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Whether managing a mill or an elevator, you no doubt have a lot on your mind.
Training and retaining employees, volatile grain markets and growing your customer base are only a few worries. Now add another, will you be able to keep a steady supply of raw product coming in, and keep an equally smooth pace of finished product on the outbound side of the equation? Your answer can, and most likely will, vary greatly depending on how transportation issues affect your business.
Right now, transportation demand in this country for the grain and feed industry is like riding in the front car of a roller coaster. You feel the anticipation build slowly and steadily for what you know will be a rapid, breathtaking ride on the other side. And as we approach that peak, what's lurking on the other side is more than a little frightening.
Demand for the 3 R's
When looking at how the United States is positioned to handle what could be one of the most massive grain crops in history, stress on the three R's of transportation — road, rail and river systems — and their respective infrastructure, could be greater than ever before.
"Typically, transportation issues don't arise unless there's a specific occurrence or sequence of happenstances which affect movement one way or another," says Dan Mack, vice-president Rail Transportation, CHS. "You saw the results of a single occurrence with Hurricane Katrina and Hurricane Rita shortly afterward.
"On a broader front, strong export demand and now a robust domestic grain market add layers of demand which makes for a transportation infrastructure that's under a lot of stress," Mack adds.
Certainly Katrina and the fickle touch of Mother Nature in general can bring grain/product movement to a standstill . . . but only for awhile. Unlike many countries, the United States has the luxury of a solid rail and highway infrastructure that was able to bring relief to the tightly-bound river systems and their stranded barges.
"The export market positions its assets on the waterways to take advantage of their natural flow to the Gulf," says Bailey Ragan, vice president and general manager, Bunge Grain. "The fleet size has stabilized with the first increase in the covered hopper fleet since 2000. While growth rates have declined since the hurricanes, they are still well above historic standards."
If looking for reasons why transportation remains a cause for concern, the answer can be found in a storm surge caused by marketplace demand, not natural disaster.
Get in line
If you've been in the feed and grain industry long enough, you certainly will have experienced a logistics nightmare or two along the way. Now, imagine having one continuous logistics battle which lasts indefinitely, and now you have an idea of how barge and rail traffic operates in this country.
"Truth be told, the system works with amazing efficiency, and millions of tons of raw materials and finished goods reach their destinations in time and on budget," says Mack. "But, where the system can break down is when competition for space on those systems becomes fierce and that's the situation we're facing today."
Agriculture is not alone in growing its appetite for transportation space. Others seated at the banquet table include the energy, construction and manufacturing sectors. These markets — especially the energy sector which comprises the majority of barge demand — have been experiencing growth that has further stretched thin the availability of barge, rail and truck space. Space shortages are even more pointed for the agricultural sector since its business is seasonal in nature.
"Because grain companies have seasonal spikes with their shipping needs, barge companies look for shippers who will use their barges on a more consistent basis on both outbound and northbound routes," Ragan points out.
Another factor to affect space could be the burgeoning biofuels market, which would require barge, rail and truck space to move grain and fuel in and out of the pipeline. Approximately 75% of ethanol is shipped by rail; thus as the industry continues its manic growth rate, it stands to reason the squeeze for track space, unit trains and basic equipment, like locomotives and cars, will only get tighter.
"While biofuels won't account for a large percentage of rail usage, its impact on the marketplace will be felt," says Mack. "Local traffic densities could be an issue, especially in the southern Minnesota/northern Iowa corridor, so the question now becomes will the capacity and support be there to serve the marketplace."
Cost considerations
The capital outlay for transportation service is huge. In the case of barges, building costs have doubled in the last five years. Wheelhouse wages and other labors costs have also doubled and fuel costs have more than tripled. Managing risk on a new barge, which represents a 25- to 30-year schedule, becomes dicey in a marketplace where price volatility and forecasts offer a two- to three-year window at best.
The story for rail isn't much different. Major expenditures for rail upkeep, cars, new locomotives, fuel and labor costs need to happen at an ever-increasing pace.
With tightening belts in Washington, D.C., dollars for infrastructure support are more likely to come from consumers rather than government funds.
"Military dollars which comprised the Corps of Engineers budget are being spent in other areas, and any additional Corps assets are being diverted to New Orleans for post-Katrina rebuilding," says Ragan. "That said, government funding for the lock and dam system, channel maintenance and dredging tributaries and inland ports is critical for maintaining a viable river system."
Looking ahead
If one were to take inventory of the transportation infrastructure, you would come to the conclusion that the United States is holding its own. Looking ahead, however, tells us continued infrastructure investment holds the key to competitiveness.
"The freight cost advantage of our river system plays a significant role in keeping our exports and domestic industries competitive," says Ragan. "As the U.S. river system deteriorates and others make investments into their transportation infrastructure, our freight advantage over global competitors diminishes.
"We also face labor challenges as a significant portion of the workforce nears retirement age and replacing them becomes harder to do," Ragan adds. "As a result, we're working closely with industry and trade associations to crystallize our goals and eventually upgrade and modernize our system, which is a step in the right direction."
Mack is dealing with many of the same issues in the rail industry and sees building efficiencies into the system as the key to success.
"Keeping the traffic flow moving adds greatly to the overall efficiency of the rail system, and suppliers and customers both need to focus on that element," says Mack. "The era of last-minute orders for cars and service is clearly over.
"The feed and grain industry needs to work further out ahead of schedule and look at ways to keep traffic flowing throughout the year," he adds. "If a supplier knows he can count on grain shippers for a business throughout the year, cars and service are more likely to be made available. Again, the marketplace sets the pace and price of doing business."