BNSF VP says rail backlog will gradually improve

FARGO, N.D. -- John H. Miller, vice president of agricultural products for Burlington Northern Santa Fe Railway, answered lots of questions on April 9 in a meeting of the North Dakota Ag Rail Business Council in Fargo.

Miller met with association members who complained about slow service but seem happy that the railroad is investing for the long-term -- $5 billion a year compared with $1 billion in the past.

Among the efforts Miller mentioned are more passing lanes, double-tracking between Minot, N.D., and Glasgow, Mont., and new side tracks for passing.

Miller says the Canadian Pacific and Canadian National Railway, don't appear to be investing at the same rate. BNSF is "a larger railroad and dedicated solving these issues from a capital-spend standpoint."

While not making specific predictions, Miller said the investments should start paying off and things should "gradually get better all year long."

While farmers lament about late shipments -- shuttle trains that are running at two-thirds the rate they should be, and car deliveries an average of three weeks behind schedule --- Miller says the reality is better than perception. Agriculture has 220 shuttle loading sites that collectively move more freight than oil, he says.

Perception vs. reality

That's not the perception farmers in coffee shop have, says Delane Thom, manager of Southwest Grain based at Taylor, N.D.

"By perception, the ag producers can sit and watch the trains going through town," Thom says. "They rarely see a grain train passing through, so their perception, their idea is oil and coal gets priority over ag because of the sheer volume of what they see. That may be in daylight hours only, but maybe grain trains move only at night, which I highly doubt. That's what they talk about."

Miller says BNSF has been "leasing locomotives from everybody" since last winter. He acknowledges that some of that power has come from Canadian Pacific, which serves other customers in North Dakota and Canada.

Canadian legislators on April 7 amended a bill to order railways to compensate for grain shippers when they provide poor service, Reuters reports. Canadian National Railway Co. officials say they are "disappointed" with the amendment, and Canadian Pacific Railway Ltd. officials were reviewing it.

Factors at play

Miller acknowledges the railroad needs to do better, but repeats earlier explanations. "We were betting on growth, but the growth is even bigger than we thought," Miller says. "We've got all four business units growing at the same time."

He describes a sort of perfect storm of factors that have put the railroads behind. Among them:

•Coal shipments increased 3 percent on the year, after they were predicted to decline 4 to 6 percent. Electricity makers substituted coal for natural gas when the price of gas increased.

•Oil shipments are higher than expected, and industry sources indicate that will likely increase for the next four or five years.

•Farmers have been raising increasingly larger crops, making shipments spike upward.

•Shipments to the Pacific Northwest have increased to respond to Asian demand for U.S. grain and other products.

•Weather this year was brutally cold and involved key delays in the Chicago area.

•Canadians are trying to move more grain to the U.S. to compensate for poor service in their country.

In response to shipper concerns and political pressure, Miller has been delivering weekly status reports. In the latest report, issued April 5, he said cars late in the company's entire service were 15,127 -- a 6 percent improvement from the previous week, but about the same as the two weeks before.

Increased reporting

North Dakota late cars accounted for 7,211 or 47 percent of the total late cars, slightly better than the previous week, but the average days late increased to 25.4 days, an average of three days longer than the report a month earlier. South Dakota late cars improved by 13 percent and days late improved to 27.1. Montana late cars increased slightly to 3,487 and days late were steady at 29. Minnesota late cars were reduced by nearly 28 percent, but the average days late increased to 26.9.

The 110-car shuttle trains for grain are turning around only 1.8 times per month to the Pacific Northwest, a slight weekly reduction from 1.9 the previous week and two for previous weeks. Miller said he expects Pacific Northwest turns to hit 2.5 by later this year, a rate that is less than the three the railroad says is its goal.

Jim Broten, a Cooperstown, N.D., farmer and chairman of the ag shippers group, reminded Miller the delays in shipping have led to elevators increasing the "basis" -- the price for grain below the grain exchange price quotes. Elevators are full of grain and can't get rail cars so they cut the price to discourage deliveries.

Broten says the basis on grain is not quite double what it was a year ago, cutting the price farmers are paid by 50 to 60 cents a bushel.

"Say 50 cents a bushel out of the millions of bushels of grain raised in North Dakota, you can see what that's going to do to the farmers' bottom line," he says.

Meanwhile, farmers and elevators are adding storage capacity, in part to compensate for the slow rail delivery schedules.

Randall Christmann, a member of the North Dakota Public Service Commission, says he was happy to hear Miller say he's concerned about the backlog. The PSC will hold its own meeting with all of the railroads on April 28 in Bismarck to discuss the shipments and safety and will involve all sectors, including agriculture.

Neal Fisher, administrator of the North Dakota Wheat Commission, says this year's delays undermine the region's "reliable supplier" reputation, and tempts competitors to step in. "I think it's of grave concern to us," Fisher says. "We've argued that the store is always open."

In Washington, D.C., U.S. Sen. Tim Johnson, D-S.D., in an April 8 hearing told Transportation Secretary Anthony Foxx that the rail bottleneck is hurting South Dakota farmers and that the nation needs to "take a hard look at how the dramatic increase in shipment of crude oil is impacting the larger rail network and ways to ensure that the ag industry has access to reliable rail service during the critical post-harvest and spring planting periods."