Railroads still struggle to move freight, despite federal warnings

With the harvest just ahead, farmers and grain shippers are increasingly worried about where they'll put millions of bushels of Minnesota-grown corn and soybeans because the rail system is far behind in moving last year's crop.

A boom in oil shipments out of North Dakota has led to delays and skyrocketing freight costs that are ratcheting up tensions between rail firms and many of their customers: coal companies, utilities, ethanol plants and passenger rail.

But prompt rail service is of particular importance to the Upper Midwest's immense agricultural sector. Bob Zelenka, executive director of the Minnesota Grain and Feed Association, said the railroads are not adjusting quickly enough to the unprecedented oil traffic.

"It just added substantial congestion to whole BNSF and [Canadian Pacific] network," Zelenka said, "and neither was well prepared with the infrastructure to handle that increase in volume."

Gov. Mark Dayton sent a letter last week to the Surface Transportation Board, which regulates railroads, complaining of "dire circumstances" that Minnesota farmers face because of delayed grain shipments, and asking for increased accountability from the railroads.

The board will hold a previously scheduled field hearing Thursday in Fargo to learn more about the problems and to hear from railroad executives, top elected officials, and leaders from corn and soybean associations, farmers unions, power companies and coal shippers.

In calling for the hearing, the board said it remains "very concerned" about grain shipments, especially with above-average and potentially record corn and soybean harvests expected in a few weeks.

"As the new harvest ramps up, storage space at many [grain] elevators reportedly is already unavailable or very limited" because much of the 2013 corn and soybeans have not been shipped yet, the board noted. "As a result, some farmers are being forced to store grain on-site in bins, bags, or on the ground, or to truck grain to distant elevators."

The railroads have pledged to catch up on delayed shipments, and BNSF Railway Co. has added locomotives, crews and new track in strategic areas.

John Miller, BNSF group vice president of agricultural products, said in an interview Wednesday that the latest shipping numbers show dramatic progress since April, May and June, when the company had a huge backlog.

"I know the market feels like we're not caught up," Miller said. "But the reality is we are caught up in Minnesota."

BNSF and Canadian Pacific Railway are the main companies serving the northern tier corridor, which sends corn, soybeans and wheat from Minnesota, North Dakota and Montana to the Pacific Northwest, much of it for export to Asia.

A University of Minnesota Center for Farm Financial Management study estimated in July that transportation problems between March and May cost Minnesota corn growers $72 million, soybean farmers nearly $19 million and wheat growers $8.5 million. A similar study by North Dakota State University estimated $66 million in higher costs for that state's farmers for sales between January and mid-April.

The extra costs come from higher freight rates, and higher storage rates from grain elevators. The rates reflect the increased risks of spoilage, lost sales and penalties for products not delivered on time if farmers and shippers cannot move their grain to market.

Zelenka said those most affected in Minnesota are growers in northern and western counties that are dependent on rail, since those in southern and central areas near rivers may have the option to ship by barges.

Lance Peterson, who grows corn and soybeans on about 2,000 acres near Underwood just east of Fergus Falls, said farmers are tired of rhetoric from the rail companies. "They said a lot of problems last year were due to the coldest winter in 30 years, but we're well beyond that now and that story should be closed out," he said. "So now it's time to provide adequate service and get this year's crop moved."

Peterson, who is on the board of the Minnesota Soybean Growers Association, said a secondary market has developed for freight, where some elevators or shippers who contracted for trains months ago are selling those contracts at 500 percent markups to growers and other shippers desperate to move crops.

Fewer coal trains

It's not only farmers who are upset about rail delays. Xcel Energy, for example, depends on regular train shipments of coal to fuel its huge Sherco power plant in Becker just northwest of the Twin Cities.

Tom Imbler, the utility's Denver-based vice president of commercial operations, said Xcel burns 12 to 13 trainloads of coal each week at Sherco, but in recent months has received 7 to 10 trainloads per week, depleting the utility's inventory significantly. Each train contains 115 coal cars, and Sherco's three coal-burning generators supply 24 percent of the power needed by the utility's Upper Midwest customers.

"From our perspective as a longtime shipper that has paid billions of dollars to this railroad, we expect better service and better management of that new [crude oil shipping] business," Imbler said. "The new business should not be coming at the expense of long-term customers."

Xcel is not worried that it will run out of coal, Imbler said, but it wants to rebuild its inventory to "more comfortable levels," and is pressuring BNSF for better service.

Marc Magliari, a spokesman for Amtrak, said that oil trains have also taken precedence over passenger rail traffic in the northern corridor. The on-time performance for the Empire Builder, the train that runs on BNSF tracks between Chicago and Seattle, has been "woeful," he said. "More than a half a million people count on that train as a basic transportation service across the northern tier of states," Magliari said.

Trying to do better

Railway companies have pledged for months to improve their performance. They said that congestion on the system developed because of increased shipments of consumer goods, coal and other cargoes, not just crude oil from North Dakota.

The Surface Transportation Board noted that BNSF had made "considerable documented progress" in reducing backlogged orders, but that Canadian Pacific service has not improved and is still far behind. CP spokeswoman Breanne Feigel declined an interview request but said in an e-mail Wednesday that the company will attend Thursday's meeting "to reiterate our commitment to moving grain and serving our customers in North Dakota and across the Midwest."

Miller said BNSF is moving more agricultural products than ever before in the region, and does not give preferential treatment to crude oil shipments, as some critics have charged.

Miller said that BNSF rail service will continue to improve, and that additional sidings and double track will improve train speeds and relieve congestion this fall. "Farmers should expect more predictability, more reliability, and a more consistent flow of rail throughout harvest," he said.

Tom Meersman • 612-673-7388