Respectfully submitted,
dad

Edward Avalos

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250



On March 21, BNSF reported that 16,761 railcars were past due by an average of 23.4 days.
North Dakota had 7,474 railcars past due by an average of 21.4 days, Montana had 3,322 railcars
late by an average of 25 days, South Dakota had 1,300 railcars past due by an average of 25.9
days, and Minnesota had 1,463 railcars past due by an average of 23.3 days. However, BNSF
has shown recent improvements, reporting that North Region dwell time improved 11 percent
since the first week of February and North Region train speed improved 1 percent during the
same period.

Although there have been recent signs of improving rail service, there is concern that this year's
crop will not be moved before the new crop has to go into storage, which could create major
problems during the upcoming 2014 harvest. There are reports of elevator operators storing
millions of bushels of grain on the ground and refusing to buy more from farmers. Reports from
North Dakota co-op managers indicate 85 percent of this year’s corn crop is still in either on-
farm or warehouse storage.

Conclusion

USDA understands this is a broad and complex issue affecting all commodities shipped by rail.
There is likely no easy solution to alleviate problems faced by shippers in the short term. While
all rail shipments are time sensitive to varying degrees and all industries have special
considerations, USDA would like to emphasize the perishability of grain stored on the ground
and other agriculture shipments.



Date: April 10, 2014

Before the U.S. Surface Transportation Board

STB Ex Parte No. 724

United States Rail Service Issues

Comments of the

U.S. Department of Agriculture

Edward Avalos

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250



Authority and Interest

The Secretary of Agriculture is charged with the responsibility under the Agricultural
Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 to represent the interests of
agricultural producers and shippers in improving transportation services and facilities by, among
other things, initiating and participating in Surface Transportation Board (Board) proceedings
involving rates, charges, tariffs, practices, and services.

Introduction

The U.S. Department of Agriculture (USDA) appreciates the opportunity to offer comments in
this important proceeding. Rail service problems have been occurring across significant portions
of the U.S. rail network, particularly on the Canadian Pacific (CP) and BNSF Railway (BNSF)
systems. Problems associated with deteriorated rail service include grain shippers paying up to
$6,000 to obtain empty railcars, grain piling up on the ground outside elevators awaiting rail
transportation, and some grain shippers either paying ocean vessel demurrage charges, estimated
between $30,000 and $50,000 per day ($0.07 to $0.11 cents per bushel), or missing vessels that
departed before the delayed grain shipments could be loaded. These extra costs are reflected in
the prices paid to farmers for their crops. In addition, grain shippers are concerned that the
backlog created by the current service problems may not be corrected prior to the upcoming
2014 harvest. If old crop grains are still in storage when the new harvest occurs, this will create
problems for storage, transportation, and markets.

Grain Shipper Concerns

BNSF grain shippers have paid record-high

rates for delivery of empty grain cars in the Avversge Secondary Rallesr Market Shuttle

secondary railcar markets (see figure), aad Bids per Car
reportedly as much as $6,000 per empty s000 |
grain car—approximately $1.65 per se OO
bushel, which can make U.S. grain less 2000 Art
wee —anse
competitive in world markets and/or am) a po —vu
reduce the amount of revenue earned by v0
producers. Bids in the secondary railcar coe oF SF SP

market for empty grain cars have & ra we ca ee - & ‘f ¥
continued to climb with new records being
set in December, January, February, and March. This indicates empty railcar supply for grain is

increasingly inadequate relative to demand.

Bids represent an additional premium to securing guaranteed railcar service during a specific
time period. As only so many guaranteed railcars are made available by railroads for a given
month, shippers will bid higher and higher premiums to secure railcars as demand increases.
Inadequate supply relative to demand has also driven up bids for service on Union Pacific
Railroad (UP) as shippers switch carriers.' These costs are in addition to what shippers must pay
BNSF directly through tariffs and fuel surcharges, which currently total between $4,000 and
$6,000 per car on key grain routes.

"USDA does not have secondary railcar market prices for empty railcars originating on CP and CN.

2



Rail Operations Impacting Grain Shipments

Train speeds for BNSF grain trains have decreased and cycle times to Pacific Northwest markets
have increased. BNSF grain train speed has decreased 15 percent, from 23.8 miles per hour in
February 2013 to 20.3 miles per hour during February 2014. During January, grain unit trains
from Minnesota or Iowa to the Pacific Northwest were taking as long as 22 days, compared to a
normal transit time of 12 days.

As a whole, the amount of grain shipped via U.S.-owned Class I railroads is currently behind
expectations given past performance following previous grain harvests. Grain carloads are about
42,000 carloads behind the 2009-2010 harvest and about 110,000 carloads behind the 2007-2008
harvest (Tables 1 and 2). Both harvests set records in terms of corn, wheat, and soybean
production.

“=< Table 1: Comparison of Railroad Grain Movements: eS s
Surplus / Surplus / Surplus / Surplus /

Period BNSF (Deficit) CN (Deficit) ce (Deficit) U.S. Railroads (Deficit)

(Oct. through Mar.) Carloads 2013 to period Carloads 2013 to period Carloads 2013 to period Carloads 2013 to period]
2007-2008 305,189 (74,511) 125,731 (10,760) 125,903 9,342 659,532 (110,784)
|2008-2009 258,365 (27,687) 115,797 (826) 149,283 (14,038) 552,300 (3,552)|
|2009-2010 275,532 (44,854) 103,079 11,892 135,266 (21) 590,772 (42,024)
2010-2011 296,477 (65,799) 105,135 9,836 123,930 11,315 617,488 (68,740)
2011-2012 270,066 (39,388) 101,757 13,214 140,065 (4,820) $53,823 (5,075)
[2012-2013 255,588 (24,910) 98,546 16,425 145,780 (10,535) 480,488 68,260
12013-2014 230,678 - 114,971 - 135,245 - 548,748 -
prior 5-year avg 271,206 (40,528) 104,863 10,108 138,865 (3,620) 558,974 (10,226)

Source: Association of American Railroads, Weekly Rail Traffic

Table 2: Comparison of Railroad Grain Movements : = see
Surplus / Surplus / Surplus / ‘Surplus /

Period CSX (Deficit) NS (Deficit) KCS Deficit) UP Deficit)
(Oct. through Mar.) Carloads 2013 to period Carloads 2013 to period Carloads 2013 to period Carloads 2013 to period
2007-2008 81,911 (23,580) 82,830 3,645 18,442 1,673 171,160 (24,011)
2008-2009 62,935 (4,604) 715,224 11,251 20,093 6,022 135,683 11,466
2009-2010 60,118 (1,787) 81,557 4,918 21,152 4,963 152,413 (5,264)
12010-2081 58,874 (543) 82,342 4,133 16,628 9,487 163,167 (16,018)
2011-2012 58,470 (139) 77,269 9,206 13,810 12,308 134,208 12,941
12012-2013 41,336 16,995 70,886 15,589 12,948 13,167 99,730 41419
[2013-2014 58,331 - 86,475 - 26,115 - 147,149 :

prior 5-year avg 56,347 1,984 77,456 9,019 16,926 9,189 137,040 10,109

Source: Association of American Railroads, Weekly Rail Traffic

BNSF states that track work to expand future capacity was the primary reason for poor service
because sections of track must be shut down at least 10-12 hours daily while the work is being
done. Other factors cited by BNSF and CP include severe weather and increased traffic from
several commodities, including grain, coal, intermodal, and petroleum.

One of the most severe winters in 20 years has slowed operations across the northern rail
network. When temperatures are below -15°F, trains cannot be as long because the cold
diminishes the effectiveness of air brakes. This means that railroads require more crew and
locomotives to move the same amount of traffic. With significant backlogs already on the
network from other factors, weather delays can be compounded and make the overall situation
even worse.