Adam Sparger

Economist, Transportation Services Division

“USDA Perspective on 2013/14 Rail 

Service Problems and Regulatory 

Landscape”

21st Forum APPAMEX – NAEGA

August 22, 2014

Puerto Vallarta, Jalisco, Mexico
Overview

1. 2013/14 Rail Service Issues

• Supply and demand issues behind rail service 

problems

• Impact on rail operations; grain shippers

• Impact on grain shipments to Mexico

• Railroad responses to current problems

2. STB proceedings to increase rail competition
Track Miles – 32,514

2012 Carloads

Total – 8,772,808

Grain – 688,641

Grain/Total – 8%

BNSF

Source: www.bnsf.com
Union Pacific

Track Miles – 31,868

2012 Carloads

Total – 7,330,387

Grain – 245,596

Grain/Total – 3%

Source: www.up.com
Norfolk Southern

Track Miles – 20,023

2012 Carloads

Total – 4,827,268

Grain – 146,187

Grain/Total – 3%

Source: www.nscorp.com
CSX

Track Miles – 20,740

2012 Carloads

Total – 4,857,478

Grain – 97,450

Grain/Total – 2%

Source: Wikimedia Commons
Kansas 

City

Southern

Track Miles

3,238 U.S. - KCS

3,100 Mexico - KCSM

2012 Carloads (KCS)

Total – 378,613

Grain – 26,269

Grain/Total – 7% Source: http://www.kcsouthern.com
Canadian Pacific

Track Miles – 6,134

2012 Carloads

Total – 524,930

Grain – 118,632

Grain/Total – 23%

Source: Wikipedia
Canadian National

Track Miles – 6,141

2012 Carloads

Total – 1,683,262

Grain – 69,565

Grain/Total – 4%

Source: www.cn.ca
Supply Side

• Reduced Rail Capacity

• Track Maintenance and Expansion Work

• Congestion and Winter Weather
BNSF Track Capacity Work

Source: www.bnsf.com
Chicago Congestion

• Busiest rail hub in the U.S.

• 6 Class I freight railroads (BNSF, CN, CP, CSX, UP, 

and NS), Amtrak Passenger Rail, and local commuter 

rail lines

• More railroad tracks originate here than any other city

• Major distribution center for grain – mostly corn and 

wheat

• One of the top five areas in grain elevator capacity in 

U.S.
Chicago Congestion

Source: USDA Grain Transportation Report, July 10, 2014
Chicago Congestion

Source: AMS Analysis of STB’s 1996-2012 Carload Waybill Sample

Note: The Waybill Sample does not differentiate quantities that have been rebilled.
Chicago Congestion

• 48 hours from L.A. to Chicago over 2,200 miles

• 30 hours just through Chicago

• Rail lines built 150 years ago

• Largest chokepoint in U.S.

• Coldest winter on record

a. Severe cold affects train air brakes

b. Requires shorter trains, additional crew and 

locomotives

c. Makes typical Chicago congestion even worse
Demand Side

• Increased demand from many commodity sectors

• Demand in excess of rail capacity

• 2013/2014 record U.S. and Canadian grain and 

oilseed harvest

• U.S. – 553.3 million tons, 20% higher than previous 

crop year

• Canada – 99.3 million tons, 27% higher than previous 

crop year

Canadian Service Problems

• Record harvest overwhelmed storage and 

transportation in Canada

• March 7, Canadian government order for CP and CN 

to each move 500,000 metric tons of grain per week

• Penalties up to C$100,000 per day for non-compliance

• August 7, order increased to 536,260 metric tons per 

week through November 29

• CN and CP cycling cars West to port locations for 

faster car cycling time; not east to Thunder Bay or 

south into U.S.
Effects on Grain Shipping

• Inadequate rail service – trouble securing railcars

• Grain backlogs

• Inadequate grain storage

• Record high rail rates

• Low grain prices, farmers not selling
Source: www.bnsf.com

Source: AMS Analysis of BNSF and CP Weekly Status Reports to Surface Transportation Board; USDA Communication with CP

Grain Car Backlog as of August 14

Note: CP Data for ND and MN are estimates

 CP Data for SD is unavailable

Grain Production, Stocks and Storage 

Sources: AMS Analysis of USDA Crop Production, Aug 12, 2014; Grain Stocks, estimated for Sept. 1, 2013.
Shift in Market Share in 2013/14
Source: USDA Grain Transportation Report
Source: USDA Grain Transportation Report
Source: USDA Grain Transportation Report
Source: USDA Grain Transportation Report
Weekly Average Corn Basis

Source: AMS Analysis of USDA Livestock and Grain Market News
Weekly Average Soybean Basis

Source: AMS Analysis of USDA Livestock and Grain Market News
Sources of Mexican Grain

Originations of grain shipped to Mexico by rail:

• Nebraska – 57%

• Kansas/Missouri – 22%

• Louisiana/Texas – 12%

• Canada – 3%

• Minnesota – 2%

• Iowa – 2%

• North and South Dakota – 1%

Source: AMS Analysis of 2012 Surface Transportation Board Waybill Sample
Capital Investment

BNSF

• $5 billion total expenditures

• $1 billion to increase capacity on the congested 

Northern Corridor in response to booming energy 

industry

• Adding second mainline track between Minot, ND, 

and Glasgow, MT

• Adding sidings on multiple ND line segments to 

relieve congestion

• Purchasing 500 locomotives and 5,000 tank cars
BNSF Track Capacity Work

Source: www.bnsf.com
Capital Investment

Union Pacific

• $4.1 billion total expenditures

• $1.73 billion for infrastructure replacement

• $680 million for facility projects

• Install double track and sidings at Eagle Pass, TX, 

and 43 miles of second main track on the Sunset 

Corridor

• Build and extend sidings along the I-5 corridor and 

near El Paso, TX, New Orleans, LA, and Shreveport, 

LA

• Purchasing 229 locomotives
Capital Investment

Norfolk Southern

• $2.2 billion total expenditures

• Expand yards in Bellevue, OH, and Rutherford, PA

• Build a 3.2 mile siding in Goshen, IN

• Extend siding in Shenandoah Junction, WV

• Replace bridge in Monroe, MI

• Purchase additional locomotives and freight cars
Capital Investment

CSX

• $2.3 billion total expenditures

• Over half of total expenditures dedicated to core 

infrastructure, including intermodal hub in northwest 

Ohio
Current Surface Transportation 

Board (STB) Proceedings

• EP 724 United States Rail Service Issues

• EP 665 Rail Transportation of Grain, Rate 

Regulation Review

• EP 661 Rail Fuel Surcharges (Safe Harbor)

• EP 722 Railroad Revenue Adequacy

• EP 711 Competitive Switching
EP 724 United States Rail Service Issues

• April hearing on rail service issues found many 

industries suffering from rail service

• Discovered 2014 grain harvest in jeopardy due to 

delayed fertilizer shipments

• STB ordered BNSF and CP to report on weekly 

fertilizer movements over six-week period

• In June, STB ordered BNSF and CP to report on 

weekly grain movements until backlog resolved

• On August 18, STB ordered BNSF and CP to report 

additional weekly service metrics; ordered CP to 

provide updated plan and timeline to address backlog
EP 665 Rail Transportation of 

Grain, Rate Regulation Review

• STB’s current rate challenge processes are too 

expensive and complex for agricultural shippers

• Proposed methods are inexpensive, formula-based:

1. Arbitration and Mediation

2. Ag Commodity Maximum Rate Methodology

3. Two-Benchmark Test
EP 661 Rail Fuel Surcharges (Safe Harbor)

• In 2007, STB:

a. Allowed mileage-based but prohibited rate-based 

fuel surcharges

b. Prohibited fuel surcharges to recover more than fuel 

costs

c. Recommended the U.S. No. 2 Diesel index as “safe 

harbor” index to measure changes in fuel costs for 

fuel surcharge programs

• In 2013, STB found BNSF overcharged Cargill $181 

million in fuel surcharges 2006-2010 but took no 

punitive action because BNSF used safe harbor index

• In 2014, STB revisiting safe harbor concept
EP 722 Railroad Revenue 

Adequacy

• Under current STB methodology, some railroads are 

close to point of being “revenue adequate”

• Under current guidelines, once revenue adequate:

• Regulatory landscape may change

• Differential pricing subject to scrutiny

• Rate increases should be justified by railroads

• Exploring methodology for measuring revenue 

adequacy and framework of new regulations
EP 711 Competitive Switching

• Current law allows STB to establish switching to 

promote competition

• National Industrial Transportation League (NITL) 

proposed simplified new rules in 2011:

1. Shipper located within 30 miles of an interchange

2. 240 percent or greater Revenue-to-Variable Cost 

Ratio (R/VC) or 75 percent or more volume

• USDA, DOT, NITL found minimal impact to railroad 

revenue with possible lower rail rates due to 

competition

• STB has not yet reached a decision
EP 711 Competitive Switching

Source: USDA AMS