Class I railroads have come under scrutiny recently, particularly from agricultural shippers, for inconsistent and unreliable services. The issues, amplified by the pandemic, include staff shortages, steep increases in prices for cars, delayed loading and unloading, and one-sided financial penalties, which have had a negative impact on sorghum exports.

The sorghum industry relies heavily on the U.S. rail system. In a typical year, approximately 40 percent of sorghum travels down domestic tracks to export facilities, primarily in the Gulf Coast. This year, however, changes in logistics resulted in almost 48 percent of sorghum traveling to ports in the Pacific Northwest when railroads put in competitive freight rates. Typically, less than 10 percent of U.S. sorghum travels to the PNW for export.

Tom Williamson, founder of Transportation Consultants Co.—a company that specializes in transportation consulting for the agricultural industry with emphasis on rail, barge and ocean freight service, rates and rail car leasing—described the current situation with the U.S. rail system as a collision of multiple issues and the “biggest mess” he has experienced in his more than 50 years in the industry.

“We have filed more shutdown logs as a company in 2021 and 2022 combined than I have in the rest of my career put together,” he said.

STB Hearing Highlights Concerns

Challenges with Class I railroads’ performance are so significant the Surface Transportation Board (STB), the federal agency with jurisdiction over railroad rates, practices and service issues, scheduled a federal hearing at the end of April in Washington, D.C.

In response to the extensive problems described at the hearing, the STB issued an order May 6 requiring the four largest U.S. railroads—Union Pacific Railroad (UP), Norfolk Southern Railway (NSR), CSX Transportation, Inc. (CSX) and BNSF Railway Company (BNSF)—to file service recovery plans that would specifically describe their key remedial initiatives and promote a clearer vantage point into operating conditions on the rail network.

“Unfortunately, [UP, NSR, CSX and BNSF] submitted plans that were perfunctory and lacked the level of detail that was mandated by the Board’s order. The plans generally omitted important information needed to assure the Board and rail industry stakeholders that the largest railroads are addressing their deficiencies and have a clear and measurable trajectory for doing so,” STB said in a June 13 statement, ordering the four major railroads to correct deficiencies in their rail service recover plans.

One-Sided Financial Penalties

One issue highlighted in the STFB hearings was the matter of demurrage, which occurs when a fee is assessed to a shipper who is slow to load or unload rail cars. Railroads are not required to pay penalities to shippers when rail cars are late, bringing the full force of the financial penalties onto the shippers for circumstances out of their control.

Jewel Bronaugh, U.S. Department of Agriculture Deputy Secretary, told the STB it should use all its authority to incentivize the railroads to provide better service.

“We cannot continue a system where the railroads face no consequences for providing unpredictable service,” she said, “and shippers and, ultimately, farmers, ranchers and the American public—pay for it when it goes wrong.”

There are also financial challenges in the secondary railcar market, which is the trading of guaranteed railroad ag covered hoppers between railroad customers. Secondary market prices have shot sky high.

“If you look at that secondary market, it has been thousands of dollars per car to buy a train and to get stuff moved,” Williamson said. “So that tells you that people have a market for the grain or they are wanting to begin to clear out their elevators and make room for what they see as a good size harvest.”

Despite merchandisers buying cars for specific time slots, getting the cars to the facility in a timely manner remains a challenge.

“Even though you may buy a first half of June time slot, it may be mid-July before you get it,” Williamson said, adding the railroads then have to pay a penalty to the original buyer, which falls short in making up the losses shippers incur after contract delivery terms are not met as a result of the delays.

100 Miles to Right the Rails

While the rail issue is broad and complex, Williamson believes many of the problems we are facing can be solved in the first 50 miles and the last 50 miles of service.

“That is where we are having tremendous problems today,” he said. “We cannot get cars picked up. We cannot get plants switched. Once they get to that first terminal, we have good solid service, but once it gets to that last terminal, we can’t get it delivered to the plant that it needs to go to.

“We have all these metrics that tell us how fast trains are going and how many days cars are held in yards, but nothing measures that first 50 miles and last 50 miles of service.”

Williamson believes as the railroads start measuring this service area in response to STB reporting requirements, performance will improve through increased resources, management and manpower, which have all been limited following cutbacks during the COVID-19 pandemic.

Cargill’s North American rail leader Brock Lautenschlager told the STB during its April hearings that based on employee data reported by the railroads, the current Class I transportation train and engine employee count is 6,400 employees, a 12 percent decrease from December 2019 levels.

Williamson said the STB will meet with the railroads’ major players in Kansas City prior to harvest to evaluate and forecast the market outlook. He said it will be key between now and then for the railroads to hire more people.

While Williamson is optimistic, he warned we are not out of the woods anytime soon. As harvest, winter weather and the holidays approach, strain on the system will increase, pushing many realistic improvements to next year.

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This story originally appeared in the Summer 2022 Issue of Sorghum Grower magazine.