Expanding rail infrastructure to accommodate growth in agriculture and other sectors

Excerpts from 103 page: Keith, K. Jan 2013. Maintaining a track record of success. Expanding rail infrastructure to accommodate growth in agriculture and other sectors. TRC Consulting.

[I’m working on a book about the distribution of food when declining oil supplies force rationing, so what follows are bits and pieces from the book, not in any order or organized to give them meaning. It seems to me after reading this that we’ll wish we had a lot more short-line rail to haul food to cities. Much of our class 1 rail is designed to get short haul agricultural products to export via port cities. Alice Friedemann]

  • Soybean acres 75 million acres to possibly 78 million acres, based upon mostly growth in export demand.
  • Wheat acres remain in 55-58 million acre range, depending on global food needs.
  • Corn acres remain in the 90 to 92 mil acre range and ethanol-from-corn production stays at about 13 to 15 billion gallons annually.
  • Total planted crops in the U.S. moves from 250 mil acres to 254 mil acres as CRP declines gradually.

ROADS – annual federal and state investment gap $194 billion/year page 38

page 39 estimated gap in highway investments

The rail sector for many years had excess capacity, although some rail yards were known bottlenecks for switching as necessary traffic exchanges took place. cycle times of cars and dwell times in switching yards began to increase and peaked in 2006.

New shuttle train facilities require investment costs of $20 million+, so there is considerable investment risk.

Barges utilizing waterways tend to be very fuel efficient and the most cost-efficient per ton-mile of movement, but waterways by their nature are not available everywhere, and so accessibility can be limited. Railroads also are more fuel efficient and cost efficient than trucks. On a ton-mile basis, trucks are the most expensive freight mode, but trucks can originate and deliver freight to almost any location.

From a cost standpoint, trucks are not favored for long-distance moves, but rail access can be problematic, sometimes pushing freight onto trucks, even though it is more costly. Short-line railroads provide rail access for about 40% of the grain and oilseed volume moved by rail (either at origin or at destination),

TRUCKS TOO page 25 domestically truck 80% rail 20% (DDG)

trucks page 26, 27 soybeans

Corn transport movements shown in Figure 8 are trending toward heavier use of rail in the export market, but much heavier use of trucks in the domestic market. It is difficult to conceive the enormous impact that the growth in the ethanol use of corn has had on this market. The ethanol industry has expanded by about 7-fold in the last 8 years and now consumes roughly 5 billion bushels of corn, virtually of all of which is delivered directly to ethanol plants by truck (the exceptions are a few ethanol plants in Arizona, California and West Texas). So, more than 1/3 of the U.S. corn crop— about 25% of U.S. grains and oilseeds volume— moves by truck to ethanol manufacturers. With this change in corn utilization patterns, railroads have picked up additional shipment volume in ethanol, as the majority of ethanol movements are railed; and DDG movements, of which railroads ship 20-30%. This new development in industrial agriculture seems to be leveling off, but not likely to decrease much in size, unless dramatic policy shifts were to occur or energy economics change substantially. But this episode in agriculture does demonstrate one important fact—how rapidly transportation infrastructure changes can take place. Hundreds of new facilities were built in just a few years, including new infrastructure, upgraded infrastructure for rail bridges and heavier track, to accommodate the new ethanol-related growth—-to handle a shift of 25% of the total output of grain/oilseeds-base agriculture. From the USDA data, the modal share for trucked corn seems to be the major beneficiary of this structural change, but the associated changes in product and by-product markets have created other transportation challenges of great significance to U.S. agriculture and the rail and barge industries.

SHORTLINE RAIL

Given that over 40% of food/ag products shipped by rail are either originally shipped or ultimately received on a short line, this provision remains very important to maintaining a fluid agricultural rail system in the U.S. Short lines don’t represent a huge part of the ton-miles of rail carriage (about 1%), but for agriculture, they frequently provide the critical link to actually provide access to the ultimate origin or destination.

Average           Miles of

# Carloads       Tonnage          Length             Track, road, or

2010            in tons             of haul            navigable water

Class 1 Rail                 29,200,000      1,851,000,000    914                    95,700

Class II & III Rail       7,800,000         600,000,000     32                    43,000

Truck                                                   8,778,000,000                         4,016,000

Inland water                                           532,000,000                              25,320

 

The U.S. Bureau of Census and U.S. Department of Transportation 2007:

Tons                            Ton Miles

Total Movements        12,543,000,000           3,345,000,000,000

 

Single Mode Movements

Truck                           8,779,000,000             1,342,000,000,000

Rail                              1,861,000,000             1,344,000,000,000

Waterway                       404,000,000                157,000,000,000

 

Multi-mode movements

Truck/Rail                      226,000,000                197,000,000,000

Truck/Water                   145,000,000                  98,000,000,000

Rail/Water                        55,000,000                  47,000,000,000

Unknown                    1,097,000,000                160,000,000,000

 

Agriculture-related Shipments—volumes, All modes of transport:

Cereal Grains (02)                   514,000,000 tons for 203,000,000,000 ton/miles

Ag Products (03)                    212,000,000 tons for   88,000,000,000 ton/miles

Animal Feeds/Proteins (04)    246,000,000 tons for   76,000,000,000 ton/miles

Milled Grain Products (06)     120,000,000 tons for   51,000,000,000 ton/miles

Other Foodstuffs/Oils (07)     468,000,000 tons for   171,000,000,000 ton/miles

 

Non-agricultural products, all modes of transport by volume

Coal 25%, Chemicals/plastics/rubber 10%, Sand/gravel 7%, Metals/machines 6%, Petroleum/products 5%, wood products 3%, Fertilizer 2%

Barges utilizing waterways tend to be very fuel efficient and the most cost-efficient per ton-mile of movement, but waterways by their physical nature are not available everywhere. Railroads also are more fuel efficient and cost effective than trucks where available, but accessibility can be an issue. Trucks are the most universally accessible mode, providing door-to-door service, but trucking is also the most expensive form of bulk transportation, and least fuel-efficient.

an assessment is made of the potential impacts of government programs that could expand the rail sector’s capacity to alleviate highway congestion and create a more efficient transportation platform for the national economy.

Train Speed and Carloads Plus Intermodal Units50

New shuttle train facilities require investment costs of $20 million+, so there is considerable investment risk.

analyzes the financial investment incentives of the following government programs:

Railroad Rehabilitation and Improvement Financing (Federal Railroad Administration)

Investment Tax Credit of 25% and Accelerated Depreciation

Accelerated Depreciation and “Bonus” Depreciation of 50%

General Business Tax Rate Reduction of corporate rates from 35% to 25% The conclusion is that the investment tax credit of 25% and accelerated depreciation yielded the most incentive for investment, generating a 21% decline in present value of the after-tax investment cost. It was assumed that this incentive would be adequate to close the gap in rail infrastructure funding and increase the rate of investment by the soybean marketing

Economically, rail rates for long distance moves in agricultural commodities cost about 3.2 cents per ton-mile. This compares to 1.5 to 3 cents per ton-mile for barge movements, depending on season and river market conditions, but the commercial waterways are not able to compete geographically for all agricultural markets. And shipments by rail can move from the Midwest to Pacific Rim nations in as little as 18 days compared to 50 days by barge and ocean-going vessel. Comparatively, truck moves of grain currently cost about 15 cents per ton-mile for the first 25 miles, then 6 to 7 cents per ton-mile thereafter. From a cost standpoint, trucks are not favored for long-distance moves, but rail access can be problematic, sometimes pushing freight onto trucks, even though it is more costly. Short-line railroads provide rail access for about 40% of the grain and oilseed volume moved by rail (either at origin or at destination), and increasingly efficient rail loading points like unit train and shuttle shippers provide closer access to long-distance markets for producers trucking soybeans from their farming operation. As the preferred hauler of heavy cargo like grain, soybeans, fertilizer and coal, rail moves almost 50% of the ton-mile freight in the U.S. at a much lower cost than truck movements. Across all types of freight, truck costs average over 16 cents per ton-mile compared to less than 4 cents per ton-mile for rail.

The question now is whether private sector investment incentives will be adequate to meet both private company and broad societal goals. If the rail industry cannot justify building and maintaining transport capacity

The fundamental economics of rail—movement of heavy tonnage at ¼ to ½ the cost available through truck transport—is compelling. Census transport flow data of 2007 show that rail transportation was used in 47% of the rail ton-miles of all commodities shipped in the U.S. The market is using rail because of its lower cost and logistics of long-distance and heavy load moves. If there are ways to expand the amount of additional tonnage moved at lower cost by rail, there are benefits achievable throughout the rest of the economy.

With the intense competition between the U.S. and South America as principal oilseed suppliers to global markets, U.S. soybean exports have become increasingly seasonal, with over 75% of total movements shipped in the first six months of the marketing year. Will rail capacity continue to be adequate to service this intense seasonal need for soybeans?

The significance of trucking within local markets has taken on new importance for agriculture as biofuels have become a major source of demand. The growing strength of the movement of soybeans out the Pacific Northwest rail corridor has underscored the market links that rail provides. Yet, food and agriculture is but one of a large array of industries—coal, petroleum, autos, chemicals, consumer and many others—that share the rail capacity to move products and resources, and some of these sectors are in rapid transition today. The energy sector, in particular, is being altered fundamentally by the oil and gas fracking industry which will change overall rail movement volumes and the direction of transportation flows.

capacity utilization for the different freight modes. Both Class I and Class II (regional railroads) plus Class III (short line railroads) are broken out in Table 1.

The average Class I haul distance, at a length of 914 miles, is quite different from a typical short line haul of 32 miles. Regional railroads average about 180 miles per movement; and short lines average 25 miles. The total inventory of highway miles is 4.0 million miles with roughly 1 million miles in urban settings and 3 million miles classified as rural. There are 25,320 miles of navigable rivers in the U.S. available to barge traffic. Comparing the most recent data available, total annual rail tonnage hauled (including the short line industry) is 2.4 billion tons; trucks haul about 8.8 billion tons and waterways haul 0.523 billion tons.

The Texas Transportation Institute estimates that highway congestion added $100.9 billion to the cost of the national economy in 2010 and caused 1.94 billion gallons of fuel to be wasted.2

Truck mileage is only 10% of total vehicle miles traveled on highways, but is probably responsible for 25 to 30% of congestion volume, based upon recent analytical work.

Table 3. This table demonstrates that to the extent that freight transportation movements can be shifted from truck to either rail or barge, there are economic benefits, highway congestion benefits, fuel efficiency savings and environmental benefits from lower greenhouse gas emissions. Freight train and barge movements can assist in reducing highway traffic, reduce national fuel consumption, and contribute fewer fuel-related emissions in freight transport. Barge and rail movements will never be able to match the convenience of door-to-door trucking, but more efficient freight transfers between modes through intermodal and other transfer facilities that will permit a maximum of tonnage to be hauled by rail and barge can have substantial economic and other societal benefits. Table 3. Comparison of Modal Efficiencies and Performance Truck Rail Barge Cost per ton-mile

Table 4. Total Flows of Commodity and Goods, U.S., 2002 and 2007, U.S. Bureau of Census Total Movements Single Mode Movements Truck

Agriculture-Related Shipments – Volumes, All Modes, (mil tons) Cereal Grains (02) 561 514 264 203 Ag Products (03) (incl. soybeans) 259 212 109 88 Animal Feeds/Proteins (04) 228 246 51 76 Milled Grain Products (06) 109 120 49 51 Other Foodstuffs/Oils (07) 449 468 162 171 Total Agriculture Related Rail 1,606 1,560 635 589 Shipment Volumes (14%) (12%) (20%) (18%)

Other Non-Ag Products, All Modes, in Order of Volume, 2007 Coal (25%) Chem/plastics/rubber (10%) Sand/gravel (7%) Metals/machines (6%) Petroleum/products (5%) Wood products (3%) Fertilizer (2%) Source: U.S. Bureau of Census and Dept. of Transportation. In the middle section of Table 4 are shown the total shipment tons and ton-miles for five census categories that comprise agricultural and food-related products. Soybean movements are contained in the “Ag Products” (03) category, listed separately from “Cereal Grains.” Soybeans make-up 40-50% of this category. For major soybean producing states, the percentage of soybeans is much higher. Overall, ag and food related product movements comprise 12-14% of U.S. tonnage moved and 18-20% of transportation ton-miles on a national basis.

Figure 5. Modal Share Data, All Commodities, 2007, Census and DOT FAF Data U.S. Census Data

Figure 6 shows modal share for Cereal Grains and Ag Products. Census data reflect a stronger modal share percentage for both rail and water than does FAF. Census data suggest 51% of total ton miles are moving by rail and 24% by barge. The DOT FAF data are remarkably different from Census numbers, but do reflect the additional counting of farm truck movements to farm bins (if harvested commodities are first stored on the farm), then the additional truck movements to the first point of sale in the commercial marketing channels.

Figure 7 shows U.S. wheat domestic market and export market modal shares. The wheat export market has traditionally been dominated by rail as Midwestern wheat is railed to Texas ports and northern tier states rail much of export wheat out of the Pacific Northwest ports. But even domestic wheat movements by rail are growing in proportion to other modes as wheat is being shipped longer distances to domestic milling locations that tend to be higher volume flour millers. Figure 8 shows modal shares for corn, and domestic movements of trucked corn have expanded from roughly 65% to 80% in 12 years. Virtually all this growth is due to the rapid expansion of ethanol capacity in locations where trucking corn is the least-cost option. The rail portion of corn exports have also grown from about 27% to 40% during the same period. Corn transport movements shown in Figure 8 are trending toward heavier use of rail in the export market, but much heavier use of trucks in the domestic market. It is difficult to conceive the enormous impact that the growth in the ethanol use of corn has had on this market. The ethanol industry has expanded by about 7-fold in the last 8 years and now consumes roughly 5 billion bushels of corn, virtually of all of which is delivered directly to ethanol plants by truck (the exceptions are a few ethanol plants in Arizona, California and West Texas). So, more than 1/3 of the U.S. corn crop— about 25% of U.S. grains and oilseeds volume— moves by truck to ethanol manufacturers. With this change in corn utilization patterns, railroads have picked up additional shipment volume in ethanol, as the majority of ethanol movements are railed; and DDG movements, of which railroads ship 20-30%.

Figure 7. U.S. Wheat Market: Modal Shares of Domestic and Export Movements

Figure 8. U.S. Corn Market: Modal Shares of Domestic and Export Movements

Figure 9. U.S. Soybean Market: Modal Shares of Domestic and Export Movements

Figure 10. U.S. Soybean Meal Produced and Railed to Domestic and Export Locations

Figure 11. Eastern and Western Railroad Grain/Oilseed Shipments, 2001 – 2011

Figure 13. Train Speed and Carloads Plus Intermodal Units

How do you measure U.S. rail capacity? Rail capacity is determined by a number of factors: 1) locomotive availability; 2) car availability; 3) number of trained employees; 4) infrastructure capacity; 5) logistics systems operational efficiencies; and 6) external factors, such as weather, strikes, congestion at ports.

The major railroads all have a target number of “optimal” cars on line for a given amount of infrastructure (track, rail yards, interchanges, etc.) and operational technology/ capacity.

The table below shows the recent pattern in federal and state government revenues and expenditures on roads and highways. More recent data than 2006 are available, but are preliminary. Recent rates of expenditures for roads and highways are about $257 billion. Revenues raised from gas taxes, tolls and other sources are not keeping pace with expenditures, so unless substantial changes can be made in the gas tax rate, or appropriate more general funds, the gap in highway funding will continue to widen, forcing governments to look for other solutions to traffic growth. Table 7. Federal and State Highway Expenditures and Revenues Generated for Roads, DOT Federal and State Highway Expenditures and Revenues Generated for Roads (billions of dollars) Year 2001 2002 2003 2004 2005 2006 Fed Expenditures 69 78 85 82 85 81 State Expenditures 142 146 153 156 158 176 Total Expenditures 211 224 238 238 243 257 Total Road Revenue 125 131 132 136 147 155 Expenditures less Revenue 86 93 106 102 96 102

The number of sand cars being shipped into fracking areas has increased an estimated 250,000 per year, or about 1.7% of normal total rail car volumes.

Figure 26. U.S. Rail Intermodal Traffic

U.S. agricultural markets have gone through some rapid transformations in the last decade. Corn used for ethanol production and DDG production has expanded to about 40% of the corn market. Soybean markets have benefited from expanded biofuels through biodiesel production. Export markets for both soybeans and wheat have strengthened with global income growth. Pacific Rim country exports have grown rapidly, causing increased demand for U.S. West Coast originations for export moves.

Soybean acres move up from 75 million acres to possibly 78 million acres, based upon mostly growth in export demand. Wheat acres remain in 55-58 million acre range, depending on global food needs. Corn acres remain in the 90 to 92 mil acre range and ethanol-from-corn production stays at about 13 to 15 billion gallons annually. Total planted crops in the U.S. moves from 250 mil acres to 254 mil acres as CRP declines gradually.

Exports tend to be more dependent on both rail and barge for shipment to port locations. This will tend to expand the rail modal share, a trend that is already visible (see Table 14). Table 14. Modal Share Summary: 2010 and 5-year average Modal Share Summary: 2010 and 5-year average, percent Corn Wheat Soybeans All Grains

The positive train control technology was mandated by safety legislation passed in 2008, and the Federal Railroad Administration has estimated that the total cost to the Class I carriers will be $5.8 billion.

Rail infrastructure to serve the U.S. soybean sector, other sectors of agriculture, and all other parts of the national economy that depend on rail can be divided into two parts. First is the general infrastructure—the mainline track, the rail yards, the switching terminals, and bridges— that are utilized by every rail-served sector, as well as some passenger trains. Secondly, the rail infrastructure at origins or destinations that serve the soybean and other commodity sectors that come from private investments by elevators, processors, port receivers, livestock and poultry operations, food companies or other business linked to the agriculture/food/biofuel system.

Over 40% of food/ag products shipped by rail are either originally shipped or ultimately received on a short line, which don’t represent a huge part of the ton-miles of rail carriage (about 1%), but for agriculture, they frequently provide the critical link to actually provide access to the ultimate origin or destination.

  • Upgrades to Class I mainline tracks and signal control systems
  • Improvements to significant rail bridges and tunnels
  • Upgrades to secondary mainlines and branch lines to meet 286,000 pound standards Expansion of terminals, intermodal yards, international gateways
  • Port facilities
  • Class I rail service and support such as fueling stations, maintenance facilities

What both the Cambridge-AAR Study and the AASHTO 2010 Report indicate is that to attain a continuing share of total freight with possible increases in ton-miles shifted from highways to rail will require investments both in mainline tracks and major interchange points that go well beyond current investment strategies of carriers. Where do railroads invest money in infrastructure today? Where do railroads spend todays’ CapEx dollars (Capital Expenditures)? Table 17 tracks average CapEx spending by Class I’s over the last 5 years. Over 50% of total CapEx is in steel rails, ties, grading and ballast—basics of maintaining and expanding a railroad. Locomotives and freight train cars add another 20%.

Table 17. Average Capital Expenditures of Class I Railroads, 5-year Average, 2007-2011

It is of some interest to note that roughly 75% of railroads’ CapEx spending—the spending on road infrastructure—is a cost not paid by trucks directly, but rather through fuel taxes, tolls and heavy vehicle use tax (maximum of $550 per year). According to DOT data, trucks represent about 10% of vehicle miles traveled on U.S. roads and highways in 2010. With federal and state spending on roads and highways at $257 billion (2006 data), potentially a sizeable portion of this expense could be attributable to truck traffic.

In a study by COBANK, Change on the Rural Horizon: Managing the Expansion of Grain Storage in the Corn Belt, it is noted that total on-farm and off-farm grain storage capacity increased by 17 percent from 2005 to 2011, and commercial capacity grew 24% during this same period. This market response to structural shifts in agriculture has allowed a rapid modernization of the commercial sector to place storage in more optimal locations, to position receiving/loading operations at points that better locate commodities for market accessibility, and utilize faster/newer technology. It has also contributed to a more rapid upgrade of transportation infrastructure than would have otherwise occurred.

Total soybean and corn planted area has increased 20 million acres (7% of U.S. tillable land base) in less than a decade, and has caused a rapid modernization of the commercial marketing and processing sector at the same time.

The soybean sector’s challenges in becoming more efficient on rail movements include:

  • The natural growing season will always produce relative surpluses near harvest that will cause soybeans to seek a “home.” Markets can resolve dislocations caused by excess surplus (caused by good crops), but at a price.
  • U.S. soybeans have an especially intense seasonality component, as 75% to 80% of export soybeans must be moved in the September through February period to optimize North American export opportunities, prior to South American harvest and shipping season.
  • Seasonality issues, plus the intensity of harvest to put soybeans/grain in storage as quickly as possible to maintain high quality means that elevators and processors need high capacity dumping. Many facilities have truck dumping capacity to handle 30 to 50 trucks per hour. And the entire marketing system has had to build considerable excess capacity to ensure timely harvest service.

For the physical marketing sector, surplus capacity costs money, but with railroads, surplus car/power capacity is particularly expensive. With grain car leasing costs at $500-$600 per car, it is expensive to leave such equipment idle for extended periods. Seasonality of rail car usage is a fundamental problem with reducing cost in the soybean and other bulk agricultural sectors. To meet the challenge of efficient utilization of equipment and to encourage soybean and grain shipments throughout the year, not just during the rush of harvest, shuttle programs have been developed by the Class I carriers to obtain commitments from shippers to utilize dedicated locomotives and cars throughout the year. Railroad shuttle programs vary by carrier, but many have the following features: Railroad Shuttle Programs 1) Dedicated power (locomotives) and equipment (cars, which may be rail-owned or private) 2) Specified shuttle origins and destinations that can handle allowable train sizes (75s, 90s, 100s or 110s) 3) Restricted time to load and unload (generally 15 hours) 4) Destinations for western railroads include export locations, domestic feeders and a number of facilities in Mexico 5) Adequate track at shipper and receiver location to load a train as a single unit (110 car train requires about 7,400 feet of track) 6) Commitment by shipper (or receiver) to load/receive a specified number of trains per month for an identified period (generally for 1-year, but it could be for 6-months or 2-years) 7) In some programs, if shuttle capacity is not needed by a shipper, the shipping capacity can be sold to other shuttle loaders on the railroad’s system through auction systems Advantages/Disadvantages of Shuttle Programs 1) Railroads provide supply source and destination flexibility by continuing to add to origins and destinations capable of handling shuttle-sized capacity 2) Shuttle programs are market responsive; if loading capacity is surplus it can be traded and repositioned to other locations 3) The commitment to utilize equipment throughout the year helps the railroad manage assets and reduce costs 4) The shipper/receiver and farmer benefit from lower rates (a 20 to 35-cent/bushel difference in single car rates compared to shuttles is common in the western U.S); in the eastern U.S., 15 to 25-cent/bushel differences are typical, but will vary depending on distance to market; in some markets, pricing differences are handled through contracts with the receiver

7) To participate in shuttle programs, the shipper or receiver must make sizeable investments in track and equipment (to meet the 15-hour window for loading). The track investment alone for industrial track and grading can be $2-3 million

Investment Cost of Shuttle Loading Facilities

The attractive economics of shuttle loading has driven investments and the number of locations has increased rapidly, more than doubling since 2000. But the investment costs are sizeable. Many of these facilities are located outside existing townships (so-called “greenfield” locations) to permit handling areas for large trains and associated storage/handling operations. Recent shuttle facilities are costing investors in the range of $18 million to $25 million in investment costs. A recent facility in South Dakota was built at an announced cost of $35 million. Where is this money being invested? Some recent typical cost ranges are shown in Table 18.

Table 18. Current Investment Costs for Rail Shuttle Facility Investment Item

Shuttle Loader: Alton Grain Terminal, Alton, North Dakota This shuttle facility, located in eastern North Dakota, equi-distant between Fargo and Grand Forks, was originally built in 2001 with about 2 million bushels storage and 14,000 feet of rail track to be able to load shuttle trains going both north and south. It can load up to a 130-car train. The plant originally cost $9 million to build. In 2004 an additional 2 million bushels capacity of storage was added, as was a fertilizer rail receiving, storage and truck load out facility. The fertilizer portion is owned by Alton Agronomy LLC,

Fertilizer capacity was expanded in 2008 to 40,000 tons of storage. This facility is located on the BNSF Railway, and was one of the first in the area. It ships corn, wheat and soybeans. In past years, corn was the highest volume commodity, but since an ethanol plant was located in Casselton (50 miles to the south), soybean shipments have come to dominate movements. Annual volumes are running about 27 million bushels with 60-70% of that amount comprised of soybeans. Alton Grain Terminal is owned by Halstad (Minn.) Cooperative and 7 other nearby cooperatives that ship part of their grain and oilseeds through the Alton plant. This terminal does business sourcing with approximately 50 elevator locations in eastern North Dakota and Western Minnesota, and the typical elevator shipment to the shuttle facility is 30-35 miles. Direct producer deliveries are about 50% of the elevator’s volume, and farmers deliver direct from as far as 50 miles away or more. Profile of Facility Facility: Alton Grain Terminal, Alton, North Dakota shuttle loader, BNSF Railway connection Location: Eastern North Dakota, 50 miles north of Fargo, at the crossing point of Interstate 29 and highway 200, just west of the Minnesota border. Receives: All truck receipts, 50% from farmers, 50% from elevators; receives soybeans, corn and wheat. Currently 60-70% of volume is soybeans. Every truck receives and official grade from North Dakota Grain Inspection prior to dumping. This is a little unusual as probably only 10% or fewer of U.S. shuttle operations officially grade every load. Official grades are used for consistency of inbound and outbound movements. Dumping capacity is 45 trucks per hour. Draw Area: Generally within a 75-mile radius.

Fertilizer Receiving: Facility is owned by Alton Agronomy LLC and leased to Agrium and Mosaic; receives 30-50 car units from Agrium; and 85-car units from Mosaic. It is associated with a buying group and handles and loads for movement to surrounding area cooperatives and farmers. Alton Terminal runs the logistics of the operation for the owner, Alton Agronomy. New Infrastructure Considerations: While the facility has plenty of track for loading soybean and grain trains, management for the operation is considering putting in a rail spur to handle cars related to the fertilizer operation. Generally there is adequate capacity, but in some cases, an additional rail spur would alleviate a problem of where to locate fertilizer cars during busy soy or grain train loading periods.

Minnesota is the fourth largest soybean crushing state in the U.S. by total volume. Ranked in order of total volumes crushed, the top five states are: Iowa, Illinois, Indiana, Minnesota, and Missouri. The table below offers a comparison of the U.S. and Minnesota on production, crush, exports and export customers (counting net importing states as “importers” of Minnesota-produced meal). Minnesota and U.S. Soybean and Soymeal Production

Building capacity to dump 60 to 80 trucks per hour in some cases. Obviously, this kind of capacity is built solely to serve the harvest-time capacity needs, but increasingly such capacity is needed to serve customers that are attempting to harvest in a short time period to maintain crop quality and quantity. The benefits to the farmer are quick truck turnaround at harvest and the ability to manage harvest flows of equipment and soybeans with greater precision and predictability. Keeping trucks on the road rather than waiting in line to dump is worth money at harvest. Both the soybean farmer and the processor benefit by improving soybean harvest quantity and quality. Shipping Soybean Meal: While 25% to 30% of the typical Minnesota soy processor’s meal output is trucked to local or regional feeding operations, the biggest changes in meal markets are coming in the rail markets. Minnesota is participating in a wide range of rail meal markets—-exports out of the U.S., California and Washington feed markets, Canada, South Central U.S. and even the Northeastern U.S. As rail markets for whole soybeans and other grains have transitioned in the last 10 years toward 100-car unit trains and shuttle trains, so have meal markets, but somewhat more slowly. Some meal shippers, and some domestic receivers, are building capacity to handle up to 100-car trains. Sometimes receivers of such trains break the trains apart or load out some of the meal onto trucks at destination for subsequent delivery to other users.

State-by-State Supply-Demand Deficits. With a $20 million price tag for a new shuttle-loading operation, and a cost for a new soybean processor in the range of several hundred million dollars, positioning new plants is done very carefully by commercial businesses. Every state has a very different and distinctive profile of supply and utilization for soybeans, corn, wheat and other grains.

On the next three pages are estimated net state export (or import) data for major oilseed producing and consuming states. The gray circles indicate a surplus that is available for export. The white circles indicate a deficit that has to be filled by bringing the commodity into the state.

Figure 32. Estimated Net Corn Exports for the 2012 Crop Year, by State and Export Port

Soybean and corn net exports for 2012 will be constrained in both Iowa and Illinois by the drought conditions. With an estimated 332 million bushels of soybeans being shipped out of the Pacific Northwest and 844 million bushels out of the center gulf, soybean exports will be down from 2011, but still a pretty healthy export volume is expected.

To look at net export data without the variability that one-year’s weather (like 2012) can have on exportable supplies from individual states, we calculated 5-year average net exports for 17 states that are being reviewed as part of this study. These data are presented in the table below for both individual commodities, soybeans, corn and wheat, and a combined total, labeled “all commodities.”

Table 19. 17-State Net Exports of Soybeans, Corn and Wheat, 5-yr Average, 2008-2012 17-State Net Exports of Soybeans, Corn and Wheat, 5-year Avg., 2008-2012*,

Figure 34. 17-State Net Exports of Corn, Wheat, and Soybeans, 5-yr

Table 20. Grains (excluding Soybeans) State

Table 21. Soybeans State and Regional Modal Movement Patterns, DOT Freight Analysis Framework (FAF) Data, 2007

Truck Tons Truck Rail Water Production Divided by Production (ratio)

The FAF data provide a much truer sense (in particular for grains shown in Table 20) of the transport movements near the farm level, and how important truck movements are in delivering soybeans and grain to market. Most truck moves are within a 50-mile radius of the destination, although some moves go well beyond this range to reach processors or shuttle-train loading elevators. But even though the moves are generally short, they are none-the-less necessary to reach markets. The USDA modal share data provide the best reflection of the final modal move to the destination, although some of the movements by truck are at destination where shuttle trains are sometimes unloaded into trucks for further distribution.

Table 27. Comparison of Truck, Rail, and Barge Movements for “Typical” Grain Movements Comparison of Truck, Rail, and Barge Movements for “Typical” Grain Movements $4.17/mile for first 25 miles (applies to truck only) $2.33/mile for first 100 miles Marginal per mile cost over 100 mi. (applies to truck only)

Table 27 is intended to provide some general guidelines on current market rates for transportation. Truck transportation generally applies to shipments of 200 miles or less, but movements can sometimes go further. The fixed cost of loading and unloading the truck vehicle makes shorter distance trips more expensive on an average rate per ton-mile basis. Going beyond 25-miles in a truck raises the marginal cost for additional ton-miles by $0.063. This rate is based upon an approximate $3.75 per gallon diesel fuel price. About 40% of the variable cost in truck miles is the price of fuel. (This compares with railroads for which fuel costs represent about 20% of the variable operating cost.) So, a 10% rise in the price of diesel will cause an increase of about 4% in the truck rate. Truck rates can also increase during periods of heavy truck demand. The rail rate in Table 27 is an industry average published by AAR for 2011, but is confirmed as realistic by some current rail rates. USDA reports a Nov 2012 unit train rate plus fuel surcharge of $3,823 per car for soybeans from Minneapolis to New Orleans. This rate is equivalent to $.028 per ton (Current $ per ton-mile) Truck* Rail* Barge* Avg. Cost Avg. Cost Avg. Cost Per Ton-Mile Per Ton-Mile Per Ton-Mile $0.153 $0.087 $0.032 $0.020 (Range: 0.02-0.045) (Range: 0.015-0.03) $0.063 mile. The Nov 2012 rate plus surcharge for a corn shuttle train from Des Moines to Galveston is $.031 per ton-mile. The Nov 2012 rate for a soybean shuttle from Fargo to Seattle is $.037 per ton-mile. Rail rates will vary by season, by size of shipment, by distance to market, by type of commodity, fuel pricing and other market factors.

The fundamental cost-efficiencies offered by rail are through savings in fuel, labor and other variable operating costs spread over a higher quantity of bushels than for trucks. The cost of accessing rail, including cost of loading, unloading, scheduling, and providing product at a rail loading point are the primary barriers in shifting from truck to rail movement. Beyond the economics of fuel efficiency and variable cost savings provided by rail over truck movements, railroads can gain significant further efficiencies by increasing unit shipment sizes and incentivizing shippers/receivers to load and unload quickly to accelerate cycle times. In the western U.S. typical shuttle trains make 3 or more cycles per month between the Midwest and destination markets on the west coast. Single car shipments as part of a merchandise train may require almost a month for the same round trip. In the eastern U.S., unit train and shuttle-type shipments can save 7-9 days from the normal cycle time of trains.

Some short-lines or regional railroads compete directly with truck traffic, which generally requires that the short line have both agricultural and non-agricultural customers to build adequate volumes to be competitive. Other short-lines function as economic linkages to a mainline railroad move, and provide the benefit that the elevator shipper or receiver can have direct access to rail that avoids a physical transfer of product.

Road Damage and Repair Issues: It is widely acknowledged and well-documented that heavier trucks cause a great proportion of the highway and road damage that leads to more frequent repair, maintenance and need for replacement . The Congressional Budget Office, Economic and Budget Issue Brief: Spending and Funding for Highways (January, 2011), found that pavement damage by trucks ranged from about 5 to 55 cents per mile, depending on truck weight, the number of axles and its operating range (urban vs. rural, and interstates vs. paved roads). A recent study that has particular applicability to data available for the national highway system is: Feasibility of Containerized Transport in Rural Areas and its Effect on Roadways and Environment: A Case Study, Agribusiness, Food, and Consumer Economics Research Center, Report number CP-03-11, by F. Fraire, S. Fuller, et al, 2011. From data contained in this report and from Dept of Transportation data from 2012 National Transportation Statistics, Bureau of Transportation Statistics, the analysis in Table 30 was constructed. Table 30. Pavement Costs of Truck Travel Above the Level Compensated by Fuel Taxes* Type of Road Truck Miles, 2010 Interstate Principal Arterial Minor Aterial Collector Road TOTAL ANNUAL COST 68.8 bil miles 137.6 bil miles 40.1 bil miles 40.1 bil miles Uncompensated Marginal Pavement Costs Per Loaded Truck-Mile $0.047 per mile $0.204 per mile $0.283 per mile $0.686 per mile Annual Cost Pavement $3.23 billion $28.1 billion $11.3 billion $27.5 billion $70.1 billion

The Fraire-Fuller study estimated truck road damage impacts being reduced by approximately 20% to account for 38% of trucks on highways being on average substantially smaller than 80,000-pound vehicles.

Based upon the Federal Highway Administration’s Cost Allocation Study, revised in 2000, it is estimated that trucks add an additional 20.06 cents in congestion costs per mile traveled.

Additional reading:

AAR. 2007. National Rail Freight Infrastructure capacity and investment study.

FRA. 2010. National Rail Plan – Moving forward.

NSTP. 2007. National surface transportation NST policy and revenue study commission. 260 pages.

2009 NST Paying our way, a new framework for transportation finance

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