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Consultant: Railroads evolving, and customers need to adapt

The U.S. railroad industry continues to evolve, and Upper Midwest agriculture needs to change with it, the president of a railroad consulting company said.

The U.S. railroad industry continues to evolve, and Upper Midwest agriculture needs to change with it, the president of a railroad consulting company said.

Strategies to consider include trucking products to other carriers if necessary and buying grain cars of your own, said Richard McGuire, president of Minneapolis-based EKN Rail Co., which offers a wide range of services to railroads and their customers.

McGuire spoke Dec. 11 at the annual Prairie Grains conference in Grand Forks, N.D. More than 700 people, most of them from eastern North Dakota and northwest Minnesota, attended the two-day event, which began Dec. 10. Eight Minnesota and North Dakota farm organizations sponsored the conference, which included presentations on 2015 weather, grain marketing, the 2014 farm bill, precision agriculture and new research into wheat and soybeans, among other topics.

As McGuire noted, "Railroads have gotten a lot of bad press recently."

Farmers, grain elevator managers and others involved in Upper Midwest agriculture have complained for months about rail service delays. At least part of the cause is booming oil production in North Dakota's Bakken formation. Some rail cars that would be used to transport grain out of state have been switched to more-valuable oil shipments, McGuire said.

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"Where can railroads get their highest returns? Well, they can get their highest returns moving the highest-value commodities," he said. "It's sort of a new problem that's developed for the Upper Midwest ag community."

He gave these examples of how much the value of commodities differ. Imagine five trains, each of roughly the same length and loaded with a single commodity.

• Coal, $660,00.

• Corn that sells for $3.50 per bushel, $1.61 million.

• Soybeans that sell for $10 per bushel, $4.6 million.

• Oil at $75 per barrel, $8.34 million.

• Oil at $90 per barrel, $10 million.

The one constant

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Change has long been a constant in the U.S. rail industry, McGuire said.

The number of track miles nationwide grew sharply in the 19th and early 20th centuries. But the arrival of trucks and the interstate highway department caused railroads to lose much of their high-value business and forced them to focus on "coal, grain, rock -- big, heavy stuff that you can't move terribly economically in a truck." Hard-pressed railroads responded by closing track and shutting down lines, but that wasn't enough to prevent a wave of railroad bankruptcies in the 1960s and early 1970s, McGuire said.

The wave of bankruptcies was followed by industry deregulation, a growing number of short-line railroads, increasing emphasis on grain shuttle trains and, most recently, on intermodal transportation. Intermodal, or combined modes of transportation, involves 20- to 40-foot standardized containers carried on trains, trucks and ships, often over long distances.

In recent years, railroads have focused most of their new investments in high-value intermodal, which has worked against Upper Midwest ag, McGuire said.

Now, "Money will start to get invested up here. But that doesn't help the current shipping situation," he said. "Railroads will have to play catch-up. It will be a long, slow process to beef this up."

Among his suggestions for Upper Midwest ag shippers:

• Plan ahead as far as possible. "Railroads are not Fed Ex."

• Build or expand on short-line railroads if possible. Short-line railroads operate over relatively short distances and typically work closely with customers in their immediate area.

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• Work in "large combinations" with organizations such as ag associations and cooperatives to increase volume. "More carloads speak louder than fewer carloads."

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