Hurricane Harvey, CSX problems dominate transportation picture

by Ron Sterk
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KANSAS CITY, MISSOURI, U.S. — Two major events have challenged grain and agricultural product shippers in recent months — significant though brief disruptions to grain exports from the U.S. Texas Gulf resulting from Hurricane Harvey and rail delays caused arguably by operating changes implemented at CSX Railway. Meanwhile, the harvests of large corn and record soybean crops should increase demand for transportation services seasonally over the next several weeks, although 2017 combined corn, wheat and soybean production is down from 2016, as are combined export forecasts for 2017-18, which should ease the overall demand for transportation services.

Historic rainfall exceeding 50 inches from landfall of Hurricane Harvey and repeated landfall as a tropical storm on the Texas Gulf coast in late August resulted in widespread flooding that “reduced rail service along the Gulf coast and all but halted regional grain exports through the first week of September,” the U.S. Department of Agriculture said in its September Wheat Outlook. The USDA noted that the situation was “particularly impactful” on wheat as an average of 46% of total U.S. wheat exports ship from Gulf ports in Texas and Louisiana, and export elevators in Houston, Galveston and Corpus Christi account for 56% of Gulf wheat exports.

“For the week ending Aug. 31 there were virtually no wheat inspections reported for Gulf ports due to the shutdown of rail and port operations,” the USDA said. “For the week ending Sept. 7, no wheat was inspected for export at either South Texas or East Gulf ports, while North Texas inspected a relatively modest 50,318 tonnes of hard red winter wheat, down from 160,512 tonnes for the same week in 2016.

“An indicator of the resilience of the regional transportation system, inspections at the Mississippi river ticked up to near pre-storm levels for the week ending Sept. 7 and aided to lift cumulative Gulf area inspections to 132,792 tonnes.” The USDA said the disruptions from the storm were not expected to reduce total wheat exports for the year.

Conditions improved markedly as railroads worked to repair tracks, and rail shipments to the Texas Gulf mostly had recovered by the end of September.

“Thanks to the incredible work of countless teams, today the majority of service has been restored,” the Union Pacific Railway said in a Sept. 7 customer notice. “At the height of the storm, 1,750 miles of track were out of service and 2,440 route miles were affected.”

The BNSF Railway restored service to all of its subdivisions impacted by Hurricane Harvey by mid-September but noted that customers may face delays as track and signal work continued.Kansas City Southern restored service to all of its subdivisions by Sept. 9, and noted on Sept. 13 that all embargoes had been lifted, although delays were possible due to speed restrictions and order backlogs.

Low river levels slow barge traffic

In contrast, low water levels on key barge routes slowed traffic in late September and early October and caused barge freight rates to surge, according to the USDA.

“Low water conditions have impacted barge movements on the Mississippi, Illinois and Ohio rivers, forcing barge operators to decrease drafts for barges, which is reducing barge cargo capacity,” the USDA said. Spot barge rates on Sept. 26 for export grain from major originating areas rose 27% to 50% from a week earlier, USDA data showed.

“In addition, harvest pace is slower than average,” the USDA said. “At this early harvest stage and with adverse navigation conditions, elevated barge rates could continue well into mid-October.”

The USDA added that delays on the waterways shifted grain to rail, pushing up weekly rail car deliveries of grain to the Mississippi Gulf for the week ended Sept. 20 by 148% from a week earlier.

Corn harvest in the 18 major states was 17% completed by Oct. 1, behind 23% at the same time last year and 26% as the 2012-16 average for the date, the USDA said in its weekly Crop Progress report. The soybean harvest lag was not quite as great with 22% of the crop combined by Oct. 1 compared with 24% last year and 26% as the average.

Total year-to-date shipments of grain through early September were above year-ago levels, the USDA said, despite adverse weather conditions and other factors. Barge grain movement as of Sept. 9 totaled 29 million tons, up 16% from the five-year average. Ocean-going grain vessel loading in the Gulf and Pacific Northwest also were above year-ago levels. Rail car loadings of grains were up 3% from the same period in 2016.

“However, demand for grain transportation may decline in the coming months relative to previous years as USDA forecasts a drop in corn and wheat production and exports,” the USDA said.

The USDA in September forecast 2017 corn production at 14.184 billion bushels, down 6% from record outturn in 2016, and soybean production at a record 4.431 billion bushels, up 3%, and estimated all wheat production at 1.739 billion bushels, down 25%, with cumulative production at 20.354 billion bushels, down 6%. Corn exports in 2017-18 were forecast at 1.850 billion bushels, down 19%, soybean exports were forecast at 2.250 billion bushels, up 4%, and wheat exports were forecast at 975 million bushels, down 8%, with aggregate corn, soybean and wheat exports forecast at 5.075 billion bushels, down 8% from 2016-17.
ocean freight
 

Ocean rates, fuel prices up from 2016

Ocean freight rates for shipping bulk grain also were above year-ago levels, although slightly below peak levels earlier in the year, the USDA said. The rate for shipping bulk grain from the U.S. Gulf to Japan was $40 per tonne in early September, up 31% from a year ago but down 1% from the April peak. The rate for shipping from the Pacific Northwest to Japan was $21.50 per tonne, up 30% from a year ago but down 3% from April.

“The rate increase was partly due to strong grain movements and grain vessel loading activity,” the USDA said.

Year-to-date grain (corn, wheat and soybeans) inspected for export from all major ports was 87 million tonnes, up 8% from last year and up 29% from the five-year average, even though total exports for the year are forecast below year-ago levels.

“The bulk (ocean) shipping market could not sustain the rally that occurred during the early part of the year, as excess vessel supply persists amid lagging demand for moving bulk materials,” the USDA said.

Fuel prices got a boost from Hurricane Harvey as numerous refineries on the Gulf coast were temporarily shut down. U.S. average on-highway diesel prices reported by the Energy Information Administration of the U.S. Department of Energy had been on the rise since late June and peaked at $2.80 a gallon the week ended Sept. 15, up 34¢ from June 30 and up 40¢, or 17%, from a year earlier. As a result, rail and truck fuel surcharges were above year-ago levels. Diesel prices began to ease in late September as refineries resumed normal production but held above year-ago levels.

USDA data show that second-quarter total landed costs (cost of grain and all types of transportation) from the Upper Midwest to Japan both via the Pacific Northwest and the Gulf for corn were up just slightly from a year ago and for soybeans were down slightly as lower grain prices mostly offset higher freight rates.

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