as a result of slowed rail transportation," supply chain vice president Jeff Zyskowski said. "We are utilizing our network of mills and various modes of transportation to ensure there is no disruption in delivery ... for both inbound grain to our facilities and outbound product to our customers."
Booming production of crude oil also is stressing the nation's rail system. Colorado output has more than doubled since 2008, to 177,000 barrels a day in 2013.
A report from the Ferrari Group calls it a "classic capacity-constrained network" issue, linking to
a Bloomberg report and summarizing the situation thusly:
Last winter, rail bottlenecks and delays rippled not only to grain and crude oil, but to other bulk commodities such as sugar and fertilizer, and to the shipment of automobiles and steel. According to this latest Bloomberg report, rail lines anticipate the backlog of grain rail shipments could extend through the October-November period, which overlaps with other agricultural harvests. Some railroads may not recover at all, which will present additional shipping challenges for farmers, grain operators, and indeed other industry supply chains in the coming months. As noted in previous commentaries, ongoing capacity and driver shortages among U.S. trucking companies cannot be relied on to solve this problem, nor is it economical for shippers and producers.
U.S. rail transportation infrastructure remains challenged and there needs to be concerted efforts to address both short and longer-term resolution of consistent reliability in rail shipping networks.
The congestion on rail lines due to increasing oil shipments and the need to move record crops is also proving a threat to Amtrak, always under attack but now even more so because of delays for which it is not responsible.
Via the StreetsBlog Chicago:
The resulting sharp increase in rail traffic doesn’t just threaten communities along the line that are unprepared for their explosive cargo — a threat that the US Department of Transportation recently issued new rules to address. Growing freight volumes are also delaying millions of passengers aboard Amtrak or commuter trains, most of which share tracks with ever more freight trains. Nationwide, the number of delayed Amtrak trains has increased by almost 75 percent. As Tanya Snyder reported yesterday, that results from a court ruling that left Amtrak powerless against freight train interference. Around Chicago, hub of the continent’s railroad network, delays have multiplied on the region’s busiest commuter rail line – a Metra line operated by BNSF, which is also North Dakota’s biggest freight hauler.
Read the whole StreetsBlog article - lots of sobering information in there that should be getting more attention from both the press and the government.
This is a Multi-Dimensional Bottleneck
The railroads have always been subject to boom-bust economic cycles. When the economy is good, they are often strained to meet demand. (Grain shipments and car shortages are a perennial problem) In down times, they hurt because they have excess capacity that costs money to maintain without generating revenue. And in the modern hyper-connected world of high speed stock trading, multinational financial behemoths, complicated financial "innovations" etc., there's a problem attracting investment capital to what to many is a dinosaur old-school business. (Plus the demand to shovel money to shareholders instead of investing it in physical assets and staffing doesn't help either.)
Ironically, Warren Buffet gets how important railroads are, even as his BNSF is at the center of so much of this congestion. Consider this stunning model railroad layout (pdf) created for display to Berkshire-Hathaway stockholders to show how it connects all their investments.
Modern railroading doesn’t get much bigger than BNSF Railway. Its 40,000 employees operate 32,000 miles of track in 28 U.S. states and two Canadian provinces. Each year BNSF uses its 6,000 locomotives and 85,000 freight cars to haul enough newsprint for 350 million Sunday papers, enough grain to supply 900 million people with a year’s worth of bread, and enough coal to supply power to one out of ten homes in the U.S.
The connections are more complex than that, as it happens. Looking at the comments to
the NY Times article that sparked this diary, a number of them jump to the obvious solution: build the Keystone XL pipeline, and problem solved. But, the pipeline is also part of the problem.
One, even if the pipeline were completed and operating today, there would still be a boom in oil production causing rail congestion, because A) the materials needed for oil exploitation would still need to be shipped to oil fields, B) there would still be production in areas not reached by the pipeline, and C) the boom might actually get worse if the pipeline made it easier to move oil in greater volumes. And lets not get into all of the negative environmental/climate consequences.
Two, the uncertainties over the pipeline complicate matters for the rail industry. Until they know for sure if it will or will not be built, they really don't know if they should invest in expanding/improving rail capacity. There's no point in building for business a pipeline could drain away, and things like railcars, tracks, signaling, etc. are investments that will be around for years or even decades. That's a lot of money to gamble.
Three, a sane energy policy based on the fact that greenhouse gases are cooking the planet would be working to move away from extremely dirty energy sources like not just Bakken Crude but coal as well, which would have a big impact on the railroads. Again, an uncertainty with regard to the need to invest in rail infrastructure.
And then there's the food issue. It's not just about food prices at home; those grain shipments are largely headed for overseas markets. Interrupt them, drive up prices and there could be increasing global instability, trouble with our trade balances, and worse. Add in crop failures due to climate issues, war, etc. and the potentials look even worse. (And some of the commenters at the NY Times article also wonder if maybe we shouldn't be growing so much corn for ethanol...)
The elephant in the room in all of this is a national government rendered incapable of anticipating, comprehending, or planning for long-term solutions to this and so many other problems. It's a consequence of the myriad failures of our press and political system to deal with ideological mass insanity on the part of one party, and the failure of the other party to come to terms with that reality and confront it. America has a huge number of challenges reaching beyond this particular issue with the rail systems of the country - but dealing with it would be one place to start. (BruceMcF has no end of diaries on what we could be doing.)
It's more than a little ironic that the current scenario echoes plot lines from Atlas Shrugged (except for the kinky sex scenes). An inadequate rail industry groaning under demand, grain shipments left to rot, shipments of oil by train thanks to new extraction techniques, a government failing to respond... For those triumphantly screaming "Ayn Rand was right", please remember the book ends with the total collapse of the world economy, anarchy, mass starvation and the death of billions, all so John Galt and his band of cultists don't have to deal with those inconvenient "takers" any more. Surely we can do better than that.
10:26 AM PT: UPDATE - via NARP, here's one set of suggestions for things we could be doing with our railroads http://ht.ly/...