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Published August 12, 2013, 09:27 AM

Stopped in its tracks

A contract dispute between railways has stalled development of a new shuttle loader in Verona, N.D.

By: Mikkel Pates, Agweek

OAKES, N.D. — A $30 million shuttle-loading grain terminal in Verona, N.D., has been stymied, in large part because of the affected railroads’ handling of contract rates.

Eric Larson is general manager of James Valley Grain LLC of Oakes, N.D. The company closed its long-standing small elevator in Verona and tore it down earlier this year. The removal was partly because of Occupational Safety and Health Administration rules, but partly for efficiency.

“We had to tear it down, and we have an obligation to our customer base and owners, actually,” Larson says. “The (co-op) board decided we would build a brand new greenfield shuttle site there. We have the money in place with CoBank as a partner. We purchased the land up there and were ready to build.”

The co-op planned an investment of about $30 million, including 3-million-

bushel storage capacity and 80,000-bushel load-out capacity, with a 120-car, fast-loading circle track.

The co-op decided on its plans before the Burlington Northern Santa Fe Railway Co. quoted the through-rate — a crucial aspect of operation — because it wasn’t aware of any rates being denied.

There is only one problem: BNSF is electing not to quote a through-rate to the Pacific Northwest for a rail journey that starts on a regional short-line railroad — Red River Valley and Western Railroad (RRVW), based in Wahpeton, N.D.

One little hang-up

A through-rate is a single transportation rate on an interline haul made up of two or more separately established rates. BNSF could only offer a rate to the Pacific Northwest from Casselton, N.D., where the RRVW hooks into the mainline, Larson says.

“I know the RRVW wants to help build it; I’m not sure about the BNSF,” Larson says of the Verona site. “There’s plenty of grain there. I don’t know why they won’t give us a through-rate. I have not gotten an answer from them.”

The effected farm customer base for Verona would involve North Dakota communities such as Jud, Marion, Litchville and Kathryn. Those customers haul grain by truck to shuttle loaders in Oakes, or north to mainline shuttle loaders in Jamestown and Valley City. The trade area that would be most affected would involve an estimated 15 million bushels of grain in Verona, which costs farmers money and taxpayers road repair expenses, according to James Valley Grain.

The closest shuttle loaders currently are Plains Grain & Agronomy LLC, about 22 miles to the east in Enderlin. Others are Columbia Grain Inc. and Omaha-based Gavilon Grain LLC in Valley City, on the BNSF mainline. Gavilon and Columbia Grain, of Portland, Ore., both are owned by Marubeni Corp., a Japanese trading company that is a big player in moving grain to China, among other destinations.

Larson says a grassroots group in the Verona area is pushing to contact state and federal legislators to get the through-rate approved. The congressional delegation has been in touch with the railroads, he says. Nothing has happened.

“Think of all the highway miles and wrecking the roads and the safety issues, versus putting a shuttle site in Verona, versus all the truck grain that has to move,” Larson says. “There’s nothing up there — 46 miles of nothing,” Larson says of North Dakota Highway 1 from Verona to Valley City.

“We could really take care of a big customer base up there. We’ve been at a standstill for 17 months, which is costing our growers money. Our ‘pro forma’ (for constructing the elevator) is going down because construction costs are going up. As of right now, we are still in a waiting game.”

James Valley Grain was established between the Norway Spur Cooperative (36 percent ownership) and South Dakota Wheat Growers (64 percent ownership).

The company owns two elevators in Oakes — a 10-million-bushel terminal built in 2001, with access to both BNSF and Canadian Pacific Railroad, and a downtown elevator that primarily serves as a wheat house, but also handles corn.

Larson says James Valley Grain has asked South Dakota Wheat Growers, the large cooperative based in Aberdeen, to exert any influence it can regarding the Verona impasse. “But even with all their facilities in South Dakota and the few in North Dakota that they have, they told us they’re less than 1 percent of BNSF’s business,” Larson says.

Short line history

Short line railroads were developed in the region in the mid-1980s when elevators were largely several miles apart and handled 25- and 50-car load-outs.

Mainline railroads such as BNSF and CP then cooperated with the Surface Transportation Board and with Congress to develop the lines, in part to avoid abandonment of what were then minor lines. The CP largely leased rail to short lines, while BNSF largely sold them.

Today, short lines in the region are thriving, partly because of increased oil traffic and partly because of a shift into corn and soybean crops. With bigger yields and volume, shuttle loaders with 110- and 120-car capacities have been built roughly 30 miles apart and often on the short line locations, in addition to those on the arterial mainline railroads. Recent expansions of port facilities in the Pacific Northwest and the strong Asian grain demand are increasing traffic through these facilities.

Andy Thompson, RRVW president and CEO, acknowledges he’s been talking with James Valley Grain and BNSF about the Verona site since October 2011. RRVW is insisting it has a 40-year contract, formalized in 1987, that should be honored by BNSF.

“They have a power of attorney to make the through-rates and they should continue that,” Thompson says. “They have responsibility not to discriminate. They are discriminating, ie. Verona.”

BNSF has always published through-rates from similarly situated customers in the Oakes, Verona and Edgeley areas, Thompson says. “Over the years, we’ve taken less and less allowance as part of the rate with Burlington Northern. They continue to put more in their pocket and give less advantage to the customer and to the railroad,” he says.

Thompson declines to put dollar figures or percentages on the deal, except to say that through-rates have gone up in cost to customers, but the short line has negotiated lower rate allowances as new shuttle sites have arisen.

Currently, RRVW’s only qualified route from Verona starts going west to a junction called Independence, south to Oakes, then east to Wahpeton and finally north to Casselton. Thompson says BNSF’s proposal for a rate from Casselton “doesn’t leave enough to cover our costs and to make the proposal financially viable.”

Thompson acknowledges he’s suggested to BNSF that it could improve the “turn” time on cars by 10 hours per train by going east through Lisbon, but that would mean improving a 37-mile stretch of RRVW light track between Lisbon and Davenport, N.D. He says RRVW has suggested that BNSF might benefit if it helped improve that line, even though it belongs to RRVW. Thompson has estimated that upgrading from 72-pound to 115-pound rail would cost about $14 million for the 37 miles, although others in the industry suggest upgrading a line might cost up to $1 million per mile.

Within the past three months, James Valley Grain has asked the federal Surface Transportation Board to look at the issue. Tom Brugman is deputy director of the STB’s Public Assistance and Compliance Board, and initially he acknowledged he’d informally discussed the Verona matters with at least some of the parties. Brugman oversees an alternative dispute resolution program called Rail Customer & Public Assistance. RCPA is designed to resolve disputes between rail carriers and their customers or members of the public through “informal facilitation,” in cases where formal litigation isn’t warranted.

“Because the RCPA process is confidential, we cannot confirm or deny whether a party has submitted an informal complaint,” Dennis Watson, an STB spokesman, told Agweek in a written response to a request for details.

Larson thinks the issue may be headed for arbitration with the STB. He doesn’t know when or if that will happen. He thinks rail customers could force the issue, “but they’ve got a lot better lawyers than we do,” he says of the railroad. The co-op hasn’t made a formal complaint to the STB.

Agweek reached Kevin Kaufman, group vice president for agricultural products at BNSF in Dallas/Fort Worth, Texas. Kaufman referred questions to a company spokeswoman who said the railroad was in confidential discussions with RRVW and is not in a position to comment.

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