Railroads boost capacity to head off another shipping backlog

After a year of shipping delays that cost their customers hundreds of millions of dollars, railroads are making progress on the backlog of grain shipments in Minnesota and other Midwest states.

Although some experts say capacity will be tested again in early next year, the rail companies have hired thousands of new employees and added hundreds of locomotives over the past few months to increase their ability to meet demand.

Railroad officials say record spending on locomotives, crews and new track is paying off.

On Dec. 17, the Burlington Northern Santa Fe railroad reported 8,738 cars arrived late at their scheduled destination — down from more than 16,000 in April. Late cars are defined as being more than three days late to their destination.

BNSF reports 473 cars late by an average of 13 days in Minnesota. Conditions are much worse in North Dakota with 4,133 cars late an average of nearly 17 days.

Canadian Pacific reported 460 cars late in Minnesota by an average of nearly three weeks. In North Dakota, it had 1,886 cars on average nearly a month behind schedule.

For farmers, rail service for the 2014 harvest has been a pleasant surprise, said Mike Steenhoek, executive director of the Soy Transportation Coalition, which represents farmers in 12 Midwest states. The organization surveys grain elevators in Minnesota, North Dakota, South Dakota and Nebraska every two weeks.

"We're seeing overall favorable rail service across the four states," he said. "We'll see over the next few months whether that quality service is remaining constant or if we find ourselves back where we were earlier this year."

Steenhoek said 70 percent of grain handling facilities surveyed report railroad service is faster than it was a year ago and 48 percent currently have no past due rail orders.

Rail delays reached critical levels nearly a year ago. Economists estimate farmers in Minnesota and North Dakota lost hundreds of millions of dollars because of delays in getting crops to market, and added shipping costs.

A University of Minnesota study put losses in Minnesota at nearly $100 million from March to May of 2014. A North Dakota State University study estimated losses for North Dakota farmers at $66 million in the first four months of this year.

Frayne Olson, a crop economist and marketing specialist at North Dakota State University, said the rail delays could return in early 2015. Despite a bumper crop this year, farmers stored much of the fall harvest because grain prices were low, he said.

Farmers may have to ship some of that grain because many banks won't extend current farm loans into next year as they've done in the past, said Olson, who has surveyed agricultural lenders.

"As a result, I think farmers are going to be looking at making some sales and making some marketing decisions based more on cash flow recommendations and cash flow needs than they are necessarily on pure marketing price."

Those extra sales might push rail demand because January and February are already typically busy months for grain sales.

Steenhoek said 80 percent of soybean exports are shipped between September and February.

"If you hold it too long that might be the time where all of a sudden the South American harvest comes on line in March and April and you may find there's a price disadvantage for soybeans coming out of the United States," he said.

Railroad officials blamed a "perfect storm" of events for the cascading decline in rail service in 2014, among them bad weather, surging oil shipments and unexpected demand created by a record grain harvest.

In early 2015, local and global events could affect rail demand.

Olson, the marketing specialist, said severity of winter weather is still an unknown over the next couple of months. China's recent move to ease restrictions on genetically modified corn and soybeans also could increase grain sales.

Although BNSF officials say their railroad is better prepared than it was a year ago to handle any surge in demand for grain shipping, Olson said a crucial period will occur from mid-January into February.

"I've still got my fingers crossed," he said. "But in my view that's going to be the test of the system at that point."