Acomprehensive report on U.S. agricultural transportation by the U.S. Department of Agriculture (USDA) confirmed what most already knew — that agriculture is the largest user of U.S. freight transportation and that both the railroad and trucking industries are vital to U.S. agriculture. But it also provided policy makers with information to make strategic decisions concerning agricultural shipping needs, and especially honed in on the impact on agriculture from changes in the rail industry in the past 30 years.
The massive 600-page USDA study, mandated by the 2008 farm bill, covers truck, rail, barge and ocean freight as it relates to agriculture. It addresses the impact of U.S. rail deregulation, which began in 1980, along with concerns about funding inland waterway and highway systems, ocean container issues and biofuels transportation.
"Agriculture is the largest user of freight transportation in the United States, with 31% of all ton-miles recorded in 2007 being used in the movement of agricultural products," U.S. Secretary of Agriculture Tom Vilsack said when the study was released.
Both the trucking and rail industries responded to what they saw as the study’s confirmation of their respective industry’s superiority in freight movement.
"The USDA study provides the first holistic examination of agricultural transportation and highlights the essentiality of trucking to our modern agricultural production system," said Russell Laird, executive director of the American Trucking Associations’ (ATA) Agricultural Transporters Conference. The ATA cited the study’s finding that trucks "are the most effective method of moving goods short distances and for assembling quantities of products at elevators and warehouses for transloading to other modes of transportation."
From the rail industry’s perspective, the Association of American Railroads (AAR) noted the study "shows how the vital link between railroads and agribusiness supports the U.S. economy and economic recovery."
Edward R. Hamberger, president and chief executive officer of the AAR, said: "As USDA said, rail is the most cost-effective mode of transportation available to many agricultural producers. Without railroads bringing America's high-quality, low-priced grain to the global market, we’ll never achieve the president’s goal (of doubling U.S. exports in five years) and continue on our road to economic recovery."
The study highlighted several policy issues the authors said should be examined. Those included:
• viewing transportation governance as a system rather than the current disparate method over separate modes;
• consideration of the potential decrease in competition, reduced service and higher rates due to exemptions from many antitrust rules for railroads and ocean shipping;
• concern about the decrease in routing choices and competition due to rapid consolidation of the rail industry through mergers after deregulation;
• review of the 100-mile radius agricultural exemption for hours of service due to safety concerns; and
• funding of new waterway projects and ongoing maintenance.
STUDY FINDS LESS RAIL COMPETITION
Although the study reviewed all four major modes of transportation — trucks, rail, barge and ocean vessel — railroads received by far the most attention and volume in the report with sections on competition, rates, rate relief, service, capacity and investment. A fundamental conclusion was that "rail is the only costeffective mode of transportation available to many agricultural producers." "The loss of rail-to-rail competition due to railroad mergers and the associated increase in market power was not foreseen by many when the Staggers Act was passed," the study said. The Staggers Rail Act of 1980 basically deregulated railroads and promoted reliance on free markets for railroad profitability and on competition to protect shippers. After the act was passed, railroads reduced costs by eliminating excess capacity, abandoned many routes and branch lines and merged to eliminate duplication, resulting in lower costs and higher productivity.
"The mergers increased railroad market power and profitability," the study said. "Rates for many shippers fell from 1981 through the end of the 20th century. Since 2004, however, rates have begun to rapidly increase as railroads reach the limits of their capacity.
"The level of rail-to-rail competition for grains and oilseeds decreased significantly between 1992 and 2007. Almost 75% of agricultural areas lost rail competition (during the period)."
The Staggers Act also allowed railroads to charge different rates to different shippers.
"Nationally, not only are rail rates for grain and oilseeds higher than those of other commodities, but the rates have increased more rapidly during the four years since 2003," the study said. "Rail rates for grain and oilseeds rose 46% from 2003 to 2007; rates for all other commodities increased 32% in the same period."
Further, the study indicated "considerable" evidence that railroads boosted profits as fuel surcharges recovered more than the additional cost of fuel.
The study noted railroads’ share of grain transportation has decreased in recent years due to the way grain is marketed, higher rail rates and the closure of branch lines. The shift to shuttle trains and higher capacity cars limited areas served by rail, resulting in additional truck movement of grain to terminal elevators, and in some cases, lower prices for grain in the country.
WATER SHIPPING COMPETITIVE
The study noted that although only five companies accounted for 75% of the covered barge traffic on the Mississippi River system, and only two companies provided 80% of traffic on the Columbia-Snake River system, the industry’s rate structure was considered highly competitive.
The USDA said the U.S. barge fleet is aging and that the number of barges on the Mississippi River system declined about 18% since 1998.
A report from Informa Economics, a private analytical company in Memphis, Tennessee, U.S., noted the number of inland U.S. barges in use last year fell to the lowest number in 21 years. The number of covered barges dropped for the 11th consecutive year in 2009 and open barges fell for the first time since 2004, but tank barges increased for the third consecutive year, Informa said, with an aggregate of 628 new barges put into use last year while 1,126 were retired.
Although market share of barges has been declining for several years, the USDA study said barges continue to offer a low-cost alternative for shippers near inland waterways, accounting for movement of 30% of wheat, 52% of soybeans and 59% of corn to ports for export over the five-year period studied.
But the study noted low-cost barge shipping was achieved in part because the U.S. Army Corps of Engineers pays all operational and maintenance costs and much of the capital costs for inland waterways. A key issue facing the barge industry is financing the upkeep and improvement of the waterway system.
"The balance of the Inland Waterways Trust Fund, which finances 50% of most of the capital costs of the inland waterways, has been declining since 2002 because expenditures have increased and revenues have declined," the study said. "It is unclear how the funding will be provided."
The study also noted the bulk ocean vessel market was "highly competitive," but the container market, by which 50% of agricultural products by value and 20% by volume are shipped, faced challenges of availability.
Ocean transportation was critical to agriculture since the United States traditionally has exported 25% of its total grain production, including about 50% of its wheat, 37% of soybeans and 18% of corn, the study said. About 62% of U.S. grain exports moved out of the Gulf in 2009 and 25.5% from the Pacific Northwest.
TRUCKING IS CRITICAL AND COMPETITIVE
"Trucking is critical for American Agriculture," the study said. "The industry carries 70% of the tonnage of agricultural, food, forest products, alcohols and fertilizers. More than 80% of cities and communities are served exclusively by trucks. The first and last movements in the supply chain from farm to grocery store are by truck."
Further, the study noted the trucking industry is highly competitive.
"Half of all trucking companies own one truck, driven by the owner," the study said. "This keeps rates low; the average operating costs are 95% of operating revenue."
The USDA said that as trucking demand dropped in 2008 due to the recession, 3,065 trucking companies with five or more trucks and probably many more with fewer than five trucks, went out of business. At the time of the study there were 691,000 trucking businesses.
A major issue facing the trucking industry that was only lightly mentioned in the USDA study was the shrinking pool of truck drivers.
A recent report from the Council of Supply Chain Management Professionals, sponsored by Penske Logistics, concluded the U.S. trucking industry will lose 200,000 drivers this year, another 200,000 next year and about 1 million over the next 15 years. Reasons cited were replacement of laid-off drivers during the recession as the economy recovers, stricter safety regulations and retirements. About one in six current drivers are 55 years old or older, the study noted.
As with inland waterways, the USDA cited concerns about funding shortages for new projects and maintenance of the highway system, as well as of ports for ocean vessels.
"To keep America’s agriculture strong and competitive in the global market, this network must be maintained and strengthened," the USDA said.