By Ron Sterk for World Grain

Grain shippers, for the most part, are experiencing improved rail freight performance and lower freight rates, due largely to reduced demand on the rail system. Ocean freight rates, meanwhile, have move higher despite reduced U.S. grain exports. And trucking volume, while not primarily for grain, has varied widely as the industry as suffered from excess capacity added in 2018.

“According to performance data from the Surface Transportation Board (STB), rail service has improved compared to earlier in the year and prior years,” the U.S. Department of Agriculture said in its Sept. 26 Grain Transportation Report. “Railroads have moved less grain compared to last year, and rates in the secondary auction market have been correspondingly low.”

Grain rail shipments peaked in mid-May and have remained below average since, with June, July and August shipments down 5% from the same months last year, the USDA said.

Year-to-date rail grain deliveries to ports for export totaled 277,492 carloads through Sept. 18, down 11% from the same period last year, although deliveries to specific ports showed mixed results. Grain deliveries to the Pacific Northwest at 187,540 carloads were down 23% from a year ago, reflecting reduced grain (mainly soybeans) exports to China, with shipments to Atlantic and East coast ports at 13,417 carloads, down 9%, to the Texas Gulf at 41,949 carloads, up 10%, and to the Mississippi Gulf at 34,586 carloads, up 116%.

While grain arrives at export terminals by barge, rail and a bit by truck, year-to-date total U.S. grain inspected for export (for respective marketing years per specific commodity) was 8,485,080 tonnes through Sept. 26, down about 8% from the same period a year earlier, according to USDA data. But the total was dragged down by sagging corn exports at 1,530,264 tonnes, down 66% from the prior year, while wheat exports were up 23% at 8,485,080 tonnes, sorghum was up 10-fold at 91,279 tonnes and soybeans were up 6% at 3,150,498 tonnes, despite the trade war with China.

The Association of American Railroads (AAR) reported total rail traffic during the week ended Sept. 28 was down 7.4% from the same week a year ago, with carloads at 250,450, down 7.9%, and intermodal at 278,886, down 6.9%. For the year to date as of Sept. 28, total rail traffic was down 3.9% from the same period last year, with carloads at 9,864,246, down 3.8%, and intermodal units at 10,389,926, down 4.1%.

Of the 10 carload segments tracked by the AAR, year-to-date volumes all were down from a year ago except petroleum and petroleum products, which was up 16.6% at 493,100 cars. The segments showing the largest declines from a year ago were coal at 3,059,671 carloads, down 6.9%, grain at 843,910 carloads, down 6%, and metallic ores and metals, at 861,004 carloads, down 5.6%. Despite continual declines, coal remains the heaviest rail user, claiming 31% of the non-intermodal shipments for the year to date (January-September).

“Lower quantities of rail freight for grain were generally correlated with lower rail rates, reflected in the secondary auction market for shuttle service,” the USDA said. “Average bids/offers for delivery of rail cars in May through September were lower than their respective months a year ago, especially in August and September. Trading for delivery of rail cars in October is around (minus) $170 per car (below tariff), down $700 per car from the prior three-year average.”

Meanwhile, rail service improved. Average September weekly grain train speeds were up 5% from March, were up 9% from September 2018 and were up 2% from the prior three-year average, according to S.T.B. data. Average weekly origin dwell times were down 53% from March, were down 37% from September 2018 and were down 28% from the three-year average. Unfilled grain car orders for manifest service were down 91% from their peak in April and were down 49% from September 2018.

“Overall performance on the network has remained strong during the past few weeks,” BNSF Railway said in a recent network update. “Velocity for both cars and trains is running at the highest levels since January. Terminal dwell has also been reduced to its lowest level since the start of the year. Operating teams are engaged in ongoing efforts to drive greater velocity and efficiency improvement as we move into the busy fall season.”

But grain shippers, like the railroads they use, haven’t been without headaches this year. Especially troublesome to both were track outages and other closures during the spring from rains and floods across large areas of the Midwest, from Arkansas and Oklahoma to Nebraska and Minnesota. While all or most of those outages have long returned to service, movement of grain, grain products and other commodities were delayed for days to weeks during the worst of the flooding.

One Kansas City grain merchandiser agreed that railroads were “running pretty well” since recovering from numerous outages from flooding earlier in the year.  However, he noted that, while rail rates have fluctuated, he saw them as up from a year ago after most railroads on average increased freight rates about $100 per car (5% to 7%) during the past summer, which he said is a typical annual occurrence.

Further, the Union Pacific Railroad’s conversion to Precision Scheduled Railroading (PSR) that began in October 2018, along with similar efforts by some other railroads (not BNSF), continues to bring “a lot of frustration” to grain shippers, a Kansas City merchandiser said. The STB continues to closely monitor performance, industry complaints and other issues specific to PSR to assess its impact on shippers.

“In 2019, railroads are facing multi-pronged challenges,” said John T. Gray, senior vice-president at AAR. “Fundamental long-term structural changes — including the continued erosion of coal markets; growth in the domestic intermodal and chemical sectors; and the current disruptions to manufacturing, agricultural and international intermodal markets stemming from trade uncertainty and the evolution of consumer purchasing practices — have all required adaptation and renewed focus on basic railroad management and operational principals. That said, the industry’s ultimate goal will remain what it’s always been: providing safe, cost-effective transportation that meets the evolving demands of our customers’ markets, now and in the future.”

Barge grain movement slower

The heavy rains and flooding also negatively affected barge traffic on Midwestern waterways.

“In late 2018 through mid-2019, floods and high water disrupted barge traffic on the Mississippi river and its tributaries,” the USDA said. “The high water resulted in large amounts of sediment deposited throughout the river system. Although the effects have not been as dramatic as those from the flooding, which entirely closed locks near St. Louis, they have complicated commerce on the inland waterways.”

Year-to-date to Sept. 21, downward tonnage of grain shipments on the Mississippi river system through the locking portion of the river was 19.5 million tons, down about 32% from the same period a year earlier, the USDA said. The largest reduction was in corn shipments at 9.1 million tons, down 50% from a year earlier. Meanwhile, the Federal Grain Inspection Service reported an average of 560 grain barges per week were unloaded in the New Orleans region, down 25% from 2018 and 23% below the prior five-year average.

The river system shipping disruptions resulted in higher barge freight rates, as reported by the USDA. Navigation restrictions slowed upbound barge traffic, which reduced the supply of barges and resulted in high shipping rates during periods of high demand. Conversely, at times the river disruptions reduced demand for barges, which resulted in lower rates.

Ocean freight rates higher

Ocean freight rates for bulk grain have trended higher since early February, after a brief dip in January, according to the USDA. Although grains exports have been down from a year ago, ocean freight rates have been driven higher by increased demand to ship coal and iron ore, in addition to China buying more soybeans from Brazil, which increase the length and time of vessel movement compared with shipments from the United States, especially from the Pacific Northwest. As of Sept. 19, shipping bulk grain from the U.S. Gulf to Japan cost $52.25 per tonne, up 38% from the first week of February, up 12% from the same week a year ago, and up 36% from the four-year average, according to USDA data. The cost of shipping grain from the Pacific Northwest to Japan was $29.50 per tonne, up 37% from February, up 16% from a year ago and 40% above the four-year average. Shipments from the U.S. Gulf to Europe were $21 per tonne, up 31% from February, up 5% from a year ago and up 24% from the four-year average.

Additional upward pressure on ocean freight rates has resulted from “slow rates of dry bulk fleet expansion caused by the International Maritime Organization’s (IMO) regulations on ballast water scheduled to take effect in January 2020,” the USDA said. Further, the IMO, under Annex VI of the International Convention for the Prevention of Pollution from Ships, has mandated that ocean-going vessels reduce the amount of sulfur emissions from marine fuel to 0.5% from 3.5% (by weight) by Jan. 1, 2020, which some have called “the biggest change in fuel regulations since the elimination of leaded gasoline,” the USDA said earlier this year. As with railroads and trucks, ocean carriers have begun adding fuel surcharges in contract negotiations.

“Importers in the eastbound trans-Pacific were warned Thursday (Sept. 26) by a large shippers association to expect at least a 9% increase in all-in freight costs next year after the IMO’s low-sulfur mandate takes effect,” the Journal of Commerce said in a recent report. “The bottom line is that carriers intend to be compensated for the higher fuel costs.”

While the IMO rules only apply directly to bunker fuel (used by ships), the low-sulfur fuel will draw from the middle-distillate fuels that are also used by surface carriers, “so prices for rail and trucking diesel will also increase,” the Journal of Commerce said.

Average on-highway diesel fuel prices as reported by the U.S. Energy Information Administration averaged $3.07 per gallon in the week ended Sept. 30, up 0.02¢ from the first of the year but down 0.25¢, or 7.5%, from the same week a year earlier. The weekly U.S. average diesel fuel price has been below the year-ago level since early May. The on-highway price is used by railroads and trucking companies to figure fuel surcharges, which are added to the freight rates paid by shippers of grain and other products. The August average railroad fuel surcharge was 14¢ per mile per rail car, down 2¢ from July and down 4¢ from August 2018, but up 6¢ from the prior three-year average for August. Fuel prices have the greatest impact on trucks, because of the small volume per load hauled relative to railroads.

Truck tonnage down in July

After climbing almost steadily each month from May 2017 through July 2018, truck tonnage has seen wide monthly swings, as reflected in the American Trucking Associations’ (ATA) seasonally adjusted Truck Tonnage Index, of which 2015 equals 100. The for-hire index dropped 3.2% in August after jumping 6.2% in July, with the August index equal to 118.3% of the base and the July index equal to 122.2%, the ATA said. The August index was up 4.1% from August 2018, and the index is up 4.3% January through August compared with the same period last year.

“Tonnage in 2019 has been on a rollercoaster ride, plagued with large monthly swings,” said Bob Costello, chief economist at the ATA. “The large swings continued in August, but the good news is the trend line is still up. While there is concern over economic growth, truck tonnage shows that it is unlikely that the economy is slipping into a recession. It is important to note that the ATA’s tonnage data is dominated by contract freight, which is performing significantly better than the plunge in spot market freight this year.”

Trucks account for large amounts of grain moved relatively short distances, compared with railroads that move grain between regions or to ports, barges that transport grain downriver to export ports and ocean vessels that move bulk or containerized shipments to foreign markets.

An ongoing frustration for the trucking industry has been a shortage of drivers. The ATA estimates that a 20,000-driver shortage in 2005 grew to 60,800 in 2018, up about 20% from 2017, is expected to dip slightly in late 2019 due to slower economic growth and a slight increase in driver supply but then increase to 160,000 by 2028 based on current trends.

“There are many reasons for the current driver shortage, but one of the largest factors is the relatively high average age of the existing workforce,” the ATA said in its Truck Driver Shortage Analysis 2019. “Additionally, the industry has historically struggled to attract all segments of the population.”

Just 6.6% of truck drivers in 2018 were women, little changed from 2001, the ATA noted, although 40.4% of drivers in 2018 were minorities, which was up sharply from 26.6% in 2001.

“Today, motor carriers struggle to find enough qualified drivers, which makes the impact of the shortage seem much worse,” the ATA said. “Many carriers, despite being short drivers, are highly selective in hiring drivers because they have made safety and professionalism high priorities.”

While the trucking industry may be struggling with a lack of drivers and excess capacity, the ATA said industry-wide revenue surged about 14% to $796.7 billion in 2018, in part due to higher rates implemented last year.

The that growth isn’t expected to be sustained, according to a Journal of Commerce report. Analysts at the recent Intermodal Association of North America’s annual meeting forecast “flat to low-single-digit growth” for trucking, intermodal rail and ocean shipping for the rest of this year and into 2020. Uncertainty from trade issues will continue to affect the economy and demand for shipping both agricultural and other products in coming months.

The trucking industry especially is dealing with capacity increases from strong demand in 2018. Smaller carriers increased capacity by 4% and large carriers by 2% last year, but so far this year smaller fleets have removed about half of the added capacity while large fleets have removed a small amount.

For agriculture, meanwhile, the focus now is on the fall row crop harvest, which comes amid considerable uncertainty for the export market that utilizes a combination of nearly all transportation modes. While the railroads appear poised to handle the harvest, and China recently has returned as a buyer of U.S. soybeans (for now), late maturing crops and consequently later harvest may consolidate the harvest period, likely putting additional pressure on transportation services.

By Bruce Abbe, SSGA strategic advisor for trade and transportation

The U.S. Federal Maritime Commission (FMC) announced on Sept. 20 it’s extending the deadline for public comments to be submitted on its proposed interpretive rule on how detention and demurrage penalties are handled by ocean container lines and port terminals.

The deadline for comments to the FMC is now Thursday, Oct. 31. View the proposed interpretive rule and find instructions on how to submit comments here.

The extension was made after shipper groups, notably the Agriculture Transportation Coalition (of which the Specialty Soya and Grains Alliance is an active member), called for more time to hear from cargo shippers due to the importance of establishing fair and appropriate practices for handling these penalties. Shippers and truckers have complained in recent years about being assessed penalties for delays due to conditions over which they had no control. That led to an 18-month investigation by the FMC that heard from all parties that resulted in the proposed interpretive rule. Detention and demurrage penalties are intended to incentivize container flow at the ports.

Meanwhile, CMA-CGM, one of the largest ocean container carriers in the world, decided to drop a processing fee for handling demurrage and detention penalties last week, only two days after it announced the fee. The $50 processing fee, which would have gone into effect Oct. 15, drew swift condemnation from shippers. More information on both developments can be found at www.joc.com.

By Bruce Abbe, SSGA strategic advisor for trade and transportation

As noted in previous editions of Member News Update, Specialty Soya and Grains Alliance’s (SSGA) structure provides that we will have action teams of members whose role is to recommend strategies for our organization to push for expanded intermodal and more competitive shipping options for our members nationwide. Initial steps have gotten underway to form SSGA’s Competitive Shipping action team.

An initial steering committee met Aug. 13 in Bloomington, Minn. to brainstorm next steps to form and activate this vital function for SSGA. Despite “Shipping” no longer being in the title of SSGA (as it was in the Midwest Shippers Association), advocating for more competitive global shipping for ag exporters remains every bit a priority for SSGA now as in the past.

Shipping action team members include: veteran John Andrusko, founder of Professional Export Services, Inc.; Lynn Vorvick, general manager of Globe Runners, Inc., a national Non Vessel Owning Common Carrier (NVOCC); SSGA board members Bob Sinner, president of SB&B Foods; Darwin Rader, international marketing manager for Zeeland Farm Services; SSGA Executive Director Eric Wenberg and SSGA Strategic Advisor Bruce Abbe.

Next Steps – Member Survey Coming
A survey will soon be going out to all of SSGA’s member to gather a more detailed picture about SSGA member’s global-to-local shipping patterns, and most importantly, to hear about issues in transportation you are experiencing and recommendations and ideas you may have for SSGA. While intermodal container shipping will likely remain the key focus of SSGA’s efforts, intermodal by its very nature encompasses ocean, rail and trucking/drayage issues.

We will want to learn about the ports both in the U.S. and overseas destinations our members ship to, markets our members serve, railroads most commonly used, how trucking issues are affecting you, any new markets and trade lanes you see yourself serving in the future. We hope to hear about any new intermodal developments or prospects you are aware of. We want to hear your recommendations about what SSGA should tackle for our organization and members that we can realistically do and provide that will be valuable to you.

Larger Action Team
A larger Competitive Shipping action team will eventually be formed with regular conference call meetings, and likely special group initiatives as the group and board determine. SSGA wants highly-informed member representatives on this group – people who deal with shipping every day, and will provide experience and knowledge about the impact of new issues we face that seem to develop every week now.

What we’ve heard so far

Here’s a brief rundown of some issues we’ve heard from members on so far:

• Trucking weight limits, particularly uneven limits among states for longer hauls, is a long term challenge. Some states have higher weight corridors or limits on state roads.
• Rail heavy weight surcharges, primarily a Union Pacific issue that cropped up last year, is a newer issue that may need attention, especially if other railroads move to adopt. UP has done some refinements, but ocean carriers are including those surcharges on customer bills now.
• The International Maritime Organization (IMO) 2020 fuel cost hikes are coming, mandating the steamship lines either move to low sulfur fuel or take ships out of rotation and install scrubbers. Jan. 1, 2020 is the mandate requirement globally now. Shippers want to see what the price increases are in actuality. That may differ by location, depending upon availability of the fuel. The cost hikes, many believe, should not be determined by pure market forces – i.e., the Walmarts able to bargain for lower fuel hikes compared to small shippers. Can the Federal Maritime Commission be pushed to mandate carriers provide advisements to shippers on costs or availability? It seems information on how IMO will be handled is just now starting to trickle out from the carriers, and the industry is running behind on getting cued up.
• Rail service inconsistency in departure times is another issue SSGA has been tracking. In smaller intermodal hubs like Minneapolis, Omaha, St. Louis and Denver, the trains don’t leave until the railroad has a complete full unit train of container cars. In bigger hubs like Chicago and Kansas City, they’ll leave as soon as the train is full. But the discrepancy in departures can mean some shippers might miss a cut-off time for the ship at the ports. That could mean your freight sits at the port for another week until the next departure to your destination, with detention fees a possibility.
• Drayage availability – there are more intermodal trucking firms leaving the business. Among those in the business, some are no longer willing to haul more than 38,500 pounds in a 20-foot container, some 3,000 pounds less than they could haul. Having enough drayage trucking service may become the number one issue for ag shippers in the coming years.
• Steamship line customer service has been a complaint over the past four years or more. The growth of e-commerce and digitalization of business transactions has brought along an ever-widening hole in customer service. Carriers promote online interaction to resolve problems, but the reality is, very rarely are these online requests addressed in a timely manner or to the satisfaction of the shippers/forwarder. A call is typically needed to reach someone at the steamship line, and the person who answers the call often is not knowledgeable or in position to get the issue solved.
• The deteriorating quality of containers for ag, food and feed shippers, remains a problem. One positive step on that issue – we learned at the Ocean Container Shipping Panel session at the Global Trade Exchange & Specialty Grains Conference in Chicago that Ocean Network Express (ONE), the new combined carrier made up of the three previous, large Japanese carriers, now has acquired or is acquiring all new containers. They’re the only one, and will set the mark most likely for better quality equipment for some time.

Those are examples of the issues this action team wants to learn about from members. We want to consider ways as a group we can advocate for changes to improve competitive shipping from the inland U.S. to global markets.

Your Input
Most importantly, please note SSGA wants to hear from all of our members about transportation issues and developments you are facing. As a member, you are encouraged to contact SSGA. On shipping matters, contact Bruce Abbe, who serves as the staff lead on transportation – bruce@abbecommunications.com or call him at (612) 716-5074.

By Bruce Abbe

Precision scheduled railroading (PSR). Some feel it will be a boon for the railroads by improving efficiencies and lowering costs. Yet, it’s been a boondoggle for many rail shippers so far over the last three years that it’s been implemented in one form or another by more class one railroads.

Time will tell if PSR will live up to the promises railroads have been making. More observers, including some shippers, are coming around to the idea that maybe service will eventually improve, while others believe it will be the cause of uneven and deteriorating service for different rail shippers and it’s not the right route for rails to travel.

U.S. House transportation hearing

On July 25, a U.S. House Transportation and Infrastructure subcommittee held a roundtable in Washington, D.C., to hear from rail shipper customers and industry associations to highlight challenges faced by farmers, manufacturers and energy companies whose rail service have been impacted by precision scheduled railroading.

Perhaps the overriding complaint was the lack of collaboration between the railroads and their customers when they set out to redeploy their physical assets: rail cars, engines and related equipment, and reduce their labor needs and costs while pursuing leaner, streamlined service.

The shippers also voiced strong complaints about service delays and hiccups when PSR is initially implemented that led to them to get hit with skyrocketing overcharges for demurrage and storage of rail cars that they believe is solely the responsibility of the railroads.

PSR got its start and name under the late Hunter Harrison several years back when he took the helm of Canadian National (CN) railroad and embarked on a fierce cost cutting program, shedding assets and service frequency while pursuing increased fluidity. Some believe the changes were necessary. Operating profit improved, but service took a hit. After Harrison left CN, the new administration set about restoring service and trying to rebuild a reputation for doing so.

After hedge fund investors took control of CN’s main competitor, Canadian Pacific (CP) railroad, Harrison was brought on as CEO and set about leaning up CP’s operations while emphasizing the more lucrative long haul with unit trains. CP even sold off assets, including engines at a time when the Bakken Oil Field boom was taking place and its main U.S. competitor, BNSF railroad, was adding equipment to meet oil and frac sand shipping demand. After the hedge fund investors sold off their stock and Harrison departed, CP’s new management has been working to restore service levels and take back some of the intermodal business it had lost to CN.

Harrison next came out of retirement to take over leadership at CSX, one of the two main class one, eastern U.S. railroads. CSX moves to cut and reform its operations proved to be more difficult in the more fragmented geography the railroads in the East tend to operate on, and many shippers were irate and fearful of losing service. The U.S. Surface Transportation Board (STB) heard numerous complaints and engaged CSX on its PSR steps.

More recently, Union Pacific (UP) railroad, the largest U.S. railroad that serves the western half of the country embarked on its version of PSR, rolling out a range of operational changes, including eliminating some “hump yards” that switch rail cars between rail lines and trains where it was believed operations can be sped up without them.

Intermodal container service, generally less impacted by PSR operational reforms, did undergo changes by UP when it announced it would discontinue managing the interconnecting handoff of containers shipped west to east and back requiring a connection to an eastern railroad.   Shippers or their logistics firm providers will need to manage trucking containers from UP rail yards on the west side of Chicago to a CSX or Norfolk Southern rail terminal on the east side of the Chicago metro area.

MARS conference examines PSR

In truth, PSR is a very general term and is different from one railroad to the next in terms of how it is executed.

PSR and its impact on shippers was the focus of the Midwest Association of Rail Shippers (MARS) annual summer meeting two weeks ago attended by the Specialty Soya and Grains Alliance (SSGA) staff.

Keynote speaker James Squires, president and CEO of Norfolk Southern (NS) railroad, told the large crowd of rail shippers that NS chose to hold back and watch how PSR was executed by other railroads and is taking a different approach.

“The chainsaw method…” to PSR doesn’t work. NS, he said, has adopted a different approach by engaging and involving its shipper customers in planning its version of precision scheduled railroading. He believes it is paying off and will yield benefits for both the railroad’s operating bottom line and shippers in the resulting efficiencies.

A panel of four major, large volume rail shippers that work with more than one railroad had a bit different story about their experiences with PSR.

Rob Cook, senior manager of rail operations at Bunge, noted the supply of rail cars got so pinched down during PSR implementation they had to bring on their own supply of cars when the rails reduced the cars they would supply. Customer support was lacking.

Another manufacturer shipper was concerned about the break up of the large unit trains they had geared their operations to serve. Their customers were used to handling the larger trains.

Precision scheduled railroading “is not very precise” at destinations and origins – that last mile of service” – said another shipper. Customer service was bad. Local crews were reduced.

Few people understood the “accessorial” and demurrage charges that the railroads began to charge. When the group was asked what could be done to make PSR better, Cook said he’d like to see “reverse demurrage,” whereby the railroad had to pay when its equipment didn’t show up on time when ordered.

All of the shippers urged more collaboration in planning a major overhaul of rail operations.

The first three months of PSR implementation was described as “chaos” by more than one shipper, but improved after three months. The general prediction was after one year of adjustment operations will be better and the results better known.

BNSF takes a different track

Precision scheduled railroading also frequently came up at the MARS winter meeting in Chicago in January 2019. Matt Rose, BNSF’s long serving chairman and CEO, was honored at that event for his service leading the other main western U.S. class one railroad, which had led the way in terms of continuing to reinvest profits into the track, assets and operations. Rose was asked during a sit-down keynote interview what he thought of PSR. BNSF has rejected that approach, Rose said emphatically. Operations at BNSF are continually evolving but finding a way to expand and improve service should be the priority focus for the long term, rather than embarking on any whole-sale slashing of operations in the name of efficiency.

Let SSGA know your thoughts

SSGA would like to hear from any members who have felt the impact of any PSR rail operational reforms affecting your business, or if you have views or news about rail service that we should know about. Contact Bruce Abbe at bruce@abbecommunications.com or Eric Wenberg at ewenberg@soyagrainsalliance.org

Bruce Abbe is the Strategic Advisor for Trade and Transportation for SSGA. Reach Bruce at 952-253-6231 or drop him a line here.