Will railroad transportation be there for agriculture and Food Shippers in 2023?

March 1, 2023

Railroads help make U.S. agriculture the most efficient in the world. A single rail car can hold enough wheat to make more than 250,000 loaves of bread. (Source: Association of American Railroads). Railroads are essential to connect America’s major crop growing areas in the middle of the country with the ports on the coasts. According to the ARR, about 3.3 million carloads of farm and food products are shipped each year. In addition, there are some 65,000 carloads of fresh fruits and vegetables shipped in refrigerated cars that ship perishables to other markets. Add to this, another 1.6 million carloads of food products, and it’s evident that agriculture and food shippers rely heavily on U.S. railroads to get their goods to market.

This article talks about takes a lookback at U.S. rail freight in 2022 and the outlook for railroad agricultural freight in 2023.

 

How U.S. rail freight affected farmers in 2022

Most years farmers face a variety of challenges and 2022 brought its fair share.

 

An uncertain economy for U.S. farmers

Inflation. Farmers’ livelihoods depend on so many unpredictable factors: weather, crop yield, market rates for products, shipping rates, and so on. Therefore, they cannot afford having either inflation or deflation eat into profit margins. And inflation was one of the biggest economic stories affecting U.S. farmers in 2022. Food prices skyrocketed due to higher fuel prices, grain elevator dwell prices, rail freight rates, and other issues. All these issues reduced farmers’ profits.

Fertilizer shortage. Certain commodities needed to run a profitable farm are now scarce. For instance, U.S. farmers were unable to get fertilizer due to a global fertilizer shortage caused by the pandemic, the Russia-Ukraine conflict, and rampant inflation. Union Pacific (UP) contributed to the fertilizer shortage in the Midwest when it refused to ship rail cars owned by CF Industries, a manufacturer and distributor of agricultural fertilizers located in Deerfield, Illinois.

 

Supply chain disruptions

Lingering pandemic effects. The pandemic started many of the supply chain bottlenecks that farmers and their customers have experienced over the past three years. The global supply chain simply could not handle lockdowns combined with an increase in consumer demand for goods.

While the trucking industry seems to have recovered from pandemic-related disruptions, railroads have not. They continue to suffer from congestion on the railways, railway hubs and ports, disrupting the receiving and delivering of agricultural products.

Congestion at ports. Some of the supply chain disruptions have been due to a backlog of shipping containers at West Coast ports during the pandemic. The Biden Administration has been working with the ports to reduce the congestion. At the same time, East Coast ports have been upgrading their infrastructure so they can handle bigger container ships passing through the Panama Canal and relieve the congestion on the West Coast.

Global conflict. The conflict between Russia and Ukraine, where much of the world’s grain is produced, has increased demand for U.S. grain. But supply chain disruptions caused by irregular domestic rail freight service make it difficult for farmers to ship their products to international markets.

 

Worker shortages and labor issues

The threat of a railroad strike made transportation headlines throughout 2022. Like other U.S. industries, the railroads are experiencing a worker shortage problem.

Some of the rail worker shortage is by design. For years, class 1 carriers have been implementing efficiencies, such as Precision Scheduled Railroading (PSR). The railroads say the efficiencies allow for a reduction in their labor force.

But high employment means labor has more choice and mobility. And working conditions for rail freight employees have not been ideal due to long hours with no paid sick leave.

Since 40 percent of U.S. commodities ship by rail, a strike would have derailed the entire U.S. economy. In September 2022, the Biden Administration asked Congress to intervene. The result was a pay raise with no paid sick leave for railroad workers. Eight of 12 unions accepted the contract negotiated by the Biden Administration and the subsequent legislation passed by Congress, while the remaining four unions continued to press for negotiated contracts that include paid sick leave.

 

Rail service challenges for agriculture

Embargoes and low, empty bulk carrier availability. Throughout 2022, class 1 carriers often employed freight rail embargoes to clear out rail congestion. The embargoes meant farmers could not ship grain for export or for internal use in beef and poultry feed lots.

 According to the Grain Transportation Report of January 26, 2023, unfilled orders of empty grain cars were at a record high in 2022. That meant that railroads repeatedly failed to deliver empty cars to farmers needing to ship grain.

Consolidation, PSR, and safety. Because of deregulation, the U.S. railroad industry is now consolidated into seven class 1 railroads. Consolidation means less competition and less competition means railroads have few incentives to provide farmers with an optimal customer experience.

Precision Scheduled Railroading (PSR) is supposed to reduce rail freight congestion by having trains run on time no matter what, though some argue that gives engineers less time to inspect much longer freight trains before they leave a rail yard.

 

Outlook for railroads and rail freight in 2023

As the conflict in Ukraine drags on, uncertainty continues to plague U.S. agricultural rail freight. The Grain Transportation Report of January 26, 2023 suggests that demand for American grain will decrease, which will lower earnings forecasts for the nation’s farmers.

 

Focus on safety, infrastructure, and customer service

Last year, BNSF acknowledged in a letter to the National Grain and Feed Association that customer service for grain shipments needs to improve. The initiatives, if enacted by BNSF and other railroads, will help ease some problems farmers have with class 1 railroad service.

However, the recent 50-car freight train derailment in Ohio puts a focus on railroad infrastructure and safety. An increase in crew and locomotive availability will help reduce the possibility of rail freight accidents.

A significant investment in infrastructure will also help improve rail safety. It will take some time, however, to start and complete projects funded by the Infrastructure Investment and Jobs Act of 2022.

BNSF had announced plans to invest $3.96 for capital improvements in its existing rail infrastructure. Other class 1 railroads should follow suit with similar capital investments.

Another issue in 2023 is the problem with the increasing length of freight trains. In some instances, they can be up to 3 miles long. Freight train length reduces costs for both railroads and shippers. However, a three-mile-long train stops traffic and is hard for engineers inspect before it leaves the depot. Therefore, some state legislatures like Iowa are looking into regulating their length.

Issues surround railroad workers may improve. The new CEO of CSX Transportation, Joe Hinrichs, is interested in improving the quality of life for the transportation company’s employees. Therefore, the company surprised everyone at the beginning of February 2023 by announcing an agreement with four railroad unions. The agreement provides four days of paid sick leave each year at full pay. It also allows members to use up to three personal leave days for sick leave, the two unions said.

Hinrichs is encouraging the other railroads to improve the quality of life for their railroad employees as well.

 

Flat growth or modest growth?

Inflation, commodity shortages, and severe weather patterns may continue to hurt farmers. And the demand for U.S. grain seems to be weakening.

In an article on Train.com, Todd Tranausky, vice president of rail and intermodal at FTR Transportation Intelligence, says the railroad freight industry will be flat. He says imports are down and rail service has not yet recovered from all the disruptions of the past few years. Additionally, industry leaders are expecting an economic downturn in 2023.

More consolidation on the horizon

The Canadian Pacific and Kansas City Southern are proposing a merger that “would create a 19,200-mile system spanning the Canada, U.S., and Mexico,” according to Bill Stephens of Trains.com. Some legislators on Capitol Hill are opposed to less competition in general and this merger in particular.

It remains to be seen, however, if this merger will lead to better service for farmers needing railroad transportation for their agriculture.

 

Benefits of shipping by rail

While there are challenges faced by the U.S. rail industry, for manufacturers who are shipping large volumes over long distances, it is considered one of the most cost-effective modes of transportation. When shippers are looking to move major quantities of freight at one time, such as wheat, soy, or corn, rail has a lower cost-per-ton-mile than truck shipping.

Use Princeton TMX TMS Software to plan your rail shipping and make sure your agricultural products get to market.