Study Finds Railways May Be Overcharging For Soy Shipments
20 Gennaio 2010 - 7:56PM
Dow Jones News
Freight rates charged on nearly half of all soybeans carried by
the largest U.S. railroads are at levels that would classify as
"potentially excessive," resulting in a potential overcharge of
$120 million annually, according to a new study.
Any shipping rate that is 180% higher than a railroad's variable
cost of transport can be regarded as potentially excessive and
subject to U.S. Surface Transportation Board jurisdiction.
The study, conducted by the Soy Transportation Coalition, which
is funded by the U.S. soybean industry, found freight rates at
least that high were levied on 43% of all soybeans moved via Class
I railroads in 2008, involving a total of 338 million bushels in
all. A Class I Railroad is a railroad with annual operating revenue
exceeding $346.8 million.
"We have been hearing concerns from farmers about high rail
rates and how those costs get shifted to farmers in the form of
lower basis," said Roy Bardole, an Iowa soybean grower and vice
chair of the United Soybean Board's international marketing and
global opportunities program.
Basis refers to premiums or discounts that individual grain
merchants apply to national futures prices, in order to calculate a
local cash bid. Basis levels fluctuate according to regional
supply/demand conditions, taking into account such diverse factors
as area production levels, grain quality and the cost of
transportation.
Bardole theorizes that soybeans are being singled out for higher
freight rates simply because of habit.
"You don't need nearly as much soy as corn to mix a basic
[livestock] feed ration, so the old feed trains usually only
carried one to two cars of [soy]beans...while the rest were corn.
Railroads naturally charged higher rates to move the single cars of
soybeans than the unit-trains of corn," Bardole explained.
Now, strong soybean demand from China is drawing more soybeans
west. Half of all soy moved by rail is going directly to the
Pacific Northwest in unit trains out of Kansas, Nebraska, the
Dakotas, western Minnesota and Iowa, but the problem is railroads
haven't adjusted their old rate structures on soybeans from those
areas, he said.
The study also shows that revenue among the largest railroads
from transporting soybeans and soy products has nearly tripled to
more than $1.5 billion in 2008 from $549 million in 1998.
Burlington Northern Santa Fe Corp. (BNI) transports the largest
volume of U.S. soybeans, while Union Pacific Corp. (UNP) is the
largest transporter of soymeal and soyoil.
"There needs to be a way for railroads and the soybean industry
to achieve a better balance so that one is not profiting at the
expense of the other," said Mike Steenhoek, executive director of
the Soy Transportation Coalition.
"It is prohibitively expensive to take a formal complaint to the
STB," Bardole said. "We don't have the financing it takes to do
it."
Instead, Bardole said his organization enjoys "really good
relations with the Class 1 railroads" and have an ongoing dialogue
with the rail industry concerning rate issues.
Railroads currently are also adopting a low-key approach to the
issue.
"While Union Pacific does not agree with some of the study's
assertions, we have open communications with the Soy Transportation
Coalition and prefer to continue to work directly with the STC,
rather than publicly debate the study's results," said spokesman
Tom Lange. BNI declined to comment.
Funds from the soybean checkoff paid for the study, which was
released Jan. 8. The National Soybean Checkoff program collects and
invests a mandatory assessment of one-half of one percent of the
net market price of soybeans at the first point of sale, typically
when a farmer delivers harvested soybeans to a grain elevator.
-By Gary Wulf; Dow Jones Newswires; Gary.Wulf@dowjones.com
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