Farmers, elevators allege railways favoring Big Oil

BISMARCK, N.D. - The North Dakota Public Service Commission is jumping into the fray about whether it can or should take legal action on behalf of farmers and grain elevators who allege railways are favoring oil transportation.

The PSC held a discussion on April 28 in Bismark with members of the North Dakota Grain Dealers Association, the North Dakota Grain Growers Association and the North Dakota Ag Rail Business Council about how rail delays are affecting their business.

PSC held a corresponding discussion with railroad officials in the afternoon. Burlington Northern Santa Fe Railway said it’s planning to spend $900 million in the coming year to improve the system in the state, while Canadian Pacific Railway officials said they would spend $70 million.

Jon Long, an ombudsman for BNSF based in Fargo, said grain shipments will be caught up in mid-July and promised reporting daily on progress. Herb Jones, U.S. director for state and local government affairs for CP Railway, said the company’s system of ordering cars doesn’t provide the same level of reporting. He said CP’s companywide investments of 20 percent of revenues is sufficient and the real problem is traffic congestion going through Chicago, which is being handled with a group that includes six of the nation’s Class I railroads.

John Miller, BNSF agricultural group vice president said on May 2 the company’s shipment volumes had increased overall, and ag volume has increased 9 percent from April and is now at the best level since October 2013.

PSC member Julie Fedorchak, who called for the discussions, said state laws allow the PSC to take action to protect farmers and elevators, and noted that a $900,000 fund can be used to do that. She said the fund is designed to be used for rate disputes but “no service is perhaps the ultimate high rate.” She said the anecdotal reports of service problems need to be backed up by facts.

A study by North Dakota State University found that there has been a $66.6 million loss in North Dakota farm revenue for wheat, corn, and soybean crops as a result of the rail delays, and there is a potential of another $95.4 million loss if the conditions remain.

Commissioners gave no timetable for considering legal action.

Comparing delays

Jon Mielke, program administrator for Fargo-based Upper Great Plains Transportation Institute, suggested the PSC look at delay times for grain cars versus oil or other energy cars. Commissioner Randy Christmann asked for reporting from BNSF and CP. BNSF agreed to provide the data, and CP’s Jones said he’d see if it is available.

Elevator and ag experts said 25 to 30 percent of North Dakota’s grain traffic is handled on CP Railway, while 70 to 75 percent is on BNSF Railway. About 80 percent of the state’s grain is shipped via rail, making it one of the most dependent on rail service.

Elevator operators said BNSF pays penalties of $200 per single car for being 30 days late, but no such penalties on shuttle trains. Those rates are set by BNSF, not by a regulatory agency. Meanwhile, CP pays no such penalties.

Christmann, who holds the portfolio for grain elevator licensure, said there has been an “enormous amount of complaints” in the past few months. He said BNSF has presented some “good-sounding plans,” but the PSC wants to know how to judge results. He said logistically, the agriculture industry needs more shipping capacity.

In the meeting with the railroads, Christmann chastised the rail companies for failing to communicate with elevators, imposing time-related penalties on the elevators - sometimes during blizzards - only to leave the filled trains idle.

Both BNSF’s Long and Dave Wood of CP said they work with the elevators on the penalties, so those costs aren’t incurred. Christmann acknowledged he didn’t have specific cases, except recent ones involving CP.

Moving crops, fertilizer

Jim Broten, a Cooperstown area farmer and president of the North Dakota Ag Rail Business Council, said farmers are worried about the basis levels that discount the amount farmers must absorb. Elevators “don’t really want grain in our country right now, and the reason they don’t want grain is they can’t get rail service.”

He said farmers are concerned about whether they can get the bulk of 2013 crop grain moved before the next harvest comes in, and they’re concerned about getting fertilizer in for producing the 2014 crop.

On May 2, Miller said BNSF fertilizer volume had been “in excess of 25,000 units per week, easily the best weeks since May 2013. Our customers have told us that supplies, particularly of urea, at fertilizer barns in the upper Midwest have rapidly grown and are available to farmers.”

Dan Wogsland, executive director of the North Dakota Grain Growers Association, said in a normal shipping year, elevators and farmers might have 30 to 40 percent of a year’s crop in bins, depending on prices. He said some areas now have a full year’s crop waiting to be shipped.

At the urging of U.S. Sen. Al Franken, D-Minn., the Surface Transportation Board announced May 2 that it will schedule a meeting in Bloomington, Minn., to hear from farmers and businesses in the state about how the slow rail service has affected them.

Wogsland said BNSF officials have declined to say whether they’re prioritizing shipping to oil cars, which are handled under more privately negotiated contracts, versus the agricultural shipping, which is mostly done through “common carrier” rules. Brian Sweeney, BNSF regional vice president for government affairs, said the rates with oil companies are contractual, and he couldn’t say whether they are more or less than grain rates. Wogsland noted that BNSF has not answered preference questions directly but has said it’s “cognizant that we don’t slow down oil shipments.” He noted there have been no reports of oil refineries shutting down production because of rail car delays, even as elevators are clogged.

BNSF and CP officials at the afternoon meetings denied that their companies are giving preference to oil cars. Long said oil officials sometimes complain that the railroads are giving preference to agricultural customers. Fedordchak said she’s heard no complaints from oil shippers.

PSC Chairman Brian Kalk said he thinks a part of the solution is more pipeline capacity for handling shipments. He said expansion in the Canadian oil sand shipments is going to have as much rail movement as the present Bakken oil, even considering the Keystone pipeline.

All in one boat?

BNSF’s figures show its grain shipping delays are greater in the northern tier states of Montana and North Dakota, but rail officials said the problems are country-wide. They said they get the same complaints in South Dakota and Minnesota, where there is more local processing of corn into ethanol and more livestock feeding operations.

Dan DeRouchey, general manager of Berthold (N.D.) Farmers Elevator, said his elevator contracts half of its anticipated rail needs as much as a year in advance, and increasing that would be too risky.

“How do we buy the grain?” DeRouchey asked, considering the current situation. “Farmers want to take advantage of these markets right now, but it’s hard to do that.” He said the biggest problem is with CP Railway, because it has focused on cutting expenses. “The CP, I believe, doesn’t have that ability to solve their problem. I don’t want to be too hard on that, but that’s what I see.”

DeRouchey said the elevators have expected turnaround times for shuttle trains to the Pacific Northwest at about three per month. Since October, however, those turns have been below two per month and BNSF is only talking about bringing it up to 2.5 turns per month.

Wogsland emphasized that farmers and elevators have invested heavily in grain storage and shipping capacity, but he acknowledged that railroads aren’t the only problem. He said destination markets for grains, particularly in the eastern U.S., but “even our State Mill” and Elevator in Grand Forks haven’t invested in facilities to handle shuttle trains.

Mielke, who spent 23 years with the PSC in grain elevator licensing, noted that conflicts between grain and rail companies have been going on since the 1880s, when a Dakota Territory rail case was the first to be handled by the Interstate Commerce Commission. He said some penalties or sanctions involve interstate commerce and state powers might be limited.