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Corn+Soybean Digest

Hauling Inputs to Farms And Commodities From Farms Is Becoming More Expensive

Here is a trivia question for you: What industry is the largest user of freight transportation in the U.S. and what percentage of the industry does it claim? The answer is agriculture, which uses 31% of all the ton-miles transported in 2007. That is how much agriculture is dependent on transportation and how dependent transportation is on agriculture. USDA and the U.S. Department of Transportation jointly studied rural transportation at the direction of Congress and found some issues are in need of further study.

The Rural Transportation Studyfound the agricultural supply chain needs specific attention when transportation issues are planned and governed; ocean shipping and railroads are exempt from anti-trust laws, but the lack of competition could raise rates; railroad consolidation has resulted in improved financial health for the industry benefiting farmers except for the fact grain hauling rates have not fallen as have rates for other industries; truckers hauling inputs or commodities are exempt from certain regulations but highway safety concerns remain; and a consensus is needed on funding waterway improvement projects. Those are the issues, but the answers are not so simple.

A new commodity for which transportation is becoming more complex is that of biofuels, and USDA says ethanol and biodiesel are being adding to the demand for Midwestern transportation. Currently, the 13 railheads that can handle unit trains must be expanded to 40 railheads by 2022 in an effort to prevent congestion with shipments of corn- and biomass-based ethanol.

However, a more serious issue is the loss of railroad regulation, which occurred 30 years ago when it was not possible to foresee today’s rail environment. The study indicates railroads in the past few years have reduced capacity, abandoned branch lines and then merged with each other, only to increase rates when capacity was reached. From 1992 to 2007 almost 75% of agricultural areas lost rail competition. At the same time, rail rates were raised for agricultural goods and lowered for others.

The discontinuance of rail service in many areas has caused many country grain elevators to close and the requirement to haul grain over longer distances. While the concentration of grain loading at fewer points has increased the efficiency of rail transportation, it has also resulted in the movement of grain over local roads for longer distances, resulting in higher road maintenance costs for many rural communities.

The increased use of rail transportation, which has benefited the railroads financially, also has contributed significantly to rail congestion. Each route mile during 2007 carried, on average, 171% more traffic in ton-miles – nearly triple the traffic – than in 1980. If revenue exceeds operating costs by 180% and the railroad has market dominance, then agriculture can petition Surface Transportation Board for rate relief. That could take up to two years for a decision.

While barges offer low cost transportation alternatives to rail lines, critics say the government is bearing the cost of river maintenance. However the Inland Waterways Trust Fund has been declining in recent years because expenses have increased and revenues have decreased.

The trucking industry carries 70% of the agricultural tonnage and both the first and last movements of agricultural supplies and commodities are on trucks. While Congress provided some regulatory relief for trucks hauling agricultural commodities and inputs within 100 miles of origin or destination, the Interstate Commerce Commission has imposed its regulations on trucks hauling only short distances. Current laws have allowed weights to increase, but only to 80,000 lbs., and critics say trucks are not paying their full share of highway damage.

Ocean freight usually uses bulk vessels to haul grain, which is the least expensive and the industry is highly competitive. But ship owners are removing ships from the fleet and higher rates are anticipated. Most agricultural shippers complain about the lack of availability of cargo containers.

Agriculture is a major user of transportation services, both to deliver inputs to farming operations and to haul agricultural commodities from the farm to the market. In each mode of transportation, there are growing issues that challenge efficiency and threaten to increase costs. Among those are lack of competition, increased rates of removing transportation carriers from the system due to lack of demand and governmental rules that have permitted less competition.

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