Solving transportation bottlenecks
September 3, 2015
by Susan Reidy
The transportation nightmares faced by the U.S. agriculture industry last year are mostly a distant memory, but ensuring they stay that way will require an investment in rail, inland waterways and highways.
A bumper 2013 harvest and severe weather conditions led to significant delays in moving commodities last year, adding to the overall cost. Service improved this year in moving the 2014 harvest but transportation logistics remain a critical issue for the agriculture industry, said Mike Steenhoek, executive director, Soy Transportation Coalition, during the Global Grain North America conference this May in Chicago, Illinois, U.S.
“While we like to think that we produce the best soybeans in the world — there are some reasons to substantiate that reputation — the reason why the U.S. is the most economical choice today on the international market place is due to a lower cost of transportation, not due to a lower cost of production,” he said.
In 2014, the cost of moving a tonne of soybeans from Davenport, Iowa, U.S. to a customer in Shanghai, China, was $102.38, translating into 21.68% of the customer’s cost. Moving that same tonne from Sioux Falls, South Dakota, U.S. to Shanghai cost $95.23 or 21.36% of the customer’s cost. In comparison, moving a tonne of soybeans from Mato Grasso, Brazil to Shanghai cost $121.44, or 25.13% of a customer’s cost.
“The good news is that we are still the most economical choice. The bad news is that the U.S. can increasingly be described as a spending nation, not an investing nation,” Steenhoek said, adding that the agriculture industry should care about transportation because the U.S.’s competitiveness depends on it.
Improving rail service
A year ago a big frustration was rail service for the 2013 harvest, particularly for commodities originating in the western U.S. Several factors contributed to the problems including a large harvest, a severe winter and a supply and demand imbalance within the rail industry due to the exponential growth of crude oil. In 2009, the rail industry moved 11,000 carloads of crude. That number jumped to 400,000 carloads in 2013.
“No one accurately anticipated the demand from crude oil,” Steenhoek said.
The severe weather meant less efficient operation. In addition to mandatory warm up periods for train crews, trains had to be shortened because air brakes don’t function as well in the extreme cold. Railroads dropped from three turns per month (the length of time to go to and from a destination) to two turns per month.
“While a good reputation can take years to accumulate, it takes only moments for it to evaporate,” Steenhoek said. “Customers were concerned about the U.S.’s ability to supply their needs.”
Fortunately, an analysis by the Soy Transportation Coalition from November 2014 to this April found that rail service for the 2014 harvest was adequate. The coalition conducted a bi-weekly survey of 42 grain receiving locations in North Dakota, South Dakota, Minnesota and Nebraska.
These areas saw the greatest impact from the rail issues in 2014 due to having more limited access to alternative transportation providers and modes. Most of the areas solely rely on freight rail, so the supply/demand transportation imbalance had a more punitive effect on agriculture in these regions than other areas of the country.
In the period from March 27 to April 10, 94% of grain handling facilities participating in the coalition’s analysis said that cycle times for railroads were faster than a year ago. They also reported 2.49 turns per month between their facilities and the Pacific Northwest, the highest number recorded during the coalition’s 10 survey periods.
The longer 2014 harvest period allowed railroads to better adjust to farmers’ demand for rail cars. Historically, when the harvest occurs over a more condensed period of time, railroads are more challenged to accommodate demand for service. Railroads have invested $29 million in new track, locomotive power and crews.
Farmers have also responded by holding onto more of their crop, waiting for a more advantageous time to sell. While there was some significant snowfall and cold temperatures during the winter of 2014-15, the weather overall was favorable for transporting soybeans and grain in the surveyed areas.
“The net result has been less demand for rail service,” Steenhoek said. “That took the edge off.”
The decline in rail service is in part increasing the demand for trucks. Demand for trucking is expected to account for 67% of the total growth in freight demand for all modes of transportation, he said. Overall demand is projected to grow from 18.5 billion short tons in 2010 to 27.5 billion short tons by 2040. Trucking alone will increase from 12.5 billion short tons to 18.5 short tons in that time period.
Since 1980, the miles of public roadways have only increased 4.5%. In addition, there is a widespread shortage of truck drivers.
“There’s increased demand but we’re not building new roadways,” Steenhoek said. “If we’re not building new miles, we need to find a way to expand the capacity of the system.”
One solution is increasing weight limits of trucks, he said. Weight limits and financing for roads and bridges is part of the highway bill that still needs long-term reauthorization by the U.S. Congress. Leaders voted on a short-term reauthorization to Oct. 29 prior to its August recess.
The Soy Transportation Coalition has studied the impact of increasing weight limits from an 80,000-pound, five-axle configuration to a 97,000-pound, six-axle configuration. It found that adding the sixth axle creates additional braking capacity so the stopping distance will be the same.
Heavier trucks means fewer trucks on the road, improving safety, Steenhoek said.
“Research shows that motor safety is more related to the number of semis and less related to weight,” he said.
In addition, a six-axle truck results in a reduction of weight per tire of 35 pounds compared to a five-axle truck, reducing wear and tear on roads. For soybeans alone, increasing truck weight limits would result in 1.2 million fewer truck trips and enable a farmer to transport an additional 183 bushels of soybeans per load.
Another major link in the U.S. transportation network is inland waterways. In the last year, the system has had two significant wins, Steenhoek said, including passage of the Water Resources Reform and Development Act of 2014 (WRRDA) and an increase to the barge diesel fuel user fee.
The WRRDA is supposed to streamline the infrastructure project delivery process and strengthen the water transportation network. It authorizes the U.S. Army Corps of Engineers to carry out its missions to develop, maintain, and support the Nation’s vital port and waterways infrastructure needs, and support effective and targeted flood protection and environmental restoration needs.
The barge diesel fuel user fee increased from 20¢ per gallon to 29¢ per gallon on April 1. The money, deposited into the Inland Waterways Trust Fund (IWTF), is matched by treasury funds and is dedicated to new construction and major rehabilitation of the inland system. The increase will add about $80 million per year to the IWTF. But despite this progress, frustration still remains, Steenhoek said. Revenue is still limited for the work that needs to be done.
“The expense of what we’re trying to achieve is significant; we have to make some hard decisions,” he said.
For example, would it be better to switch from a build and expand approach to a preserve and maintain approach? Steenhoek said a predictably good inland waterway system is better than a hypothetically great one.
Cost of building one lock is about $376 million, which is equivalent to the cost of nine major rehabilitation projects at a cost of about $40 million each.
“The economics are clear. We can’t build new locks and dams. We first have to take care of what we have,” Steenhoek said. “We have so many locks and dams in danger of collapse or failure. That would have a real consequence on agriculture.”
The technology and engineering of locks has been consistent, so investing maintenance can elongate their usefulness, he said. A good example is the Panama Canal, which was built in the early 20th century, and is still in use.
“The country that built the Panama Canal can learn a lot from the country that maintains the Panama Canal,” Steenhoek said.
The canal is currently undergoing an expansion that does offer an opportunity for increasing the efficiency of transporting agriculture commodities. With the expansion the total volume of grains and oilseeds transiting the canal will increase 30% by 2020-21. Each vessel will be able to accommodate up to 488,642 additional bushels.
It will also increase the draw area to the Mississippi River, Steenhoek said. Right now, barge makes the most economic sense for those within a 70-mile radius of the river. With the expansion of the canal, that draw area could increase to as much as 161 miles, he said.
Steenhoek said it’s great that the Panama Canal is getting bigger and more robust, but it is just one link in a long logistics chain.
“It’s incumbent upon us to make sure the links of the chain that lead up to that — ports, inland waterways, highway and rail — are being strengthened to the corresponding effects,” he said. “If we don’t, we’re shifting the bottleneck from end of the chain to another.”