Buffett Rail Boost Puts Farmers on Fast Track as Oil Prices Dropby , , and
$1.1 billion expansion erasing 2014 logjams for crop shipments
`Just like driving down a freeway without any cars on it'
Last year, grain handlers like Roger Krueger had no kind words for Warren Buffett’s BNSF Railway Co. After record U.S. harvests, crops piled up all across the Midwest, with few rail cars available to get them to buyers because they were being used to ship more oil and coal.
It’s different now. While farmers are harvesting almost as much this year, the logjams are long gone, said Krueger, a vice president at the South Dakota Wheat Growers Association, a cooperative with 20 loading depots served by BNSF that are used to market all sorts of crops including corn and soybeans. U.S. rail shipments of grain are the highest in five years, and costs are down from 2014, when delays could last more than two months and compounded the slumping value of crops that had nowhere to go, he said.
Part of the improvement came after the railroad, acquired in 2010 by Buffett’s Berkshire Hathaway Inc., spent more than $1.1 billion over two years to expand capacity. The other reason was fewer energy shipments. Plunging oil prices slowed drilling in the once booming Bakken region of the Dakotas, eroding demand for equipment, sand and pipes, as well as outgoing crude shipments. At the same time, the volume of coal, once a pillar of U.S. rail traffic, is slumping as utilities burn cheaper and cleaner natural gas.
“It’s just like driving down a freeway without any cars on it,” said Kevin Karel, general manager of Mayport Farmers Co-op, a grain handler in Mayville, North Dakota. “The fluidity of the freight is making it easier to get stuff west.”
Practically none of BNSF’s grain-hauling is behind schedule this year, after the company laid a second set of tracks alongside a single rail line for a total of 90 miles (144 kilometers) west of Minot, North Dakota, and spent more on sidings and new signals to speed trains, said John Miller, chief of the railroad operator’s agriculture unit.
“The root factor of why we’re doing so fluidly is because of the capacity,” Miller said by telephone from Fort Worth, Texas. “We’ve taken back market share that we lost during more difficult service-challenged years of late 2013 and 2014.”
That expanded shipping capacity on routes used to ship grain from farms in the upper Midwest to port terminals in Seattle. Weekly grain shipments have surged, with the number of rail cars reaching 25,372 in the week ended Oct. 16, the highest this year and most for this time during the harvest since 2010, according to the Association of American Railroads. Soybean exports since Sept. 1 are up 16 percent from a year earlier and the highest ever for this time of year, U.S. Department of Agriculture data show.
At its worst, in March 2014, BNSF reported that 16,470 grain cars were at least four days past due, with shipments arriving on average 24.2 days late, and it lost some market share as some crop handlers moved inventory to Union Pacific Corp. Shippers complained to the Surface Transportation Board at hearings last year in Fargo, North Dakota, where railroad executives pledged to invest more to alleviate bottlenecks.
This season, with fewer track delays and faster trains, farmer co-operatives are seeing increased profit because they are handling and shipping more grain as U.S. growers harvest the second-largest soybean crop ever and the third-biggest for corn, said Frayne Olson, an economist at North Dakota State University in Fargo. With supplies cycling quickly, discounts paid to farmers decline and costs drop for overseas buyers, he said.
Freight-carrying trains are traveling 8.7 percent faster than a year earlier, and the average last week of 24.31 miles an hour was the swiftest since October 2013, according to data from the Association of American Railroads. It now takes 10 days for the South Dakota Wheat Growers co-op to get trains back after sending crops to West Coast exporters, half the 20 days it took in 2014.
“I can’t get over how fast they’re going,” said Krueger, who heads up the marketing and transporting of grain and oilseed at the Aberdeen, South Dakota-based co-op. “Things are flowing very good, and we have very big crops to move. It’s going to be a very good year for us.”
The drop in energy costs also is making it cheaper to operate engines that run on diesel. Shippers are saving more than $400 per carload on lower fuel surcharges for a typical 1,400-mile haul, BNSF’s Miller said. The company also cut its rates on corn and soybeans by $200 a carload on the Pacific Northwest route and has been winning back some of its lost market share.
“The trend for the past 15 years is for higher freight costs from the railroads,” South Dakota’s Krueger said. “This year, they are offering grain companies attractive rates to win back markets.”