UPDATED: STB hearing testimony shows little hope for timely fix

FARGO, N.D. -- The U.S. Surface Transportation Board made history in North Dakota Sept. 4, holding its first field hearing there, and packing in a crowd of testifiers and onlookers concerned about whether railroads can make the trains run on time.

STB Chairman Daniel R. Elliott II, a former transportation union lawyer, presided before a cramped meeting room and told the audience some problems in the railroad have gotten worse since an April 10 hearing in Washington about fertilizer shipping. He said he is looking for solutions to allow the shipping of the 2014 crop, even as the agricultural industry ships the 2013 crop.

The three-person STB also includes Deb Miller, a former secretary of the Kansas Department of Transportation, which often vies for No. 1 wheat producer with North Dakota. She said the shared network appears to have insufficient capacity for all of its needs, and shippers have a "lack of transparency" and need more information to make decisions. She said it is important to do more good than harm. The third member is Ann D. Begeman, a native South Dakotan and graduate of the University of South Dakota in Vermillion, who worked as a congressional staffer on the Interstate Commerce Commission Termination Act.

The STB had a long list of participants for the hearing, with a show-and-tell by railroads, and an expected litany of concerns and warnings.

Nowhere else to go

North Dakota Gov. Jack Dalrymple began the hearing by quoting a recent letter from the Wilton (N.D.) Farmers Union Elevator Co. about an order made in January for April 8 placement that was expected at the end of August. Dalrymple said the hearing is "about the individual elevators and farmers out there who have no place to go, no recourse, no power over the situation, except for you." He said the impact of late shipments has been in the "hundreds of millions of dollars" for North Dakota farmers, and the damage is continuing. He noted that the North Dakota State Mill and Elevator in Grand Forks shut down 25 times this year because of delays in rail shipments.

Sen. John Hoeven, R-N.D., said Burlington Northern Santa Fe Railway has instituted plans to invest in and improve its service, but Canadian Pacific Railway has not provided sufficient information.

Rep. Kevin Cramer, R-N.D., also criticized CP for lack of transparency and said "bad news" is better than insufficient news. He said he is concerned about impacts of fines imposed on CP by Canada for late cars.

Cramer cautioned the STB of "over-reliance on emergency powers," however, saying BNSF and CP should work on the problems without added government regulation.

BNSF, CP commit money, manpower

Stevan Bobb, executive vice president and chief marketing officer for BNSF Railway, said "nothing is more important than restoring the fluidity" of the market. Bobb warned, however, against the suggestions to institute policies allowing other railroad companies or private cars to use BNSF tracks, or to prefer some regions or commodities over others.

"It will not create more capacity. It will reduce capacity and customer volumes will be negatively impacted," he said.

Increasing regulatory pressure to target certain commodities or regions will backfire as "the chosen" commodities move at the expense of all others, he said.

"The recent Canadian directive on grain is instructive," Bobb said of that country's penalties for railroads failing to hit grain shipping targets. "BNSF has already received requests for additional volume out of Canada" because of the penalties.

Instead, he suggested the STB assess the total volumes the railroads are handling and hold the companies accountable for their capacity to increase the volume.

North Dakota represents 36 percent of BNSF's new growth in 2014. Traffic into North Dakota has increased 51 percent since 2009, and traffic leaving the state has increased 193 percent. BNSF handles roughly 80 percent of the rail shipments of grain out of North Dakota.

As of Aug. 31, Bobb said the railroad has added 339 locomotives out of a goal of 500 for the year, and had hired 2,419 employees of the planned 3,000 in its train, yard and engine service, as well as another 2,305 engineering and mechanical staff -- exceeding its goal of 2,000 for the year.

BNSF has increased year-to-date shipments over 2013 in three categories: crude oil, up by 47,157; coal, 22,183; and agriculture, 5,303 shipments. August 2014 velocities compared with 2013 for trains are down for three commodities: oil, 24 percent; agriculture, 22 percent; and coal, 17 percent.

Bobb noted that historic monthly BNSF agricultural shipments to and from South Dakota, North Dakota and Montana have been topped in the past four months -- beating peaks in 2011 or 2010, and said agricultural past-due single-car ag orders have been cut, reducing delays from nearly 30 days in early July to just over 10 days at the end of August.

BNSF shuttle trains -- the 110-car unit trains that handle much of the export grain, with special rates and load time rules -- have improved in recent weeks. BNSF has exceeded the 2.5 roundtrip goal to the Pacific Northwest ports in the past three weeks. Gulf of Mexico shipments to Texas have increased to 2.1 times per month after languishing at 1.5 and 1.7 for much of August. The company plans to increase its shuttle numbers by 15 to 20 percent over five-year averages from October to March.

Bobb said the northern region will increase capacity for ag shipments incrementally, but will make "uneven progress" as track recovery continues after outages from heavy rains. Heavy maintenance programs will continue, which slows short-term velocity the way road construction does on highways.

John Brooks, vice president for bulk market products for CP, said CP handles only 20 to 23 percent of the region's agricultural shipping. He said CP has moved 5 percent more than the three-year average.

Brooks said the company's new train ordering system has been collaborative, and bristled that the system was instituted in the past two months because of pressure from elected officials. He said politicians' allegations and implications that CP has been strong-arming or bullying elevators to cancel orders are not fact-based.

Brooks emphasized that the customers have canceled requests. "We have not forced anyone," he said.

He said there are 6,200 open requests more than 14 days.

Brooks said CP will invest $400 million between Canada and St. Paul, Minn., and is attempting to hire 400 new employees. He says $150 million will be spent in North Dakota.

Ag's equity drained

Officials are demanding more accountability than they've had so far.

Lucas Lentsch, South Dakota Secretary of Agriculture, said it's "incredible the amount of backlog and storage that doesn't exist."

He said idled ethanol plants will continue to drive profits and grain prices downward. "It doesn't take too much imagination to see the amount of equity being pulled out" because of lack of ability to move the harvest, Lucas said.

Randy Christmann, the North Dakota Public Service Commissioner with the grain elevator portfolio, asked the board not to listen to the "sob stories" from the railroads about their need to protect information. He said the movement of grain in the nation is not a "national security issue," and should be available to the public.

Doug Goehring, North Dakota Agriculture Commissioner, said a large harvest is a source of anxiety, trapped in the system in elevators or on farms.

"I'm more disturbed when I hear from individuals who have not seen rail cars in months," Goehring said, speculating that the real costs for increased market basis are likely in the $400 million to $500 million range.

Just as concerned was Dave Frederickson, Minnesota Agriculture Commissioner, who said a soybean study indicated farmers lost more than $109 million.

U.S. Rep. Collin Peterson, D-Minn., said there is concern about the fall, but calls of concern have abated some at his offices. He hears the most worry from farmers about market basis -- cutting $1 to $1.10 per bushel from their profits.

Goehring said farmers won't be able to store their way into profitability.

"They did that last year," he said.

Jerry Cope, president of the South Dakota Grain and Feed Association, and manager of Dakota Mill & Grain in Rapid City, S.D., said farmers that have been piling grain on the ground risk getting stuck "not losing cents per bushel, but dollars per bushel" because elevators are full and can't blend or handle it properly.

Calls for change

North Dakota state Sen. George Sinner, a Democratic candidate for Congress, said he's heard of three CP shippers building on the BNSF because the CP shipping is "so abysmal." He asked that the STB use its emergency powers to open rail lines to other rail lines, citing American Crystal Sugar Co.'s problems getting coal into its plants as an example.

"We know if we lose those sugar plants in this valley, we have serious problems," Sinner said.

Brian Schanilec, president and manager of Forest River (N.D.) Bean Co., representing Northarvest Bean Growers Association, said the rail shipments for some edible bean growers can be five months behind schedule, and is a crisis that threatens ag exports -- the "economic backbone of America."

Schanilec asked for the STB to demand more knowledge about CP's cars in the U.S. fleet, and the disposition of them.

Schanilec asked for the STB to demand more knowledge about CP's cars in the U.S. fleet, and the disposition of them.

"Do we need an emergency service mandate from the STB?" Schanilec asked, adding he hopes enough improvement is made so it won't be necessary.

Julie Fedorchak, a North Dakota Public Service Commissioner, asked the STB to open a "temporary field office in North Dakota this fall and for as long as conditions warrant it," because the state is "ground zero for service challenges involving coal, oil and agriculture commodities." The board didn't respond to that, but at another point, CP's Brooks said he already had sufficient field staff on the topic.

Terry Whiteside, a Billings, Mont., consultant who represents numerous wheat and barley councils, called the situation an unprecedented "service meltdown." The situation "eventually will get back to normal," but not without the STB's help, Whiteside said. He said he didn't expect it to get back to normal until 2015 or 2016, and "that's hundreds of millions of dollars."

Coal, too

Coal industry and passenger officials talked about their similar issues with the railroad.

David J. Wanner of the Western Coal Traffic League, said poor rail service has cost its companies money and prevents them from planning effectively. Wanner said his industry can't plan or implement emergency or counter-moves when BNSF suggests backlogs will last a month, but then they last nine months.

"We have no choice but to trust, but we appreciate your help in verifying that," said Steve Tomac, legislative representative for Basin Electric Power Cooperative in Bismarck, N.D.