Shippers request 'service arbitration'

FARGO, N.D. -- Some agricultural shippers say North Dakota should institute a "service arbitration" to solve issues between grain shippers and the railroads in the state.

Dan Wogsland, executive director of the North Dakota Grain Growers Association, suggested the idea in a roundtable discussion and update in Fargo on Nov. 10, which featured Matt Rose, BNSF executive chairman. The meeting was hosted by Sen. John Hoeven, R-N.D., and attended by Rep. Kevin Cramer, R-N.D.

In the meeting, Wogsland told Rose a state-based arbitration could involve binding monetary penalties and would go beyond the ombudsman program BNSF already has in place.

A new arbitration would be similar to one in Montana that helps settle differences between shippers and railroads on freight rates, but would likely have to involve nonag industries, Wogsland said.

Rose said he'd welcome details on what such a system might look like, but said if BNSF completes its planned expansion, the need for such a system should dissipate.

"I think we will be better next year, both for the small and large shippers," Rose said.

He said the railroad is reluctant to "mess with the market."

Convince the market

Kevin Skunes, an Arthur, N.D., farmer and board member of the North Dakota Corn Growers Association, said basis discounts of 80 cents to $1.20 per bushel on corn that is trading at $3.69 on the Chicago Board of Trade is turning into a "disaster for North Dakota commodities." Skunes warned that the financial impact of the basis will lead to farm sales in the state. Later, however, Skunes acknowledged to Rose that rail delay costs aren't the only reason for high basis levels, but were the start of the "snowball" they've become.

Pat King, representing P.W. Montgomery LLC in Fargo and the Northarvest Bean Growers, said he has conducted an informal study of shipping that indicates uneven results. Rose said investments in the infrastructure will eventually be felt, and he acknowledged it had been under-maintained in previous years.

Brian Engstrom, a dry edible bean marketer in Leeds, N.D., predicted the high basis will have a "long tail" of impact as marketers attempt to recover from two years of losing money. He told Agweek the inability to access cars has required him to hold $4 million to $5 million in product, carried over inventories because of lack of rail cars.

"That wasn't because it wasn't sold," Engstrom said.

If interest rates averaged 5 percent, plus other costs, that could add $250,000 to $300,000 in carrying costs.

Painful delays

John Doxsie, president of United Sugars Corp. in Bloomington, Minn., the entity that markets sugar for both American Crystal Sugar Co. of Moorhead, Minn., and Minn-Dak Farmers Cooperative of Wahpeton, N.D., told Rose infrastructure improvements that slow traffic on the rails are "very painful in the short term."

Doxsie told Agweek that United Sugars' car service is "as bad now as it was at the worst last winter," and he realizes BNSF has been putting resources in expanding to the west, but his company's problems are to the east and southeast. Rose indicated that will be rectified next year.

Rose announced that BNSF will commit an extra 150 cars for sugar loading, but Doxsie responded that "the answer is velocity."

Hoeven suggested that part of the solution to the basis discounts is "convincing the market" that improvements in rail transportation can actually solve the timeliness of deliveries.

"UItimately, we need more track," Hoeven said, complimenting Rose and BNSF for tackling earlier challenges from 2002 to 2012, and suggesting the railroad could do it again.

Rose said BNSF will install 35 to 40 miles of double-track in the state in 2015 and won't spend quite as much in the state in 2015 as it did in 2014, although companywide the investment will increase from $5 billion to about $5.4 billion. He said final investment projections will come later in the month.

More of next year's work will go east, Rose said. He cautioned shippers at the meeting that the process of adding more capacity sometimes means shutting down tracks for 12- or 24-hour periods.

"Adding capacity in the short term, it hurts you," even though it is good for the long term, he said.