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AGRICULTURAL TRANSPORTATION ISSUES AND THE CURRENT RAIL GRAIN SITUATION
THURSDAY, NOVEMBER 6, 1997
House of Representatives,
Subcommittee on General Farm Commodities,
Committee on Agriculture,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in room 1300, Longworth House Office Building, Hon. Bill Barrett (chairman of the subcommittee) presiding.
Present: Representatives Lucas, Emerson, Thune, Moran, Thune, Cooksey, Smith of Oregon [ex officio], Minge, Stabenow, Etheridge, and Johnson.
Also present: Representative Smith of Michigan.
Staff present: Paul Unger, majority staff director, Mike Neruda, director, Subcommittee on General Farm Commodities; Wanda Worsham, clerk; Callista Bisek, Brian Hard, Andrew Baker, Chip Conley, and Anne Simmons.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. This hearing of the Subcommittee on General Farm Commodities will come to order.
We're here today to receive testimony concerning the current rail car shortages in the Western and Southern United States. We need answers for our producers and our country elevators so that they can know when to expect their railcars.
We have a train wreck out there in the country. The wreck is directly affecting many sectors of our economy, none worse than agriculture. Shortages of grain cars during harvest are nothing new, but this year it seems to be a little unusual. It seems to be a little worse than under normal circumstances.
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I want to stress that this hearing is not about the Union Pacific and the Southern Pacific merger. That ground has already been tilled. There's a distinction between the merger and current service problems, however, Union Pacific's management must assume some culpability for the railcar shortages caused by the merger.
For example, UPSP still doesn't have compatible computer systems. This is contributing to the problems. It seems to me information system needs should have been anticipated before the merger. However, I'm sure UPSP will solve the problem much quicker than the Department of Agriculture. They have been trying to streamline their very incompatible computer systems for quite some time.
To be fair, I realize that there are secondary factors contributing to the problem, including rail damage from Hurricane Danny, delays caused by Mexico's privatization of a rail line increased car demand by other industries and a slow down in U.S. exports.
Last weekend I discussed the situation with Nebraska elevator operators, producers, and farm group representatives. It was very enlightening. They're very concerned that country elevators are treated unfairly, shippers are charged demurrage if cars are not loaded and unloaded within an allotted time. But the railroad is not penalized if those cars set for days without being moved.
They're concerned about concentration. The Cargills of the world get trains, but the smaller elevators don't. I believe there's got to be some balance. They're concerned that the railroads are misleading the public about the number of cars that are late. Railroads simply cancel their contracts with shippers, pay their fines and then claim that they're no longer behind. All that time, grain is sitting on the ground waiting to be shipped.
I want to express my appreciation for the work of the Surface Transportation Board. However, like most Midwesterners, I'm concerned that the Board's focus on untying that traffic knot down in Houston will not help some of us. I certainly hope grain farmers were not sacrificed in favor of the more lucrative plastics and chemical industries.
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In closing, I'd like to request that we all attempt to stay within the 5 minutes allotted to us. The Surface Transportation Board held a 12 1/2 hour hearing a week ago, as many of you know, with over 60 witnesses. I can assure you that we're not going to do the same thing today.
I look forward to the testimony. I think we've got a terrific group of witnesses today and I think it's time to clean up the wreckage. Let's clear the tracks!
So, with that, I'd like to yield to the distinguished ranking member of this subcommittee, Mr. Minge of Minnesota.
OPENING STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. MINGE. Thank you, Mr. Chairman. I appreciate your convening this session this morning. It is important that we consider the problems of rail service as they now exist.
We've had rail service in this country for over 150 years. The industry has gone through a land grant, robber baron, muckraking, labor turmoil, abandonment, deregulation, bankruptcy, reorganization, and now merger eras. Through it all, rail lines have enjoyed monopolies in most areas that they serve. Competition has been fought. Unfortunately, the lack of market competition, the lack of market forces, anywhere in our economy or society, breeds arrogance, incompetence and exploitation. Railroads are not immune from this situation.
Rail service to agriculture has long been a point of severe complaint. The Octopus, a novel written by Upton Sinclair almost 100 years ago, dramatized the plight of farmers in that era. Almost 100 years later, we are facing a new round of problems. Today's hearing is called in response to complaints from shippers in a broad area. They go far beyond the annual unhappiness that's faced in the grain industry over the shortage of cars at peak harvest time. The complaints focus on a range of conditions that are causing severe losses and economic dislocation to thousands of shippers and hundreds of thousands of farmers and businesses dependent upon rail service. They include failure to provide promised cars, inability to communicate when cars will be furnished, at which—will already be furnished—will arrive, or when they'll be picked up; an inability to turn around shuttle trains within the promised timeframe; arbitrary and unreasonable car loading and unloading requirements and tariff schedules; denial of financial responsibility for losses caused to shippers; discrimination against smaller elevators; discrimination against shortlines and their shippers; stranded trains; and intimidation of those who complain.
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The merger problem with the Union Pacific and the Southern Pacific is reminiscent of the problem that we faced in the upper Midwest in 1995. At that time, the Union Pacific acquired the Chicago Northwestern Railroad and we had a virtual collapse of service for a period of several weeks right at peak harvest time. We were told that this was an unfortunate situation, not to be repeated. That the Union Pacific had learned its lesson as to how to manage a merger. Here we are, 2 years later, going through the same discussion. I think it's time that Congress and the National Surface Transportation Board respond to the situation in a direct forthright way so that shippers, in this case, elevators and farmers are not subjected to this type of situation on a repeated basis in the future.
I look forward to the testimony this morning.
Mr. BARRETT. At this point, I would like to yield to the distinguished chairman of the House Agriculture Committee, Mr. Smith of Oregon, for a statement.
STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Thank you very much, Mr. Chairman, and I just have a few comments and a statement I will submit for the record.
This is a terribly important meeting that you have called and I value your judgment in this area and thank you for bringing together interests of agriculture all around the country to point to what could and may be a tragedy occurring or may well occur in this country before winter.
I am sensitive to the problems in the Midwest and the Great Plains and the fact that there is a great deal of storage outside, on the ground, of corn and wheat. It's reminiscent to me of what occurred in Canada, last year in fact, when we discovered having visited Canada, that because they had rail problems from the middle of Canada to the coast, on March 19, 1997, there were 33 vessels waiting in the harbor in Vancouver, WA, waiting for grain shipments that didn't arrive, because the one transportation system they had, the railroads, faced a bad winter and the result of which they had two seasons of grain and we were very worried early this spring, as this committee knows, that the Canadians were going to dump grain into the Midwest in this country. They agreed informally that they would not exceed 1.5 million metric tons and they did. So the country of Canada lied to us. They are continuing to overship against their word and we're going to constantly remind them. But the point here is simply that with one transportation mode, we can turn upside down the whole country and that's what we're facing here today and that's why this is so serious.
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The facts are again, Mr. Chairman, that we do have problems in the West and in the timber industry and the Christmas tree business, but I want to make sure that members of this committee understand that the problems of mill closures in the Pacific Northwest are not due to the railroads insufficient delay to serve them, they're due to the Clinton forest plan, which shut down 85 percent of the public forests in Oregon, Washington, and Northern California, and we're losing thousands of jobs and mills are closing, because we don't have any timber and any timber source.
Those two points I wanted to make, Mr. Chairman. Not that we don't want better service from railroads. I might add one other point. We are very concerned about one geographic area of the Nation being served over another, and we want to make sure that the country is treated fairly by the railroads in service and that the most severe problems are taken care of first in the case of perishable commodities.
I thank you, Mr. Chairman.
Mr. BARRETT. I thank the chairman.
At this point, the chair would welcome any additional statements from members of the subcommittee.
[The statements of Mr. Barrett, Chairman Smith, Mrs. Emerson, Messrs. Moran and Smith of Michigan follow:]
[Offset folios 1 to 10; 14 to 15 Insert Here.]
Mr. BARRETT. We're pleased to welcome our first witness this morning. Joining us is the Honorable Peter DeFazio, representing the Fourth Congressional District of Oregon. Representative DeFazio, you may begin.
STATEMENT OF HON. PETER A. DEFAZIO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
Mr. DEFAZIO. Thank you, Mr. Chairman. I've provided a complete copy of my remarks to the committee and I'll just highlight some of my concerns.
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I'm pleased that the Surface Transportation Board held a hearing last week and I'm pleased that they took some action, but I believe that their action was inadequate and it was principally oriented toward the particular problems of the Southwest, and Texas, in particular. Now, I certainly want to help out our colleagues down there, but I want to make certain that actions are take which deal with the problems in the Northwest and preclude further problems in the Northwest. So, I would urge the committee, after hearing from the witnesses, to make a definitive statement to the Surface Transportation Board that, well, good so far, but we need a lot more.
I'd just review a few things. Actually, I always hate to contradict my chairman and colleague, but there are problems with raw material shortages in the Northwest, but what we have going on right now—in my district at least—is unprecedented. That is, mills are closing and laying off workers, not because of a shortage of raw materials, not because of bad markets, but for the first time in history, because they can't transport their product. This has been documented by Random Length, a very prestigious industry publication, and the publisher of Random Length says, that this is the first time in 23 years of observing the industry, that he has never seen anything like this; and the list is long of the mills which have curtailed, and it's documented—Seneca Sawmill in Eugene has cut back and has stopped taking orders, even though they have raw material, they have workers and they have pending orders, but they've just stopped taking orders because they can't get it out of the yard.
They have some shipments which are missing, to put it mildly. They have shipments that have been floating around the western United States, they are occasionally spotted in a siding or rail yard, but before anybody can get a hold of it and send it in the right direction, it's gone again, and then it crops up 1 or 2 weeks later. This is not unique, this has happened to three or four manufacturers in my part of the State. I mean, the Seneca railcar that was sent to a customer at Camp Strake, TX, on September 17, was last seen in Linwood, KS, on October 21. They don't know where it is now.
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Normally, that would be 10 days shipping time, so the delivery date was supposed to be, I believe, September 25. The railcar is missing, complete with product. This is causing economic harm to the company and layoffs of the grass seed industry. Many of their customers missed their planting season because of the problems with delivery and now, what we have is a looming crisis. I have communicated this to the Surface Transportation Board and to Union Pacific and I believe it's going to look pretty ugly if it happens and that is that will Union Pacific, Southern Pacific, be the Grinch that stole Christmas?
Oregon is one of the largest suppliers of Christmas trees in the western United States. The trees are shipped 100 percent by rail and all of the systems are set up to ship by rail, the harvest is ongoing right now and the question is will the railcars be there. I've spoken to members of the Christmas Tree Growers Association. Right now, they're raising the yellow flag, they don't want to raise the red flag, because they're worried that if they gripe too much, they won't get the cars, but right now they're very worried.
This is a phenomenon which I would also direct the committee to pay attention to which is that I was able to get many, many, many manufacturers off the record to tell me they were having problems, but they would say, please don't mention us because we're getting 10 percent, 20 percent of what we need and we figure if our name gets publicized, we won't get anything. I think it's really a sad day in America when a vital transportation link—when its customers feel threatened.
Now Union Pacific says there's no reason they should feel threatened. I hope that's true, but I hope also that the committee would underline that and take that into account as it accepts testimony. The committee might also note that Union Pacific, in response to the STB last week, and I don't know what they've done in response to your hearing, but sent out a suggested letter to all of its customers, suggesting that they should send a letter saying that the problems were resolved or being resolved and no action was necessary, despite the fact that they weren't resolved or weren't being resolved. Some customers felt this was a form of intimidation.
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Again, unfortunately, many are afraid to speak out, but they've asked me if I could generically take that position since they figure that Union Pacific doesn't much like me anyway. So, I have. I am here to represent my people and tell you that we're still hurting and we need some pressure from this committee and other colleagues in Congress who are concerned about the many industry that are being impacted.
[The prepared statement of Mr. DeFazio appears at the conclusion of the hearing.]
Mr. BARRETT. I thank the gentleman for his testimony. Your specific situation is not under the jurisdiction of the General Farm Commodities Subcommittee, but we're glad to have you here and were glad to have you highlight a serious problem in your area.
Mr. Minge, a question?
Mr. MINGE. No questions.
Mr. BARRETT. Mr. Chairman?
The CHAIRMAN. Mr. Chairman, thank you, and to my friend from Oregon, I just want to make sure that those who support the Clinton forest plan, don't blame the railroads for mills shutting down in the State of Oregon. I refer to specifically the gentleman's testimony, which on page 4, states that recently ConPacific laid off 111 workers from two mills in Primeville and Gilchrest partly due to rail service. I suggest, gentlemen, that it was totally due to lack of wood. I want to make that point.
Mr. DEFAZIO. Well, that mill is in the chairman's district and I would defer to him there. Having spoken on the phone with Aarin Jones, the owner of Seneca Lumber, and having had Aarin Jones in a conference call with Union Pacific, I can say definitively that the mills in my district which are stating that the cutbacks are due not to lack of raw materials, not to lack of markets, but to lack of shipping, in fact as Mr. Jones said, because of UP's incapability of delivering him the railcars, he has been going to trucks.
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Trucks have raised the price $100 per 1,000 for transport over the last couple of weeks and now they don't have anymore trucks and so he is closing down because his yards full, he can't promise delivery, he's got railcars floating around the country he can't find and his situation's not unique. WTD, Roseburg Forest Products, and a number of other mills are in the same situation in my district and as I saw the press coverage, they attributed at least publicly, the firm attributed the cutbacks over a crown to both pine prices, which would have to do with a shortage of material and due to lack of railcars, they said both, but perhaps they were just saying that to the press and something else pertains.
The CHAIRMAN. Well, the gentleman and I do not ignore the fact that we need railroad cars. I just want to make sure we don't deflect the major issue in timber in the Northwest.
Thank you, Mr. Chairman.
Mr. BARRETT. Thank you. The gentleman from Wisconsin.
Mr. JOHNSON. No questions.
Mr. BARRETT. Mr. Moran.
Mr. MORAN. No questions.
Mr. BARRETT. Thank you, Mr. DeFazio.
Mr. DEFAZIO. Thank you, Mr. Chairman.
Mr. BARRETT. We're happy to have you with us.
We're pleased to invite our second panel to the table today. We have Linda Morgan with us. Linda is chairman of the National Surface Transportation Board. Linda, welcome.
STATEMENT OF LINDA MORGAN, CHAIRMAN, NATIONAL SURFACE TRANSPORTATION BOARD; ACCOMPANIED BY MELVIN CLEMENS, JR., DIRECTOR, OFFICE OF COMPLIANCE AND ENFORCEMENT, SURFACE TRANSPORTATION BOARD
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Ms. MORGAN. Thank you.
Mr. BARRETT. And your colleague in the second panel is Michael Dunn, Assistant Secretary for Marketing and Regulatory Programs at USDA. Welcome, Mike.
Ms. MORGAN. Good morning, Mr. Chairman, and members of the subcommittee, I am Linda J. Morgan, chairman of the Surface Transportation Board. I am here at the request of the subcommittee to discuss actions taken by the Board in connection with recent rail service problems in the West. My testimony will focus specifically on the proceeding recently initiated by the Board to examine rail service problems in the West, the hearing held by the Board on October 27 to focus on possible solutions to these problems and the order issued by the Board on October 31, to address those problems.
I am joined today by Mr. Mel Clemens, director of the Board's Office of Compliance and Enforcement. I know that some of you have already tapped into Mr. Clemens extensive knowledge and expertise. His office, among other things, is responsible for examining operational issues associated with rail transactions pending before the Board and for dealing with individual shippers regarding rail service problems.
I have submitted a comprehensive statement providing background on the Board and specifics on the Board's recent activities regarding rail service problems in the West. I will summarize that statement and ask that my full statement be included in the record of today's hearing.
Mr. BARRETT. Without objection.
Ms. MORGAN. In late summer and early fall, the Board became aware of rail service problems in the western part of the country through formal filings submitted to the Board, public accounts, and more recently, informal communications made to the Board's Office of Compliance and Enforcement by affected persons and entities about specific service problems. These rail service problems, most recently, have involved severe congestion on the lines of the Union Pacific and Southern Pacific railroads.
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In response to the information that it had gathered, on October 2, 1997, the Board on its own motion, initiated a proceeding and announced the scheduling of a public hearing on October 27, in Washington, DC. The hearing was set up to provide the public the opportunity to report on the status of rail service in the western United States and to review proposed methods, both governmental and non-governmental, for solving existing rail service problems, particularly with respect to the UPSP system. The objective of this proceeding is to focus on the immediate resolution of those problems.
In connection with this hearing, the Board also directed UPSP to provide on a weekly basis, beginning October 20, certain information on its service that would allow the Board and interested parties to monitor UPSP service problems and to provide benchmarks for determining service improvements. This information relates, for example, to rail yard and terminal activity, siding congestion, locomotive availability, and car utilization.
As you indicated, Mr. Chairman, on October 27 the Board did conduct a 12-hour oral hearing, during which the Board received testimony from over 60 witnesses and amassed some 500 pages of submissions. The written and oral testimony outlined in vivid detail the recent rail transportation problems in the West, principally involving—although not limited to—the service provided by UPSP, and it also documented the resulting negative economic impact of these problems.
UP has acknowledged its service failures, but it asserted at the hearing that governmental intervention was not necessary. Rather, its position was that its own service recovery plan, that it had initiated, had begun to take effect, and that the crisis was beginning to abate. UPSP expressed its fear that governmental intervention could only interfere with its own efforts to resolve the service problems and could aggravate rather than ameliorate the crisis.
The views of the other interests participating in the hearing were varied. Although some of the participating shippers expressed skepticism about the near term impact of UPSP's recovery plan, many of the shipper and other interests commenting appeared to share UPSP's view that its recovery plan should be allowed to work without governmental intervention. Agricultural shippers, in particular, expressed concern that any Board action enlisting the services of another carrier, such as the Burlington Northern Santa Fe, to help resolve the UPSP service problems might erode the services already being provided by that other carrier. The Department of Agriculture expressed similar concerns and suggested that the Board continue to monitor UPSP's progress closely for an additional period of time before taking action.
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I see my time is about to expire. I was going to quickly summarize the Board order if you wish.
Mr. BARRETT. Please proceed; you have a minute left.
Ms. MORGAN. In response to the hearing record that we amassed; it was quite clear to the Board that an emergency existed and that substantial adverse impacts were being felt by shippers; therefore, we decided to take action.
The Board's order has five key parts: One, we provided service relief in and around Houston. It was clear from the record that congestion at Houston was the genesis of the problem and that any assistance in alleviating the congestion at Houston, would have a positive effect throughout the system and would allow UPSP to put resources elsewhere in the system.
The second part of our order was augmented reported. We responded to the interests of the Department of Agriculture and others in directing more specific information regarding agricultural issues, and that is highlighted in my written statement.
Third, we also have directed UPSP to report to us by November 14 on what they have done about all shipper complaints that were in the record.
Fourth, we have asked UPSP and the Burlington Northern Santa Fe to report to us by November 14 on what their plans were for handling increased holiday service demand and increased service demands regarding the imminent grain harvest.
Finally, we are holding a hearing on December 3, at which point we will review UPSP's progress and determine whether an extension of our service order is required and whether additional actions by the Board are necessary.
With that, I would be happy to answer any questions.
[The prepared statement of Ms. Morgan appears at the conclusion of the hearing.]
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Mr. BARRETT. Thank you very much, Chairman Morgan. Assistant Secretary Dunn, please proceed.
STATEMENT OF MICHAEL V. DUNN, ASSISTANT SECRETARY, MARKETING AND REGULATORY PROGRAMS, U.S. DEPARTMENT OF AGRICULTURE
Mr. DUNN. Thank you, Mr. Chairman. I appreciate the opportunity to address this committee on this most important matter. I have with me here today, the acting administrator of Agricultural Marketing Service which has the oversight responsibility for USDA on transportation issues.
Mr. Chairman, the litany of concerns have been well spelled out. With your indulgence, what I would like to do is submit my written testimony as well as my testimony to the Surface Transportation Board, which will outline some of the problems as we see it at USDA.
Mr. BARRETT. Certainly. Without objection.
Mr. DUNN. Thank you, sir.
The USDA, for its part, is supportive of the emergency action that the Surface Transportation Board announced last Friday. We believe that this is a step in the right direction and we hope the emergency action that the STB has taken at Houston and south Texas to ease the congestion will alleviate some of the serious car shortages the rail services are experiencing in the major grain production areas of the Midwest. We believe that with the additional information that is being submitted by UP, USDA will be establishing benchmarks that will enable us in the coming weeks to monitor the effectiveness of the current efforts. We do not plan to recommend any further action to the STB until we have ascertained the impact of the emergency action on certain key segments of agriculture, especially those that are so dependent upon rail services such as grain elevators, poultry hog operations, timber industry and export markets.
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Mr. Chairman, the Secretary of Agriculture has been very concerned about this. When he came on board about 2 years ago, we were facing a similar crisis with rail transportation. He was told, it happens every year. The Secretary said, if it happens every year, then we ought to be ready for it and do something about it. He has asked us to take a number of actions at the Department of Agriculture. What we have done in the past is we have an advisory committee on concentration as the full committee chairman had indicated, this is a major concern for many of the shippers.
That advisory committee had asked us to do some things. We are in the process of putting together a study with the Kansas State University to determine the availability and try to forecast the need for grain cars in the future. We have had a number of listening sessions that we have put together on the current situation and the impact of the recent rail mergers on agricultural shippers. The Secretary has sent a letter to the Union Pacific, outlining his early concerns. In early October we had a meeting with the industry—export industry, grain industry—to get their particular concerns on this crisis.
I also met with the president of the Burlington Northern in South Dakota to talk about the situation with Burlington Northern. As you are well aware, they had said they were going to increase their demurrage cars and asked the grain elevators to be more quick in their filling of those cars. We at USDA have developed some on-site inspection activities, such as a mobile lab to assist in the quick turnaround of loading those cars. We've done electronic certification by way of computerized systems. Notwithstanding your opening comments on our computer systems, Mr. Chairman, USDA is working to deliver inspection certificates to the company's main office within hours of completion of the service.
We've also relaxed equipment requirements to allow elevators to use their own equipment and we've batched graded, which effectively reduces the number of cars to be inspected in a unit train by as much as 80 percent. In addition, USDA is allowing warehousemen in federally-licensed facilities to use emergency storage for CCC grain upon request and where firms are having difficulty meeting their supply commitments to USDA because of current rail problems, we are granting penalty-free extensions when appropriate.
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Mr. Chairman, this present situation is allowing us to learn more than we ever have in the past about grain movements in the United States. You are well aware of the work of this subcommittee and the committee in passing the Freedom to Farm bill. That legislation in fact says that something new is going to happen in USDA—that producers are free to produce for the marketplace. If we cannot get that grain to the marketplace, all your hard work is for naught.
The Secretary has directed me to put together a comprehensive plan that will look at the impact of the Freedom to Farm bill, the infrastructure we have in agriculture for getting grain to the marketplace and come back and report to the committee, to the appropriating committees, to transportation, to the railroad lines, Surface Transportation Board, of what we see in the future.
A major part of our outlook conference coming up early next year will be based upon transportation needs. We are in the early stages of gathering this information. Mr. Chairman, we think that we are at a major watershed and we cannot go into this blindly. We simply have to have more information about the long-term needs of U.S. agriculture for transportation services.
Thank you.
[The prepared statement of Mr. Dunn appears at the conclusion of this hearing.]
Mr. BARRETT. Thank you very much, Mr. Dunn.
As you probably have noticed, the bells have again rung and we are in the process of a vote on the floor. We'll try to keep this going, if we can, so bear with us please.
So, the gentleman from Wisconsin, do you have any questions and then we'll let you take off.
Mr. JOHNSON. Thank you very much, Mr. Chairman. Just a couple of quick questions. I am also on, not only Surface Transportation, but on the Transportation Committee overall, but our committee suggests the interest is in farm commodities, but when we have the problems, of course, with a delay or loss or financial inconvenience, then instead of farm commodities we care about shipping.
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I'm wondering about the tools that you have for the Surface Transportation Board that you've been granted. Do you have the tools now that you need to solve the situation should it become worse rather than better, as it's promised to be?
Ms. MORGAN. Well, the action that we recently took, that is, issuing an emergency order, directing that certain things occur, I think reflects the fact that we do have the tools available to address this particular situation that we have in front of us. We are holding a hearing, as I indicated, at which point we will assess how our order is working and what more may need to be done. I think we feel that, with respect to this particular issue, we do have the statutory authority to respond. We have found an emergency, which is the critical statutory criterion that must be met and then we can proceed from there.
Mr. JOHNSON. If as you said, the Secretary of Agriculture was told about this happening every year, this type of problem, have you asked for or come to Congress before and, as a freshman I may not know about this, to ask Congress for any additional tools or role that you might take part in to resolve this conflict?
Ms. MORGAN. Is this question to me?
Mr. JOHNSON. Right. You or the Secretary, I think, in terms of either STB or Agriculture.
Ms. MORGAN. Well, as you may recall, the Surface Transportation Board is the successor agency to the Interstate Commerce Commission, which was abolished at the end of 1995. That obviously was part of a continuing process to streamline government, and to streamline the authority associated with governmental entities. So, during that period, of course, there was no discussion of expanding the authority of the Surface Transportation Board, but rather focusing it on the absolute necessities that Congress felt needed to be continued.
Again, with respect to the rail service problems in the West, and particularly those of the Union Pacific-Southern Pacific, we do have the emergency order authority, which we have applied in this case, and we will continue to monitor the situation in light of that authority.
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Mr. DUNN. The Secretary has instructed us at the Transportation Division of USDA's Agricultural Marketing Service to begin doing the various studies that we have been doing to collect the information on the problem, analyze the problem and begin making recommendations. Although today I agree with the actions of the Surface Transportation Board on their present actions in this particular situation, the Secretary did disagree with the original decision to allow the merger of the Union Pacific-Santa Fe to begin with because we felt that it was a very serious problem and that the agriculture sector would not get a fair shake on it.
Mr. JOHNSON. Do you have a dollar total of the spoilage of grain or the Christmas tree pileup and in past years have you done an economic impact study of this dollar amounts that have been affected by this rail crisis?
Mr. DUNN. On the current one, the Kansas officials are estimating that it's a cost of $8.25 million for elevator operators in their State. There's different types of on ground storage. Some of them, they have anticipated, and they've done a very good job, and they're keeping them covered. In other areas, where it was not anticipated, and because of the severity of some early storms that we've had, there is a possibility that we are going to have a deterioration of the quality of that particular grain. It is too early for us to ascertain the total dollar amount.
Mr. JOHNSON. That's all I have. Thank you, Mr. Chairman.
Mr. BARRETT. Thank you.
Mr. Dunn, I was interested in your comment about the Secretary and his comprehensive plan. What's the report date back? When can we expect the results of that plan?
Mr. DUNN. Mr. Chairman, we are still scoping out the overall framework of that particular plan. As I had indicated, the Secretary has asked that in the Outlook Conference we spend a major portion of our time talking about the transportation infrastructure. That will give us an opportunity. I would hope that within the next 6 months we would have a framework for that comprehensive type plan.
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Let me tell you, it's going to be very, very inclusive of the types of things that are going on. The Corps of Engineers is currently spending $50 million on a study of the upper Mississippi barge transportation, So I'm not sure how much we can do in-house. We may be coming to you and to the appropriators for funding for such a comprehensive plan.
Mr. BARRETT. Thank you.
Chairman Morgan, I think we both agree that Government intervention is always a controversial subject, and I'm one that believes that Government should not become deeply involved in this, and this is a private sector matter, but it does affect a lot of people, et cetera, et cetera. The question basically is, can you give this subcommittee some idea of how much time it will take for this situation to resolve itself? When can our shippers out there expect some relief? A person who ordered cars, expected cars in September. Is he going to get them in October or November? Can you shed any light?
Ms. MORGAN. Yes. Let me answer that this way. With respect to the record that we accumulated at our hearing, UPSP testified that they felt that after Thanksgiving, the system would be substantially back working again the way they felt it should be. Now, my view of this is that we need to continue to monitor this. We are getting weekly reports from UPSP as to the status of the service. We are holding a hearing on the 3rd of December, at which point we will review whether indeed UPSP's goal has been met. I would not seek to disagree with the goal that they have set. I feel that our role here is to make sure that we do get the situation resolved in an expeditious way, and that is why we have set up a program here to continually monitor and then to be back on December 3.
Mr. BARRETT. And you'll be sharing that information with my office?
Ms. MORGAN. That's correct. We have offered to do that.
Mr. BARRETT. To confirm what Mr. Clemens said, yesterday.
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Ms. MORGAN. Yes.
Mr. BARRETT. Thank you. There are other questions that I have, but I'm told I have about 3 1/2 minutes. I'll turn the gavel over to Mr. Minge and perhaps I will submit something in writing to you folks? Thank you very much.
Mr. Minge.
Mr. MINGE [presiding]. I would like to echo the statements of the Chair, welcoming you to the hearing this morning. We appreciate your participation and the insights that you offer and also appreciate the opportunity last week to testify before the Surface Transportation Board.
The hearing this morning is sort of disquieting for a number of reasons. One of which was that we went through similar problems in 1995, as I indicated in my opening statement, with the Chicago Northwestern-Union Pacific merger. I would like to address a couple of questions about the Surface Transportation Board's situation. Do you feel at this point, Chairman Morgan, that you have the staff and the capability to deal with the range of issues that you are asked to review at the Surface Transportation Board and then in crisis situations like this?
Ms. MORGAN. Well, I am asked that question quite a bit, and the way I continue to answer it is that when Congress created the Surface Transportation Board, it decided what level of funds and budget we would have, and I have not really felt that issue was really one for discussion. Congress made a decision at the end of 1995 as to how much in resources wanted to allocate to these particular functions.
Mr. MINGE. Well, it comes up annually, as you know, in the appropriations process and I think it would be somewhat helpful to us to know whether or not trying to pursue the issues that we're struggling with here this morning, your agency, your Board, has the resources to deal with these challenges.
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Ms. MORGAN. Well, I think to date we have done very well with the resources that we have. I am proud of the work that we have done, and I think we have risen to the challenge. Next year the Board will be up for reauthorization and I am sure at that time there will be this discussion. Certainly, as any agency head, you always would like more resources. Obviously, our recent activities remind us of that, but at the same time, I understand again the mood in which Congress is with regard to budget, and I am committed to continuing to do what I need to do and what we need to do with the resources that we do have available.
Mr. MINGE. Well, let me ask you. Have you had a chance to review the problems of stranded trains and the frustration that caused the shippers?
Ms. MORGAN. Well, that is, obviously, part of this proceeding that we have ongoing, regarding the rail service problems in the West and——
Mr. MINGE. We have stranded trains in areas like Minnesota where there is no terminal in site or even within 100 miles of the stranded train itself and this is a very frustrating situation for shippers and we'd like to know what is it that we can do to eliminate this stranded train problem and so from our perspective, we'd like to see the Surface Transportation Board devote some time to that and see if we can't bring a resolution to that.
Ms. MORGAN. Well, I know Mr. Clemens, as I indicated, who is the head of the Office of Compliance and Enforcement, does deal directly with shippers who do bring to us both informal complaints and more formal complaints regarding service, and I am sure that he has handled specific issues of this type. We do try to put the resources that we have to issues of that sort. I have no field offices, however, so I am not out in the field, surveying these sorts of issues, but when they do come to us, Mr. Clemens and his staff do try to address them as we can.
Mr. MINGE. Have you had an occasion to review your procedures for considering claims for damages and losses against the railroads and the length of time that it takes to get a resolution of a claim of that nature?
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Ms. MORGAN. Well, that issue has been raised in the context of the existing proceeding that we have ongoing regarding rail service problems in the West. Loss and damage claims have traditionally been dealt with in the courts. We have rules and regulations that the industry is to follow, but then the disputes are brought to court, and that has been the way it has been handled. As far as how they will be handled in the future, I would expect that those issues will come to us, and I do not want to risk prejudging how we might decide any of those individual issues.
Mr. MINGE. Well, as I understand it, there's to be an expedited procedure for claims under $250,000 and there's a high level of frustration among shippers, they feel that they cannot recover their damages in any reasonable fashion when they have a failure of rail service and litigation has taken as long as 16 years with the railroads, who apparently have a love for litigation and this is an unacceptable situation. The shippers effectively have no recourse.
Ms. MORGAN. I understand your issue there.
Mr. MINGE. Another issue that has been very troubling is the way country elevators have been treated in the efforts to move shippers to larger and larger facilities. I'm not sure if you've had an occasion to study that and maybe, Under Secretary Dunn, I should direct that to you, as well. This is a source of a great deal of frustration in the rural Midwest.
Mr. DUNN. I certainly agree with you, Congressman Minge, that this is a problem. One of the things that we objected about the present UPSP merger was the fact that what we have observed from the Burlington Northern merger and that is the move to, in essence, squeeze out the small elevators. The rail lines are working on being more efficient, but they do not appear interested in providing adequate service to those small elevators. Instead of the rail lines expending the money to upgrade services, they're asking those elevators to be able to load 54 unit cars. So, the elevators invest money to be able to do that. Then the railroads come back and say, oh, that's not enough; we really need you to be able to do 108 unit cars at one setting.
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Estimates are that it costs anywhere from $1.5 to $3 million for an upgrading of 100 car loading for those elevators. What is happening is the rail lines are forcing the elevators into a particular system and that money for upgrading comes from the producers, to pay for effectiveness in rail transportation.
Mr. MINGE. Well, I'd just like to request that both the Department and the Surface Transportation Board study this problem because it is apt to cause significant dislocation and losses in the communities and to the farming areas where these elevators are located and it appears that this is a relentless process that the railroads are pursuing with little or no opportunity for the country elevators to have input into the reasonableness of the proposed regulations or the proposed tariffs.
I see that the red light is on and I'd like to turn this to the next member who has not asked questions.
Mr. LUCAS. Chairman, given the seriousness, of course, of what we've discussed and what's being discussed out in the countryside about the nature of the railcar shortage and I know that you've done some work already on an emergency service order, but could you expand for a moment whether you anticipate there will be any additional emergency service orders that will come out of all of this and if there would be, of what nature they might be?
Ms. MORGAN. Again, we are holding a hearing on December 3, at which point we will review the status of the service issues in the West. Under the law, the order that we issued will expire within 30 days unless it is extended, and so we have scheduled that hearing for the very purpose of determining whether we will need to extend that emergency order. Second, we will also be looking at whether there are other actions that the Board may need to take to ensure that this matter is resolved.
Mr. LUCAS. So, it's safe to say that the Board is moving in the light of having those potential contingency plans on hand, in case that——
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Ms. MORGAN. Yes, that is correct.
Mr. LUCAS [continuing.] That hearing would reflect that.
Ms. MORGAN. We also have requested certain information by November 14, including reports from the Union Pacific and the Burlington Northern Santa Fe, as to how they are handling the impending grain harvest, and that way, by December 3, we will be in a position to analyze not only the problems that have arisen, but also the plans for the impending traffic increases with which they must both deal with.
Mr. LUCAS. I would assume that you've received indications that information will be forthcoming in a timely fashion.
Ms. MORGAN. I have no reason to doubt that it will be.
Mr. LUCAS. I guess with that, if Mr. Moran has any questions, we'll continue our circle.
Mr. MORAN. Mr. Chairman, thank you. Would you just briefly describe, Chairman Morgan, for me, the emergency powers that you have and in particular, I'd like to know do you have the authority to demand that priority be given to the transportation of certain commodities, perishable items? What authority do you have in that regard?
Ms. MORGAN. Well, our emergency order authority is specifically in the United States Code, and I can just read you the language. It says that we have the authority when we determine that any failure of traffic movement exists which creates an emergency situation of such magnitude as to have substantial adverse effects on shippers or on rail service in a region of the United States. Of course, using that phrase, we determined that there was an emergency that did have a serious impact on shippers in a region of the United States.
Then we have the authority to specifically direct the handling, routing and movement of the traffic of a rail carrier and its distribution over its own or other railroad lines. We also have the authority to require joint or common use of railroad facilities or to prescribe temporary through routes. Those are the three specific statutory powers that we have with respect to the——
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Mr. MORAN. So, under the first item, you could require that farm commodities be transported over and above other manufactured goods. Is that accurate?
Ms. MORGAN. That is correct. We do have the authority to assign preference and priority in transportation.
Mr. MORAN. Chairman, were you on the Board when the merger between Union Pacific and Southern Pacific as approved?
Ms. MORGAN. Yes, I was.
Mr. MORAN. Are these the kind of concerns, the results that we see today in the country, do you consider these results, at least in part, of the merger, as well as I assume, other factors?
Ms. MORGAN. I think that the record that we developed in our hearing clearly indicated that there were a lot of factors coming together to create the service problem that we have in the West. There are integration issues that Chairman Davidson of UP discussed, but there were other factors: for example, acts of God, growth in the economy, and the weak SP facility. So, there were a lot of things that came together. I do not think a merger is intended to create these kinds of problems, but there were integration problems associated with——
Mr. MORAN. Would you repeat that sentence? You don't think a merger——
Ms. MORGAN. The approval of a merger does not necessarily result in the kinds of operational problems that we have seen. These are post merger operational problems in response to which UP/SP now, reflecting back, has indicated that they feel they should have gone a different way in terms of some of these integration issues.
Mr. MORAN. So, you don't attribute the consequences—the facts that we see today about the problems with transportation—you don't attribute those back to resulting from the merger of the two railroads?
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Ms. MORGAN. Well, I think what I am saying is that what we are seeing are operational issues that have arisen from an integration of two railroads. But a merger has a lot of benefits associated with it. This merger, in particular, the Board felt had benefits associated with it and we approved that merger based on those benefits that we found in the record. Operational problems should not be the result of a merger.
Mr. MORAN. But are they?
Ms. MORGAN. Well, in this case, if you read the record, it is clear from UP's testimony that some of the overall integration issues did create problems. Now, having said that, Houston was a major problem, a major congestion problem, that resulted in the problems that we see throughout the system. UP/SP had not merged their facilities in Houston, so with respect to the Houston problems, there were no real integration problems in Houston. I think there were facility problems in Houston, because SP's facilities are fragile.
Mr. MORAN. Has the merger, in some instances, improved the situation that we'd be facing? Would the situation that we're facing today be different had the merger not been approved?
Ms. MORGAN. Well, I think if the Board felt that if the merger had not been approved, the SP system would have deteriorated further which would have hurt shippers on the SP system and would have had a negative impact on the entire system in the West.
Mr. MORAN. So we may have similar problems to what we have today, perhaps from a different reason, had the merger not been approved?
Ms. MORGAN. That is correct, and I also believe that the benefits associated with the merger will be realized, and I have no reason to believe that what we concluded and what we found in the record during our deliberations on the merger will not come to pass.
Mr. MORAN. Mr. Dunn, when the Department opposed the merger, are these consequences that were foreseeable and pointed out to the Surface Transportation Board at that time?
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Mr. DUNN. Congressman, we think that they put too much weight on achieving efficiencies and looking at the end result of cutting costs and not enough weight on maintaining competition in service—which is what we had asked for, to ensure that there were other lines available to other class I railroad services to assure competition there. By putting all the eggs in the basket or weighing very heavily on achieving efficiencies, it really did force the railroads to say here's what we're going to do and here's how we're going to reduce the manpower; here's how we're going to reduce the excess stock, et cetera, out there that we have. And so there may have been set up then, in fact, an environment that would allow something like this to happen, and in order to achieve those promised efficiencies, they went too far.
Mr. MORAN. Thank you very much. My time has expired, Mr. Chairman. I do hope, Chairman Morgan, that you'd take a look at a letter that Senator Roberts and I sent you in regard to use of your emergency powers in the movement of——
Ms. MORGAN. Yes, I am aware of that letter.
Mr. MORAN. Thank you very much.
Mr. BARRETT. Thank you, Mr. Moran. Mr. Smith.
Mr. SMITH of Michigan. Thank you, Mr. Chairman.
What is impeding a lot of our transportation in Michigan is transportation by ship, and what we have lost is almost 60 percent of the ships, deep seawater navigable ships, available for shipping such things as grain out of the Great Lakes. That loss of ships means that more pressure is put on the railroads, and that means not only are we going to see more shortages of railcars during harvest season, but also we're going to see increased prices in those rail transportation costs because of the lack of competition from other sources of transportation.
Does the Surface Transportation Board also include water surface or is this just ground surface transportation?
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Ms. MORGAN. Well, we do have some authority over noncontiguous domestic water trade, which is between the United States and Alaska, and the United States and Hawaii, but as far as international maritime issues, that is withing the jurisdiction of the Federal Maritime Commission.
But the question that you raise, which is really one of capacity in the system throughout——
Mr. SMITH of Michigan. Actually, I'm sort of moving into a discussion of why those ships are limited, and I wanted to ask Secretary Dunn if it gives him concern, as it does concern to all of the bulk quantity shippers that could otherwise use ships, navigable ships for transportation, to see this loss in our maritime fleet that's available to transport goods from one U.S. port to another. No longer can we move our grain out of the Toledo port or the Michigan Great Lakes port, for example, into the Delmarva markets for poultry feed.
Part of the reason is we now have a law that no other ships except those ships built in the United States can transport those goods from port to port because of what's commonly called the Jones Act, and that was when Senator Jones from Washington, in order to protect his railroad in Washington that was transporting goods up into Alaska, put a floor amendment on that said, from now on any ships that transport goods—and that includes now people—from U.S. port to U.S. port has to be a ship built in the United States. And since we're not building ships—we've only had two ships built since 1960 in the United States for this purpose—it seems to me that part of the concern and part of the possible solution for the lack of railcars should be an interest in the Department in expanding our maritime ships that are available for this transportation.
Can you react to the problem?
Mr. DUNN. Yes, Congressman. I think it would be very prudent for us to look at a comprehensive, multi-modal plan of transportation of agricultural commodities. I think part of what we're going to see from what has—and I want to make sure everyone knows—voluntarily been given to us by the Union Pacific/Southern Pacific, what they're calling the USDA report in their weekly reports of the velocity of turnaround times on the trains to various destinations, that we are going to finally get enough information that we can begin looking at the magnitude of the problem. Whether or not we need to take emergency actions such as the suspension of the Jones Act, keeping the upper navigable rivers open later into the season, allowing increased loads on the highways are things that the Surface Transportation Board must take into account if they don't feel that the recovery plan that has been submitted is working.
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Mr. SMITH of Michigan. So if the problem gets serious enough and those rail transportation costs get high enough, and there's enough bottleneck that we can't move those grains out, you would consider recommending to the Secretary that he recommend to the President that we have an Executive Order to temporarily set aside the Jones Act, so that we could expand the water transportation effort to move some of those grains?
Mr. DUNN. That would be one part of an overall, comprehensive, multi-modal plan that we would review.
Mr. SMITH of Michigan. And, Mr. Chairman, it's just something that seems—what it is is protectionism, and we've kept the Jones Act provisions on the basis of security, but what we've seen is in Desert Storm exactly what you are suggesting: The Jones Act was suspended so that we could transport goods between U.S. ports. I have a bill that says, look, at least let's in the future allow competitive bidding for the building of those ships, still continue to require that they be an American crew and American owned and pay U.S. taxes and follow all our environmental laws, but we, I think, are jeopardizing a cost to the American people and we're putting pressure on those producers by not allowing an expanded maritime fleet that can transport people and goods between U.S. ports.
And so thank you for letting me sort of make more of a speech than questions, Mr. Chairman, but thank you very much.
Mr. BARRETT. Thank you.
Chairman Morgan, it's been reported in the press that perhaps NSTB moved a little too cautiously. I don't happen to believe that personally. In fact, I salute you again for the work that you've done in this particular area. But it makes me wonder, are the authorizing statutes a little too weak in the area that I'm beginning to investigate in my own small mind? Is there something that this Congress can do to help you folks in perhaps subsequent situations that might occur?
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Ms. MORGAN. Well, with respect to the particular issue before us now, which is rail service problems in the West, and particularly the service of the Union Pacific/Southern Pacific, as I indicated to another Member earlier, we do have emergency order authority which we have applied in this case, and it does give us the authority to respond to an emergency of this nature.
Now in terms of the subpart of your question, which is the public comment that we may not have been strong enough, I think, responding directly to the concerns, for example, of the agricultural community, our order is very balanced and reasonable in that it responds to what we think is the emergency, but in a way that does not hurt other shippers in the system. I think it was you in your opening statement who indicated that perhaps we may have taken action to help some shippers to the detriment of others, and I think our order is very carefully crafted so as to ensure that that not be the case.
In particular, with respect to the agricultural community, they were very concerned about bringing in another carrier to assist and then having that carrier's service to them eroded in some way. So our order is very focused and it is very balanced, and it is very reasonable. Now on December 3, when we have our hearing, we will assess the entire situation. We have the authority to do more, we have the authority to do something different, but we must be very, very careful that we act in such a way that all the shippers affected do get the relief that they are owed. Of course, as you know, sometimes governmental action can, if not deliberate enough, make a situation worse, and that is not what the Board wants to do. The Board is here to assist to bring this to a positive resolution in an expeditious manner, and we have the emergency authority to do that.
Mr. BARRETT. So you are very comfortable then with the existing authority, the existing statutes?
Ms. MORGAN. Yes. It is a difficult problem we face. So the solution is a difficult one to come to, but the authority is there.
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Mr. BARRETT. And you are further suggesting, I think, that we butt out? [Laughter.]
Ms. MORGAN. I would never suggest to Congress that Congress butt out. I am looking for any and all suggestions that anyone might have. I have no monopoly on the right answer.
Mr. BARRETT. Thank you very much.
Obviously, there are a couple of potential costs to our grain producers—perhaps I should direct this to you, Secretary Dunn—caused by the lack of cars. The spoilage is one. The price is one, storage capacity, a lot of things, I guess.
But the question, essentially, is when the railroads fail to provide the cars, the shipping services, should farmers have the right to receive compensation from the railroads? That's a loaded question, but I'd appreciate your comment.
Mr. DUNN. It is one that has long been the contention of the agricultural sector that, yes, they don't mind paying demurrage for cars when they're taking an excessive amount of time in loading them, but they want to have reciprocity there, and when they sit on the siderail for 4, 5, 6 days, they want similar compensation from the rail lines. That is one of the things that should be looked at.
Now to be fair here, there are various schemes of how elevators can assure that they have cars there, and to be absolutely assured, and be assured that they're going to be paid if they don't get them there costs more money. Most elevators don't want to take that route.
Mr. BARRETT. Well, I'm not sure I got an answer to my question. [Laughter.]
The comprehensive plan that you are going to be, the Department is going to be developing, will you be addressing this kind of a situation or question at that time?
Mr. DUNN. That certainly could be an area that we would address, that type of payment both ways.
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Mr. BARRETT. But at this point you are not prepared to say publicly that they should or should not be compensated?
Mr. DUNN. It would be premature at this time.
Mr. BARRETT. Thank you very much.
Mr. Minge.
Mr. MINGE. I would yield to the members to my right who have not yet asked questions, and then if I may in a second round, follow up with two or three questions.
Mr. BARRETT. Absolutely. Ms. Stabenow.
Ms. STABENOW. Thank you, Mr. Chairman. I appreciate the opportunity to ask questions, even though I've been delayed this morning, as usual, with the vote, the challenge to run the subcommittee and committee hearings.
I did want to share some concerns from Michigan. While Union Pacific doesn't run through Michigan, some of the immediate crisis that's being talked about does not directly affect us in Michigan, I understand the hardship of the agricultural community when the trains don't run on time, when things aren't efficiently transported, when there are problems with commodities. The particular problem in Michigan is with the short-line railroads, and we have problems finding cars to run on the lines. The lines are also in disrepair. Often commodities are stranded because of problems suffered by the shortlines which delay the shipments to the major lines. So I would appreciate any comments that you would have related to that issue.
Also, as we look at what's happening out West, our Michigan farmers are very concerned that the delay in the schedule of the unit trains will affect us as it comes into Michigan. Even the smallest delay, as you know, and it's been talked about, can cause serious damage. Currently, in Michigan our elevators are filled with various grains, and if they aren't emptied, the corn that's about to be harvested will not be able to be stored. And so it's a very serious, serious concern of ours.
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I appreciate the fact that this hearing is being held on this issue, and I would appreciate your comments as it relates to people in Michigan and what could happen as these problems have an impact on us, both with the current situation in the West and also the situation with the short-line railroads.
Ms. MORGAN. Well, first of all, obviously, one of the reasons that the Board is involved in the issue of rail service in the West is because we do not want these problems to spread. If you read the record compiled at our hearing, Union Pacific testified that when they initially addressed the issue of congestion in Houston and their efforts did not work, that is when the problem spread. So I think we all are very concerned that this not get any further than it already has, and I think that Union Pacific is committed to not letting that happen, as is the Board. So that's why we are definitely very actively on this and will continue to be for the long haul.
Now with respect to Michigan and the issue of the shortlines, there is a pending merger in the East that will affect Michigan, and I do not, obviously, want to comment on the specifics of that, but I would guess that the shortline issues will be raised in the context of that pending matter. Again, I will not comment except to say that I will, of course, take your concerns into account.
But I think the whole issue of the shortlines is an important one, and I, in talks that I give, in discussions that I have around the country, I do meet with a lot of shortlines and I meet with a lot of shippers, and they do express to me their concerns along the lines that you have raised. I have indicated to the larger railroads that the success of the entire rail system, in my mind, is based very much on the success of the smaller railroads, not only from a political perspective, but from an operational perspective. If the system is going to work the way we hope it is going to work, then the larger entities serve the entities they are best equipped to serve and the smaller entities serve the entities that they are best equipped to serve, and we must be very careful that as the marketplace restructures, this indeed is what happens.
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In terms of short-line formation, of course, the Board has responsibility with respect to line sales that do affect shortlines, and the short-line program has been a successful one in terms of providing service to places like Michigan. We will continue to implement the law with that in mind.
Ms. STABENOW. Thank you.
Mr. BARRETT. Thank you.
Mrs. Emerson, a comment or a question?
Mrs. EMERSON. I apologize for being late, Mr. Chairman, but when we have three committee hearings at the same time, it's hard to juggle.
Thank you very much for having this hearing. Chairman Morgan, Secretary Dunn, thanks for being here.
This is a big problem for us. Our Missouri Corn Growers Association estimates that the problem could cost in excess of $20 million. So I'm greatly concerned, as are my other Missouri colleagues. Realizing that I wasn't here earlier and you probably have addressed this issue, but if you wouldn't mind answering it again, it's regarding the surface transportation emergency service order issued last week. How quickly you do anticipate seeing some positive effect from that?
Ms. MORGAN. Certainly. I know you have written me, along with other Members from Missouri, about the grain car situation, and you will be hearing from me on that.
Mrs. EMERSON. Thank you.
Ms. MORGAN. With respect to the emergency order, I did describe the five key parts of it including addressing congestion in Houston, augmenting reporting, particularly to get some agricultural and commodity information that we feel is necessary, and holding a hearing on December 3, at which point we will assess how the recovery plan has been going, how our order has been working, and whether we need to extend that order and do anything additional to get the matter resolved.
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We also have directed the filing of reports from Union Pacific and the Burlington Northern Santa Fe as to how they are handling the impeding grain harvest, as well as the holiday traffic, because it is critically important, given that we have a stressful situation, that we also have a plan for how we're handling the new traffic that needs to be addressed coming into the system. Those reports will be analyzed at the December 3 hearing, and then we will determine how to proceed from there.
As I also said earlier, we are committed to an expeditious resolution of this matter, along with, I know, the Union Pacific, which has committed to that end.
Mrs. EMERSON. Good. Where is the December 3 hearing going to be held?
Ms. MORGAN. It will be held in Washington, DC at the headquarters of the Surface Transportation Board.
Mrs. EMERSON. So all stakeholders will be included in that, I would assume?
Ms. MORGAN. Well, I have not yet issued an order addressing who specifically will be in attendance. That decision has not yet been made, but it will be made very shortly.
Mrs. EMERSON. And might it be something that our Missouri corn growers, for example, could participate in?
Ms. MORGAN. In some way, yes. As the chairman indicated earlier, our hearing that we held recently was a 12-hour hearing with over 60 witnesses. I don't think I'm going to repeat quite that hearing again, but we do want to hear from people in one way or another. I just have not yet decided with my fellow board member how that hearing will be structured.
Mrs. EMERSON. All right. A lot of my farmers are concerned that this is a problem that perhaps could be worse next year. Can you comment on whether you think this is a short-term problem or something that we need to anticipate and prepare for in the future?
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Ms. MORGAN. Well, I think we are still in what I would call the information-gathering stage on that. I think the record that we compiled at the hearing indicated that there were some very specific events that occurred that are time-specific, that cause the problems that we see today. But I think it also has raised some more long-term issues relative to the capacity of the transportation network, in particular, the rail network, to handle economic boons such as we're seeing right now and increase in export trade, and so forth. So I think that I don't want to conclude whether this is all short term or all long-term. I think the record indicates that clearly we have short-term issues which we are focused on resolving, and then we need to make a conclusion about what long-term issues might be out there.
Now with respect to grain car supply issues, of course, those are always with us. They're always with you and other members of the agricultural States. We do have, under the auspices of the Surface Transportation Board, a National Grain Car Council, which is an advisory council of some 30-plus members, both railroads and shippers, the agricultural community, and they have been meeting twice a year, and they may want to meet more, but to discuss issues related to car supply and grain car movements. Currently, Dick Davidson, chairman of Union Pacific, is the chairman of that council, and they recently met to discuss some of these issues. I think that is going to continue to be an important forum for bringing some of these issues to the fore and also for an ongoing dialog about them.
Mrs. EMERSON. Thank you very much. Thanks, Mr. Chairman.
Mr. BARRETT. Thank you. The gentleman from North Carolina, Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I appreciate your calling this hearing.
I'm going to ask Secretary Dunn and Chairwoman Morgan, if you would, please, I'm going to ask them questions. I'm not sure we'll have time to get it all in here. If you could, please, give me a written response on this at a later time, in addition to commenting openly.
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My questioning will be somewhat along the lines of what you heard as it relates to movement of grains, but, as you well know, in North Carolina we are not a net grain importer, we are a major net grain importer from the Midwest and elsewhere. One of the major problems we're facing now because of the tremendous increase in pork and poultry production in the State, we find ourselves from time to time not only with shortage, as you have indicated in your testimony earlier, for railcars and others, because some of our people actually have their own trains that they move it with in the rail, but that's still a shortage.
But the real problem becomes—and this is what I'd like for you to do a little research on and respond to in writing, and hopefully comment here—is that from time to time during the year they find almost being held up by some of the transportation sources vis-a-vis the rail because they can't move enough by water or other means to get to them. That is a significant cost to our pork and poultry producers with the amount they're bringing in, and it will have not only a short-term impact, but could have significant long-term impact on their ability to compete not only domestically, but in the world market, which will have, I think, a significant impact on all of our economies. We need to find a way to deal with this problem. I hope you would comment briefly in the time allowed, and give us a written response on that. Whichever one of you would want to go first would be fine with me. I know it is a very complicated issue, but it's certainly going to require our joint effort to solve the problem.
Mr. DUNN. Congressman, I think you are absolutely correct. We have heard from some processors that for weeks now their feedmills that rely on rail have been out, and they are trucking from as far away as Iowa, costing 25–30 cents a bushel more. The Secretary of Agriculture has written to all of the class I railroad operators, and I want to quote what he says.
The present situation has raised serious concern about the long-term ability of our Nation's rail systems to meet the demands of a growing agricultural sector. I cannot accept outdoor grain piles at county elevators, lengthy service delays, and disruptions of shippers, and lack of available supplies for grains, for feeders, and processors as a normal part of each year's harvest. The next millennium just around the corner, it is time that we begin to give more careful consideration to the long-term transportation needs of the Nation's agricultural sector.
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I think, Congressman, that type of comprehensive approach with involvement of both government and the private sector providing those services needs to take place, and that dialog needed to start a long time ago.
Mr. ETHERIDGE. Before Chairman Morgan speaks, let me just interject a suggestion, if I might, because we've got some people who, if the grain piles up in the Midwest, to my colleagues who have it there, that is a major concern and it's a loss, but if you've got a lot of animals, as many people do, and you don't have food moving to them, that can be a catastrophe, and everybody loses. It seems to me at some point we need to have a dialog and bring these people in and sit down with some of the major producers, the carriers, the people who are producing on the other end the grains and others, and find a way to solve this problem quickly.
Ms. MORGAN. Well, as I indicated earlier, in terms of these issues that do seem to be ongoing, the National Grain Car Council that I mentioned earlier is a forum for this kind of ongoing dialog, I believe. In terms of what the Surface Transportation Board can specifically do, of course, we being an adjudicative body, we handle complaints that come to us and applications for restructuring that come to us. In the context of how we handle those, of course, we must be conscious of the types of issues you raised.
You mentioned global competition, and one of the issues that has come up in the context of some of the mergers that we have already dealt with at the Board, shippers view mergers as a way to get into the global market more efficiently. So certainly that issue has come to us in various contexts.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I look forward to getting a written response, so we can follow up on it. Thank you.
[Ms. Morgan responded for the record as follows:]
December 12, 1997
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HON. BOB ETHERIDGE
U.S. HOUSE OF REPRESENTATIVES
WASHINGTON, DC 20515–3302
Re: General Farm Commodities Subcommittee Hearing
Dear Congressman Etheridge:
On November 6, 1997, I testified at the hearing held by the Subcommittee on General Farm Commodities of the House Committee on Agriculture, on grain transportation issues. At that hearing, you expressed your concerns about the difficulties North Carolina livestock producers are experiencing with the delivery of feed grains and asked for any comment in writing that I might wish to submit. I am pleased to address your concerns further.
As you are aware from my testimony, the Surface Transportation Board (Board) has been actively involved in an effort to facilitate a resolution to the rail service problems in the western United States, particularly those involving the Union Pacific/Southern Pacific Railroads (UP/SP). These service problems have clearly impacted the movement of grain as well as other commodities. At the Board's 12-hour hearing on October 27, 1997, concerning rail service in the West, shippers, including agricultural shippers, had an opportunity to discuss both their problems with rail service in the West and their views as to possible solutions. Based on the record compiled at the hearing, the Board issued an emergency service order (Service Order No. 1518), which authorized additional operations by carriers over certain UP/SP lines in order to relieve congestion, particularly in the Houston, Texas area. Among other things, the service order also required substantial reporting by UP/SP to allow the Board to monitor more fully its service improvements with respect to agricultural and other commodities, and the submissions by both UP/SP and the Burlington Northern Santa Fe (BNSF) of plans for how they intended to address the rail transportation needs associated with the impending grain harvest.
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Also as part of that order, the Board announced another hearing, which was held on December 3, 1997. At that 8-hour hearing, the Board heard from representatives of the agricultural community as well as other segments of the rail transportation sector as to what service progress has been made, and whether additional actions by the Board would be necessary. Following that hearing, in a decision issued on December 4, the Board found that, while service is showing signs of improvement in some areas, substantial service problems continue to exist. Accordingly, the Board extended the service order until March 15, 1998, and it provided additional remedies to further help relieve the emergency: it authorized BNSF to handle additional traffic in the Houston area; it expanded reporting, particularly with respect to agricultural movements, to facilitate review of the progress being made; it directed the UP/SP and the BNSF to report to the Board within a week on their agreement with agricultural representatives as to the prioritization of the movements of grain; and it required railroads to cooperate with each other in offering and accepting assistance to reallocate capacity to address problems areas.
The concerns that you expressed at the subcommittee hearing focused on the plight of livestock producers that are principally grain importers and may have suffered the economic impact of higher costs associated with the shipment of feed grains if they must be trucked instead of being shipped by rail. As you can see, the Board understands the seriousness of the rail service problems in the West, and remains committed to being involved in this matter until we believe it has been resolved. I also would hope that the National Grain Car Council, the advisory group comprised of some 30 agricultural shipper and rail carrier representatives from across the country that I mentioned at the subcommittee hearing, will continue a dialogue on rail service matters affecting the movement of grain.
Thank you for the opportunity to address the subcommittee on this issue. Please do not hesitate to contact me if I may be of assistance in the future.
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Sincerely,
Linda J. Morgan
Mr. BARRETT. Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman. I have a few things I would like to ask about.
Chairman Morgan, who is the chair of the National Grain Car Council?
Ms. MORGAN. That is Dick Davidson, who is chairman of Union Pacific.
Mr. MINGE. Isn't that a conflict of interest and a strange situation to have the president of a railroad trying to review the adequacy of service of the rail industry?
Ms. MORGAN. Well, this is a council that is made up of some 30-odd individuals from both the rail industry and the agricultural shipping community, as well as shortlines, and they elect their officers, and he is serving in that capacity right now.
Mr. MINGE. I understand most shippers consider it a joke at this point, that the council is not really providing the type of analysis and the critical recommendations that are needed to solve the problems that we face, especially from the point of view of the shippers.
Ms. MORGAN. Well, they are on the council, so they do have a forum there for pursuing issues.
Mr. MINGE. Another question that has troubled many is the status of elevators on short-line railroads and the inability that they face under existing tariffs to aggregate cars and obtain unit grain train rates. Is there anything that's happening now either in the Department of Agriculture or in at the Surface Transportation Board with respect to this particular problem?
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Ms. MORGAN. I think that was a question that was asked a little earlier, and as I indicated I believe earlier, the Board is an adjudicative body, so these sorts of issues can come to us by way of a complaint, either a complaint about not getting your cars based on an unreasonable practice complaint——
Mr. MINGE. But is anything pending now?
Ms. MORGAN. We have one case that is in a discovery stage. The shipper there—in fact, it's from your State—the shipper there is claiming an unreasonable practice because the shipper has not been able to get the cars that that shipper feels should. That is in discovery and has been by agreement. I really can't comment on what the ultimate resolution of that will be, but that is pending.
We also have recently gotten a case involving a shipper affected by the recent Union Pacific, rail service problems. This shipper is also claiming that it has not been getting the cars that it should have and the service that it should have, and has filed a formal complaint, with the Board. That has just been filed. So, obviously, we have not yet put it on any kind of procedural schedule.
Mr. MINGE. Would your agency have jurisdiction over complaints about the inability of the shippers to force the carriers to take responsibility for losses caused by delays in service by trying to write their tariffs in such a way as to exculpate themselves from such responsibility?
Ms. MORGAN. Well, again, the loss and damage area is one where we have rules and regulations that then are to be followed. The actual damage claims, as we discussed earlier, do end up in court, but we do have rules and regulations that they must follow.
Mr. MINGE. And would those limit the ability of the carriers to, in turn, try to limit their damages?
Ms. MORGAN. Well, if there is a limitation of liability, that must be done with knowledge and with agreement. That is the so-called car——
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Mr. MINGE. You mean with agreement by the Surface Transportation Board?
Ms. MORGAN. Excuse me?
Mr. MINGE. By agreement with the Surface Transportation——
Ms. MORGAN. No, no, this would be between the parties. In other words, we can't——
Mr. MINGE. Would you review a situation where there are essentially contracts of adhesion on your own initiative? The shippers don't have a choice as to which railroad they would use. They don't negotiate the tariffs. The tariffs are published, and there may be advance notice, but the shippers are simply told: These are the terms on which you can ship, and although there may be a ''contract,'' quotation marks, between the shipper and the carrier, that contract is not subject of anything that we would recognize as market conditions or competition.
Ms. MORGAN. Well, let me answer that with a couple of different points. First of all, before the ICC was terminated and the law was changed, there was tariff filing, and at the ICC if the tariff was filed that included a provision that was questionable, the ICC could suspend that tariff. The Congress did eliminate not only the tariff filing, but also the suspension authority. But, again we do have rules and regulations that apply to this area. If a particular shipper feels that the rules are not being followed, then that shipper could file an unreasonable practice complaint. I don't want to prejudge what that complaint might be, but that is what happened——
Mr. MINGE. I'm not asking you to prejudge any of these things—simply where things stand.
Ms. MORGAN. Right.
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Mr. MINGE. Finally, we have some situations where we've had gateways that were promised in the context of railroad bankruptcies and acquisitions—the old Milwaukee Road is the one I'm thinking of—and these gateways have been closed, and sometimes they've been closed because of sale of assets and other transactions. Would your agency have jurisdiction to force the reopening of gateways to provide better service?
Ms. MORGAN. Well, we do have competitive access rules that do provide for a shipper that feels that they're being precluded from competitive, efficient routing to come and make a case to us which, if we found in the shipper's favor, we could direct and open up a route——
Mr. MINGE. Just as an example, the Mile City, MT gateway that used to be available to old Milwaukee Road mainline shippers is now closed, and a much more circuitous route is required in order to transport grain, and this is a matter of some frustration.
Thank you very much.
Mr. BARRETT. Mr. Moran, any followup?
Mr. MORAN. I have no further questions. Thank you.
Mr. BARRETT. Thank you.
Mr. Smith, any followup?
Mr. SMITH of Michigan. No questions. Thank you.
Mr. BARRETT. Thank you very much Chairman Morgan and Secretary Dunn for your willingness to appear before us this morning and answer some questions that you have been answering regularly. Thank you very much.
Ms. MORGAN. Thank you.
Mr. DUNN. Thank you, Mr. Chairman.
Mr. BARRETT. I'd like to welcome our next panel. Today joining us are Gary Kelley, president of Kelley Bean Company from out in my area, Morrill, NE representing the National Dry Bean Council; Mr. Mike Randall from Dell Rapids, SD—he's co-chair of the Transportation Task Force at the National Corn Growers Association; Mr. John Graff, manager of La Salle Farmers Grain Company in La Salle, MN; Patrick Ptacek, who is executive vice president of the Nebraska Grain and Feed Association in Lincoln, NE.
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We welcome you, gentlemen, and Mr. Kelley, you may proceed when you are ready.
STATEMENT OF GARY L. KELLEY, PRESIDENT, KELLEY BEAN COMPANY, MORRILL, NEBRASKA, REPRESENTING THE NATIONAL DRY BEAN COUNCIL
Mr. KELLEY. Thank you, Mr. Chairman. Good morning, Mr. Chairman and members of the committee. My name is Gary Kelley. I am president of the Kelley Bean Company, Morrill, NE. My company receives and processes dry edible beans in 35 locations in seven Western States. I am here today representing the National Dry Bean Council.
The National Dry Bean Council is a national organization which represents both the growers and shippers of edible dry beans. The Council is comprised of 12 State and regional groups, which in turn represent virtually all dry beans growers and shippers in the United States. In any given season, our industry produces between 1 and 1.4 million metric tons of dry beans. Of this, about 40 percent is exported.
The United States produces about 13 varieties of dry beans. Soybeans are not included in the definition of dry beans, nor are peas and lentils. Dry beans are produced on 1.7 million acres in 17 States, predominantly in the West, Midwest, and along the northern border with Canada. Dry beans are more difficult to process and slower than grains. A typical mill will only produce about 10 tons per hour.
The dry bean industry is highly dependent on rail shipping. Sixty-five to 75 percent of the dry beans produced in the United States are shipped by rail. Current rail service to our members is a failure, far below even the most minimum reasonable standards. This lack of service is severely affecting the dry bean industry in three areas: One, by an inadequate system for ordering cars and poor delivery performance; two, by increased shipment sizes and demurrage schedules and rates; three, by the poor physical condition of railcars.
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First, inadequate ordering system and poor delivery issues: When our shippers try to order cars, they are frustrated by the confusing telephone system for ordering railcars and the inability to talk to an actual person. Cars are delivered late, and the railroads supply fewer cars than ordered.
For example, a grain cooperative in California, which represents 200 to 300 growers and uses the SP reports for corridors, seem to be automatically put on a waiting list. ''They arrive a week to 10 days after the requested date needed. The railroad seems to have the computer tunnel vision. If we see that an ordered car is not spotted on our spur, and their computer says it has arrived, we have to convince them that we don't have a car.''
ASI Westminster of Colorado, a division of ADM, uses the BN Santa Fe. ASI has seen delivery times increase from 5 to 7 days to at least 3 to 4 weeks, which makes just-in-time inventory customers rely more and more on expensive truck freight costs.
My company is located near the main line—as a matter of fact, between the main line of the Union Pacific and the Burlington Northern. We observe over 90 coal trains per day on these two lines with no interruptions. At our Ovid, CO plant we ordered a car on August 27, 1997 and did not receive it until October 7, a 42-day delay.
The New Alliance Bean and Grain Company of Alliance, NE, located at the Alliance terminal, which is the main terminal of the BN, repeatedly receives about half of the railcars it orders. In 1 month period, they ordered 46 cars and received 20. The manager of that company comments, ''As you can see, we are restricted to half-speed, resulting in down time, temporary layoffs, lost wages, potential of not delivering on our customers' orders, and unknown potential losses.''
KBC Trading Company, a division of ConAgra, in Stockton, CA says, ''While New Alliance was only getting half their orders, we were getting nothing.'' KBC is located both on a UP and a BN. ''During the weeks of October 13 and 20, we had asked for 12 cars. As of October 23, none had come in and only six had been assigned.''
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The Trinidad Benham Company of Denver, CO shipped a carload of rice on September 12 from Lake Charles, LA to Mineola, TX, approximately 400 miles. It arrived October 30—42 days later. In another case, they shipped a car of beans from Grand Forks, ND to Mineola, TX, routed BN–UP, on August 12. It arrived October 12; 62 days later.
Increased shipment sizes and demurrage schedules and rates: Regarding shipment sizes, the Rocky Mountain Bean Dealers Association, which includes shippers in eight States east of the Rockies, reports smaller shippers are concerned about recent discussions on setting minimum ordering rates to five cars. This would all but eliminate their ability to ship by rail. It would force them to rely more and more on costly truck freight shipping.
The North Central Bean Dealers Association, which represents North Dakota and Minnesota, reports the shortened loading times from 48 to 24 hours and unloading times, 72 to 48 hours, has placed undue pressure on shippers and receivers.
Beans, unlike coal, cannot be handled rapidly or roughly, making the decreased loading time more impacting to shippers. New demurrage schedules are extremely rigid and are costing dry bean shippers considerably more than they have in the past. However, the railroads are not held to stipulations such as those for nondelivery or late delivery of ordered cars. Frivolous demurrage charges against a shipper can be reversed only by the authorization from the customer service rep who made the changes that resulted in the demurrage. The fear of further delays in delivery prevents our members from withholding payments in resolving demurrage issues.
Our members report the general physical condition of the cars they receive are in poor condition. According to Southwest Multi-Foods, Inc., of Dalhart, TX, at least 50 percent of the cars they receive are so poor that valuable time has to be spent to clean the car, patch the holes, repair the doors, so that they can be opened and shut.
In conclusion, our industry appreciates the opportunity to share the types of problems it has with the current rail system. It looks forward to any improved service that results from actions taken by this body. Thank you.
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[The prepared statement of Mr. Kelley appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Kelley.
Mr. Randall.
STATEMENT OF MICHAEL RANDALL, CO-CHAIR, TRANSPORTATION TASK FORCE, NATIONAL CORN GROWERS ASSOCIATION
Mr. RANDALL. Thank you, Chairman Barrett. My name is Mike Randall. I farm at Dell Rapids, SD, and I serve as co-chair of the National Corn Growers Association Transportation Task Force. I'm currently chairman of the South Dakota Corn Growers Association.
The NCGA represents 30,000 members in 25 affiliated States. We appreciate the opportunity to testify today. I would like to have my full statement submitted for the record, and I will now summarize that written testimony.
Mr. BARRETT. Please proceed.
Mr. RANDALL. The NCGA is pleased to see the topic of rail transportation as the focus of this hearing. However, we are not pleased about the circumstances that have brought us here today. The link between agriculture and rail transportation is vital for the success of the Nation's corn farmers.
U.S. agriculture has invested millions of public and private dollars in developing a reputation as a reliable, competitive supplier for domestic and international markets. The investment that the House Agriculture Committee has made in market development programs is for naught if we cannot get corn to market to fulfill customer demand.
As the railroad moves to resolve this service crisis, as we have noted service problems in both the Union Pacific/Southern Pacific lines and Burlington Northern Santa Fe lines, grain shipments must not be ignored. It is imperative that these commodities move in a timely manner.
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NCGA believes that priorities should be given to the movement of agricultural commodities. This priority-setting will require the focus and support of members of this committee.
In South Dakota, the majority of the corn leaves the State. Some is utilized by livestock within the State. However, a lack of in-state corn processing means excess production is shipped out of the State. The majority of this movement is by rail. Rail shipments in South Dakota are running 2 to 4 weeks behind schedule or longer.
With the corn on the ground, elevators are faced with substantial costs from interest charges alone. The carrying cost for an elevator with 1 million bushels of grain on the ground at 8 percent interest approaches $400 per day. In my local area in South Dakota, we are served by the Burlington Northern Railroad. Our elevator can load 54-car trains. Currently, the elevator is paying between $250 and $300 per car for a train under BN's certificate of transportation, or COT, program. This is how the majority of the cars are ordered.
The elevator has a train which has been loaded and has been sitting—and I would emphasize that the train was loaded with beans, 54 cars, which would be over 200,000 bushels. It was loaded on October 6. I called this morning; it's still sitting there. And they have, I think, another 400,000 bushels sitting on the ground in one location and have it spread out in other locations.
The elevator is five trains behind, and one has been canceled and four are late. The BN is not required to reschedule the canceled trains, but they are paying $300-per-car-day for penalty. However, the elevator has 200,000 bushels of beans that should have gone out on each of those five trains. The elevator's risk on one train shipment alone—this is for soybeans—would be about $1.2 million—that's figuring $6 per bushel—whereas the railroad's risk is $16,000 per day.
The NCGA's concern is not limited to the service problems that our growers are currently facing. We also are concerned about the long-term changes that the railroads are making. Changes in service requirements do not allow smaller elevators to pool cars, which will have the effect of forcing elevators to consolidate along the major rail lines.
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Insufficient power is also a concern. Short lines are not permitted to use their own power to move trains when it is available. Also, Saturday train deliveries raise safety concerns at elevators. Crews are unexpectedly called to work for 24-hour shifts, and if these train deliveries aren't expected, labor costs and demurrage costs increase for elevators.
The NCGA supports a competitive infrastructure of rail, waterways, and trucks, and provides service to shippers. Investments need to be made in facilitating the competitive growth of our Nation's infrastructure. A viable, competitive river system must be available to carry grain shipments on a regular basis, and during peak times when other transportation modes are unable to fill the transportation obligations. Investments in waterway infrastructure must continue to ensure that waterborne transportation remains a viable option for agriculture.
Mr. Chairman, we appreciate the opportunity to testify today. NCGA requests that this committee continue to scrutinize this issue for the next several months. Our highest concern is that, as the railroads set priorities for the next several months, we ensure that service to agriculture be one of those priorities. Thank you.
[The prepared statement of Mr. Randall appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Randall.
Mr. Graff.
STATEMENT OF JOHN J. GRAFF, MANAGER, LA SALLE FARMERS GRAIN COMPANY
Mr. GRAFF. Thank you, Mr. Chairman. I'm John Graff, and I'm from southern Minnesota, about 100 miles south of Minneapolis and 30 miles from the Iowa border, right in the central part of the State.
We ship about 12 million bushels of corn a year through the railroads, and I'll be talking more directed to the UP than like the gentleman to my right talked about the BN.
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First of all, I think there should be no surprises to top level management of the Union Pacific Railroad concerning the position they find themselves in with the corn and wheat movement in the 1997 harvest. We in the country knew last March that there were going to be serious problems should the merger be completed, and it wasn't due to a lack of cars. We knew that the power situation was going to be in strong evidence. There would be an immediate challenge if plans weren't made prior to the merger, and these plans were not made.
In 1995, our cooperative moved 10 million bushels of corn that year; suffered great losses due to the inability of the UP to deliver power to our trains to pull promised cars numbering 600. None of these cars showed up for 90 days. There are 350,000 bushels on every 100-car unit train. There were simply no cars. The losses incurred by our company approached $500,000. This is a small rural cooperative.
In order to meet the needs of our farmers, we needed to pile corn on many surfaces including the streets in our small town of Madelia, MN. It stayed on the streets for 3 months. Since we expected to ship this corn in October, we rightfully paid the farmer at the time of his delivery in October. Naturally, we had to incur the interest expenses during that time.
Our cooperative had many visits with the UP officials, and the 1995 merger with the Chicago Northwestern was cited as the culprit, and the UP said large grain shipping quantities was new to them. We did not go to court for that money. We just said, ''OK, you've had a learning process.''
Since we invested millions in building facilities and the 100-car track, we look forward to our railroad, the UP, to adapt and handle their newly acquired grain business. The UP handled the 1996 crop admirably. We had record volumes of grain. It was moved out. We shuttled trains, and they were on time every day. We loaded the trains in 15 hours, 350,000 bushels per hour, and we had no problems. To say that the Union Pacific and Southern Pacific merger does not have a negative effect during the harvest of 1997 is plain ludicrous.
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Knowledge in 1995 to plan for the power shortage once the merger took place, we in the country were plain and simple naive. We thought we were going to get taken care of. We scheduled our trains. We had payments scheduled for the farmers. We had 600 cars ordered for harvest. Incidentally, we completed our corn harvest about October 20 to 23. So, we are—our grain is in position. We got our first bean train in on October 1. We loaded the 350,000 bushels. It sat there for 23 days after we committed a 15-hour loading time. We got our first corn train in 1 of the 6, and the only 1 of the 6, on October 24. I called home last night, and that train was still sitting there, and it appears that that's going to be the only corn train that we really have close to harvest.
We booked a shuttle train, and we thought we would be shuttling the same way they handled our 1996 crop. We have been unable to meet our contracts with buyers, and we continue to accumulate expenses with having corn on the ground; double drying expenses; double elevating expenses; paying the farmers for grain that we aren't getting paid for; paying farmers to store grain that we should have shipped and that they did not have to keep at home. We couldn't ship, so they're keeping it at home in support of us. Shades of 1995.
The UP has, to me, shown blatant disregard for one of its good customers, La Salle farmers' grain. The surface transportation boards need to be certain that deregulation does not, whether it be incompetence or any other deficiency, give the railroads a license to take dollars away from the American farmer. Thank you, Mr. Chairman.
[The prepared statement of Mr. Graff appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Graff.
Mr. Ptacek.
STATEMENT OF PATRICK J. PTACEK, EXECUTIVE VICE PRESIDENT, NEBRASKA GRAIN AND FEED ASSOCIATION
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Mr. PTACEK. Thank you, Mr. Chairman. I appreciate the opportunity to be here today. My name is Pat Ptacek. I represent the Nebraska Grain and Feed Association, which is a trade association representing grain elevators, feed mills, and grain processors in the State of Nebraska.
Our members have been definitely experiencing a reduction in the dependability, reliability, and overall performance of the Union Pacific and Burlington Northern Santa Fe Railroads for years. However, the number of concerns expressed to us have steadily increased over the last several months. This decline in customer satisfaction is due to many reasons, including an increase in the overall tonnage hauled by the railroads; more competition from other freight transported by the railroads; the difficulty of merging smaller carriers with major carriers, and the return of empty cars from Mexico and the lack of locomotive power to move loaded trains.
The Nebraska grain industry has been very cooperative and responsive in expanding facilities and basically restructuring the way we do business to accommodate the railroad's requests. Many members have spent huge amounts of money on higher capacity track siding and larger, newer facilities with faster loading and unloading equipment. We've reorganized our workload, often calling employees to work on the spur of the moment to load a train to reduce demurrage costs. However, lack of railroad performance and continuing unilateral changes in railroad policies stunt our progress and limit our return on investment.
So, what are the big rail transportation issues facing the Nebraska grain industry? No. 1, the long-term future of facilities that are not in a strategic position to justify the kinds of capital improvements mentioned above. Mergers and consolidations of the grain industry continue to take place, and economical transportation alternatives have been a major player in these situations. No. 2, the lack of power or authority anyone has over the control of their own destinies when it comes to dealing with rail concerns. No. 3, the UP and BNFS's lack of consistent good quality service to grain, feed, and other industry shippers and receivers captive to the railroads. No. 4, Burlington Northern Santa Fe's recent demurrage policy change and, No. 5, rail service experienced by shippers who have been able to financially justify huge capital investments in their rail sidings or facilities.
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The UP and BNFS' service has continued to slip to all industries in recent years, and our industry is very concerned of the end effect. In Nebraska, a favorable harvest season has greatly accelerated farm-to-elevator deliveries of commodities. Grain elevators, eager to serve their farmer customers, are now facing decisions whether to stop taking grain because they're full and waiting for railcars, or pile grain outside on the ground assuming huge financial risks. Already, tens of millions of bushels are sitting on the ground in Nebraska exposed to the elements. This, in turn, obviously, effects the prices paid to the producers.
Shippers and receivers are charged demurrage if cars are not loaded or unloaded within allotted time, but the railroad is not penalized if these cars sit for days or weeks before being moved. The same applies to a unit train loader who does not complete loading or unloading with their allotted time. The penalties need to be a 2-way street. Major railroad policy changes include the tightening up of loading and unloading times and the elimination of weekends as nonchargeable days for purposes of demurrage. Again, there are no premiums for complying with the new policies, only penalty for noncompliance. The new demurrage policy is particularly hard to accept based on the fact that many trains sit on elevator sidings for days or weeks after being unloaded waiting for locomotive power.
Examples of continued poor service performance by the railroads abound, and the Pacific Northwest grain and feed industry has been widely critical of the railroad service with particular emphasis being directed at the carrier's less than timely delivery of grain shipments when and where they are needed. Port terminals can quickly become congested when inbound rail shipments do not match up with the outbound requirements of ocean-going vessels. The association reported that several major Northwest grain exporting companies have protested the new Burlington Northern unloading requirements which slashes in half the time these facilities are allowed to unload trains by levying market discounts on Burlington Northern origin rail shipments, that is the elevators. The exporters say these discounts are needed to offset the inevitable demurrage charges which will be assessed once the cars reach the coast. Once again, elevators and producers are paying for the railroads own inefficiencies.
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We understand that recently the Burlington Northern had made monetary payments to some facilities with longstanding car orders to effectively cancel those orders. These cancellation payments can be as high as $300 a car, however, shippers who ordered these cars months in advance and have been waiting as long as 6 weeks in some cases for placement know the payment is not even close to the economic loss caused by the nonperformance of the railroads. The grain industry in Nebraska would rather have railcars than cancellation payments.
What is alarming, however, is when less than state-of-the-art facilities get pushed down the priority list, and receive inferior service. That is what's happening today. Smaller facilities willing to pay the going freight rate but unable to load unit trains deserve, at least, to receive railcars just as much as unit train loaders.
Throughout these discussions, there have been at least three items that have not been getting enough attention. First, the issue of safety needs to be addressed. Most grain handling facilities are not able to support more than one shift of workers, and when the railroads either have not notified the loading facility when to expect a train or, worse yet, notify the facility and then not provide cars as expected, elevator crews are quite often expected to load a train after already working a full day. Loading railcars obviously carries with it a certain degree of risk, and let's not wait until the grain loading industry experiences a rash of serious fatal accidents before we solve this dilemma.
There is no easy solutions to these problems, but I would like to give you, at least, an idea of what the association in Nebraska is looking for. No. 1, return on investment incentives should be made available to those facilities who do upgrade but not at the expense of service to everyone else in the industry. No. 2, develop an advance notice policy on railcar delivery times such as the one suggested by the National Grain and Feed Association. Carriers need to be reasonable in their expectations. No. 3, the concerns of shippers and producers need to be considered before potentially devastating policies are adopted by the railroads. This should not imply in any way that the association is calling for reregulating the rail industry. However, with deregulation comes a certain degree of public trust and responsibility that essential transportation service needs be met.
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The industries and communities that are dependent upon the railroad want to be a part of the solution to the process. Although we sincerely appreciate the opportunity to provide comments before the House subcommittee, shippers and producers are not being heard by the railroads. The surface transportation boards need to develop an outreach program, perhaps, a board of mediation making public hearings common, available, and accessible to the general public. Thank you, Mr. Chairman, for this opportunity to address your committee today.
[The prepared statement of Mr. Ptacek appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Ptacek.
Mr. Kelley, it was appreciated hearing, first hand, that the problem is not just affecting grain harvest in hopper cars but also dry beans in boxcars. In your testimony, you indicated that so many shippers are frustrated by the confusing telephone systems—which is news to me—and the inability to talk to a person. So, I guess the logical question is, what has been your experience with Railway customer service lines? Are you getting through? Are you talking to somebody? Is there a problem?
Mr. KELLEY. Long-term experience or present experience?
Mr. BARRETT. Let's do both.
Mr. KELLEY. Well, long-term, the service has really deteriorated, because they took away the local service people. They continually move their dispatching centers and go to a computer and voice mail, so nobody ever checks. We can talk to a dispatcher in St. Louis on the UP, but he'll say, ''Well, I was directed by Omaha to do different.'' The cars that they give us that are assigned to us are half the time delivered to a competitor and vice versa. So, it's deteriorating; it's not getting better.
Mr. BARRETT. They're not providing the proper customer service. You also indicated in your testimony—you used the term ''tunnel vision'' which I found interesting. It's when the railroads say the cars have arrived, and they're not there on your spur and you have to convince them that there's a problem.
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Mr. KELLEY. Yes, the computer doesn't know where they are.
Mr. BARRETT. This is something that we've heard over and over again; computers not knowing where cars are. This is not a question of we don't have enough cars. It's a question of, where are they?
Mr. KELLEY. That's correct. Six months ago, the service was pretty good, but mid-summer it deteriorated. It hit the wall. Not just to Union Pacific; BN's got its problems too. It's not as bad as the Union Pacific, but with their merger with the Santa Fe, their system kind of went flat too.
Mr. BARRETT. Is there a viable alternative for moving dry beans? I assume trucks? What's the problem?
Mr. KELLEY. Trucks, nationally, but when you are exporting to hit a ship, a vessel, as we are at the present time—we're shipping on a food for oil on the United Nations for Iraq—we have to hit a vessel or we have to demurrage, but we can't truck it; it's too large. We have to have rail.
Mr. BARRETT. Thank you very much. Mr. Randall, you said you've seen the same pattern of railcar shortages year after year. I think you indicated it's worse now than it has been in the past. What's the major difference between this year and last year, for example? What's happened our there?
Mr. RANDALL. I would say our service last year, Mr. Barrett, was better than it is this year.
Mr. BARRETT. Yes, you indicated.
Mr. RANDALL. What's the reason? The local elevator manager, Mr. Ben Fuller—I happen to live right along the eastern side of South Dakota, so, actually, I ship most of my grain through Minkota co-op which is loaded at Jasper, MN. Mr. Ben Fuller who is the manager there—I was visiting with him the other day—and his comment was, he said, ''I think there are two situations here. There seems to be a lack of a locomotive power and lack of people power to get the jobs done.'' That was simply his comment.
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Mr. BARRETT. Locomotive power and people power? Nothing mentioned about cars?
Mr. RANDALL. Not from his perspective. The power could be there to get the cars there, that was the limiting factor. It was interesting—I called in this morning—as I reflect in my testimony—to find out if that load of beans had left yet that was loaded on October 26, and it had not. But I also heard that the cargo elevator which is 10 miles up north, had at Pipestone had received 208 unit trains this week, and Jasper's behind—let's see—they're behind 5 right now, but they can load 108 unit cars, at Cargo Pipestone, but at Jasper, they can load only 54 car unit, and Jasper's toying with the possibility of upgrading, but it will cost them between $1.25 million and upward closer to $2 million to do that, and, of course, it will strictly at their expense. So, they're really trying to decipher whether or not that would be a wise investment at this point.
Mr. BARRETT. If we could step back a bit, and take a look from a distance, how could that have been avoided?
Mr. RANDALL. You mean of the increase in car loading facility, you mean?
Mr. BARRETT. Yes.
Mr. RANDALL. I guess I'm not sure. There, again, it seems like it's a little bit hard to predict exactly what the criteria will be, because before it was—we were loading 27-car units or half of 54's and then we went to 54's, and that was probably—the decision to do that was probably only about 2 to 3 years ago, and now we're already from 54 to 108. So, if the investment is made in a 108 loading facility, how long is that going to be contemporary? Or is that going to be outdated?
Mr. BARRETT. Thank you. My time is about to expire. With that, Mr. Ptacek, you talked a lot about your association being responsive, cooperative, and so forth in upgrading handling facilities and investments, major investments. I'm aware of some co-ops that have invested from $1 million to $3 million in trying to stay up with the times; the current situations out there. Some are concerned that they're not realizing a return on their investment, and I noticed you touched on that. Can you elaborate just a little more?
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Mr. PTACEK. Well, just a little more to elaborate on that, Mr. Chairman. Those facilities—and I believe that there are close to 30 facilities now that either have expanded or are in the process of expanding to load out those 100 to 120 train units at a time—have worked in trying to meet what some, over the past few years, the railroads have indicated need to become more efficiencies for loading out those unit trains and moving them in a timely manner and getting those cars loaded and unloaded in a timely manner and get them back on. Again, as you said, those investments have gone from $1.5 million to about $3 million. The return on our investment are supposed to be discounts on cars that are able to meet those 15-hour turnarounds on the UP system. On the Burlington Northern, I believe it's 24 hours to 48 hours in certain instances to get those trains loaded out. But with what is happening and everyone, I think, is used to dealing with the grain car shortage on a cyclical basis, but the fact of the matter, what's really exacerbated the problem is that the lack of locomotion and moving loaded trains that are sitting and tying up those side tracks is what is really, I think, brought a lot of frustration and a lot of concern about the long-term effects this may have on their ability to deliver to their customer.
Mr. BARRETT. Thank you. My time has expired. Mr. Minge.
Mr. MINGE. Thank you. I'd like to ask Mr. Graff a question. I know that the La Salle elevator is one of the most efficient and well run cooperatives in our State, and we're pleased to have you here to testify.
You talked a little bit about the problem of piling grain on the ground. Could you quantify the cost of putting grain on the ground, disregarding interest that accrues over the duration that it sits there?
Mr. GRAFF. We have pads outside, hard surface pads that we built in the middle eighties underneath the old CCC storage system. We have a train scheduled in on Tuesday morning, and our elevator's getting full. We take in about 200,000 bushels a day in our terminal elevator. We can load out 350,000 bushels a day. The elevator is full; all of a sudden our train is not there, and we say, ''Uh-oh, we got to go outside.'' So, instead of taking Mr. Farmer's grain; dumping it in a pit, we have to take Mr. Farmer' grain; dump it in a pit; put it through a drying process that takes it down to a capable 15 percent of moisture, and then truck it back out to the pad; agar it on a large pile. This year, just in 2 weeks, we had grain sprouting that was outside. So, we needed to pick that grain back up again; take it into the aisle; put it through the drying system again. So we have two truckings; we had two dryings instead of no truckings and one drying, and the deterioration of the corn. We had beautiful corn coming out of the field at 18, 19 percent this year—22 to 23 percent is an average; 58 pound test weight, and we saw that test weight shrink to 55. We saw us tie up between 15 and 20 cents a bushel for additional movements, drying, and deterioration.
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Mr. MINGE. So, 15 to 20 cents a bushel is what you are experiencing plus interest if you have to store it that way waiting for trains for a sustained period of time.
Mr. GRAFF. That's correct. Mr. Farmer had a contract with us, and he has been paid.
Mr. MINGE. So, you absorb that as an elevator—or as a cooperative which is, in turn, going back——
Mr. GRAFF. Right now, we're looking at about—in 30 days, we're looking, maybe, at 2 1/4 cents a bushel, 2 1/5 on interest.
Mr. MINGE. You've talked about the problems that you faced in this, and you, apparently, have a 108-car facility that you've built on the main line of the railroad. How long does it take you to recover the cost of building that 108-car facility?
Mr. GRAFF. We built a 25 in the seventies; went to a 75 in 1983, and went to 100 cars in 1995. If the railroad performs like they performed in 1996, we can recover and have a return of investment about 17 percent annually to our owners a year on those facilities if we get performance by the railroad.
Mr. MINGE. So, in less than 10 years you could pay for that investment if you had the service. Now, I assume that if you have the service like you had in 1995 and 1977, you can't recover the cost of that investment. You could have gotten by with a 27-car facility.
Mr. GRAFF. We would probably have that facility for sale to an ADM or cargo right now if we had to experience to 95's and 97's.
Mr. MINGE. So, it would essentially drive you out of business.
Mr. GRAFF. Absolutely.
Mr. MINGE. Is this an important consideration, Mr. Kelley—I'm sorry, Mr. Randall, you talked about trucking over Jasper, to the cooperative when they were trying to decide at Jasper whether or not to build an 108-car facility. Is the experience that the La Salle elevator is having here in 1997 something that ways heavy on elevator managers like the one that you patronize?
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Mr. RANDALL. I think there's no question about it. Whenever we, as farmers, make an investment in something we want to try to be sure that we're going to get a return on it.
Mr. MINGE. Have any of you, as people active in the trade, had experience with stranded trains? Trains that have not quite reached their destination, and the crews run up against the 12-hour time, and the crews then leave the train, perhaps, on the main line; perhaps within site of the elevator?
Mr. PTACEK. I'm not sure of the circumstances about why the train got lost, but there was a unit train that originated in central Nebraska headed for the Pacific Northwest. It was—first of all, it was late getting picked up by the railroads, obviously, having a problem again with the locomotion; trying to find the power to move that train. Once it was found—it was lost somewhere in Montana or Wyoming for a number of days, but between that period of time it was supposedly supposed to be destined to be unloaded on arrival in port, and that elevator after raising three kinds of hell with railroad, apparently found that train and got that sent over to the Pacific Northwest but not after paying for a day or 2 of that ships demurrage.
Mr. MINGE. Well, I've heard stories about trains within site of the elevator that are sitting on the track from anywhere from 2 or 3 hours up to 2 or 3 days waiting for a crew to come to move it the extra quarter mile or a mile to the elevator itself. I see my time is about up. I would like to, in another round, talk to you about two other questions, and that is the availability of service to river and lake terminals which are much closer than going to far more distant terminals that would give the railroads more mileage with your grain which I understand is a problem for some of the elevators. And, second, the problems that you face in dealing with constantly changing tariffs, and the cost that you would experience if you were to go to the surface transportation board to attempt to have that agency review these tariffs and require the railroads to adjust the tariff to reflect a fairer and perhaps a more appropriate policy. So, at this point, I will look forward to another round of questions.
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Mr. BARRETT. Thank you. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. I want to thank the panel for joining us today and Mr. Randall from my home State of South Dakota who along with his evil assistant, Mr. Knight, the corn growers are well represented here in Washington today. This is a problem, a perennial problem, I think for grain shippers and producers throughout the country. It's been a problem. I think now it's reached crisis, it seems, proportion, and the connection between profitable agriculture and efficient transportation in our State of South Dakota, they just have to—you can't have one without the other. We've got to have an efficient transportation system, and as you mentioned, Mr. Randall, most of the corn, certainly in our State with the exception of some that might be federally processes which is a small percentage does leave the State, and we just have to be able to get to the marketplace, and what I find troubling about all this today, at least, is I keep hearing that we've have this extraordinary harvest, and I think it has been good in our State and probably has been in other States, but if you look at the statistics that are here, it's about 3 percent over what it was last year, and yet we have this colossal problem getting it moved. And, to me, that points to, there must be some other reasons why this has become a more intensified problem, and I'm troubled, I guess, by all the consolidations and the railroad industry that seems to have maybe lessened the prioritization that placed upon moving agriculture commodities. The bigger railroads seem to be more bureaucratic, less inclined to deal with some of the smaller shippers that might be on their lines, and I guess I'd be curious to know what you see as some of the long-term consequences of that. There are several, I think, logistical difficulties that are happening in some areas around the country that will have a significant long-term effect on agriculture, and I'm wondering if you might be able to explain or elaborate or shed some light on what you see some of those being? Mr. Randall?
Mr. RANDALL. Yes. I think the concern probably that we have as much as anything. If we're going to be a consistent exporter, then we need to have consistent transportation to get it to our customers. And, likewise, if we are not consistent, we are not going to be very reliable; we aren't going to have the market. It almost seems like a—I mean, it's almost hard to believe when you think that, in this day and age, that the thing that can keep us from getting our commodity to the customer that wants it is transportation.
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Think of all the world; of biotechnology; everything that's revolutionizing our agriculture today, and it's a challenging world. It's exciting; tremendously exciting, and, yet, people, the one thing that we've got to do to get our commodity to where it needs to go is to get it there. We've got to transport it, and it's usually rail plus water to get it where it's going to go; sometimes in reverse order, but normally that's the way it is. And here we're dealing with this situation today when we've got the technology available that's just—it's almost awesome when you look at the capability that we have in our country, agriculturally and worldwide, to produce food. We're trying to produce food and get it to the people that need it; that want it. And our hands are tied.
As a farmer, I feel so frustrated, sometimes, with Mother Nature, because Mother Nature can really kind of deal the cards how she wants to. Well, our hands are tied also transportation wise. We're depending on a transportation system to get our commodities to the people that want them, and all we're asking, I guess, is for fairness, and we're asking for our commodities—unlike coal or some of the other commodities, our commodities are very perishable. You know, a trainload of coal can sit along the train for how many days and not really hurt anything? You take corn as the gentleman to my left from La Salle, MN just suggested, they put corn on the ground for 2 weeks, they're starting to sprout, you know? I imagine some moisture came along that did it, whatever. We're dealing with a perishable commodity, and it's very important that we be able to have a consistent transportation system in this country that's going to keep us competitive at international markets to come or we're going to slip very quickly, and that's really a challenge for our entire system, and it's not only rail. We've said before, it has to be water transportation also. Mr. Thune, I'm sorry, I hope I answered your question.
Mr. THUNE. Yes, absolutely, and then some. Now you alluded to this in your testimony, but I've seen this over the years in South Dakota, we have a lot of small shippers who have expanded. When we were talking about unit trains that were 27 cars in length, and then we went to 54s, and now we're going to 108s, and my sense tells me that there are a lot of shippers in South Dakota who probably aren't going to be able to make the capital investment that's necessary to move those. It's going to be very limiting in our State, because there are very few elevators—even the larger ones, right now—who are currently in a position to do that, and that is a trend which, also, I think, as we look into the future, is a very troubling one where areas like we represent, where we're very sparsely populated and isolated. And you don't have elevators or are able to purchase cot trains or you've got a lot of tariff type cars, and that's why I'm wondering if maybe the policy that's been used in the past with respect to pooling and allowing smaller elevators, if that's still something that has been permitted by the railroads? Is that something that you are still utilizing out there? What I'm essentially saying is building a unit train as you go. Are the railroads still working with you on that?
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Mr. RANDALL. I think they are some. From what I understand there's a—Kansas, Minnesota, Nebraska must be KM&B, I believe, or something like that; or KIM—excuse me, the Menkota co-op elevator orders cars with, I think, it's 27 other elevators, and I think they have to specify—I'm sure someone else knows much more than I do about it—specify 1 week in advance, is it, where those cars need to be placed? I know that not this year, but I think the 1996 calendar year, Menkota was saying that the savings that they got through being able to order their cars that way—and I think that year they shipped 30 percent—I believe where the grain was shipped through that pooling resource at a savings of right close to $300,000, I believe.
Mr. THUNE. Well, my time has expired, Mr. Chairman, but if we do go another round, I'd like to elaborate on that. Thank you.
Mr. BARRETT. Thank you. Mr. Smith.
Mr. SMITH of Michigan. Thank you, Mr. Chairman, for letting me participate.
Mr. BARRETT. Nice to see you back.
Mr. SMITH of Michigan. I think most of your organizations—Mr. Ptacek, I'm not sure about your support—the legislation I've introduced to make changes in the Jones Act, it seems like it needs to be a consideration if we're taking out one of the modes of transportation by the protectionism that we've built in, and so we've lost most all of the navigable ships available to haul this grain. It seems like it would be a significant concern, and I would just like for any of your comments on your feelings, your impressions, your position on making changes in the Jones Act to increase the availability of ships that could transport this grain and take some pressure off the other modes of transportation.
Mr. KELLEY. It doesn't affect my industry, but we would support it very much.
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Mr. RANDALL. I would agree.
Mr. PTACEK. I would certainly think my association, given the demands of the export market and given the demands of the new farm program where we are encouraging our producers to produce for the market, it would only make sense to allow that type of an exemption. The same with the cargo preference.
Mr. SMITH of Michigan. Well, that's the cargo preference, is it Mr. Graff?
Mr. GRAFF. I would agree.
Mr. SMITH of Michigan. You know, it's interesting that our shipyards in this country now charge up to 3 times as much for building a navigable deep plot over a 1,000-ton ship that is built in the United States, but they were turned down and couldn't even get a bid to have a ship built in the United States. So, Mr. Chairman, that's why from ships to commodities you go—you can't—get on a ship and stop at other U.S. ports to let the tourists spend their money. That's why we're going down into the Caribbean after you pick them up in Florida, or going down to the Mexico ports. You can't get on a ship over in the State of Washington, so you drive north to Vancouver to get on another ship there so you can get dropped off at Alaska.
It's protectionism at its worst, and it concerns me because I am a farmer and what it's doing—besides driving up the cost as high as $4 billion to American consumers—it reduces the availability of that kind of transportation, putting more pressure on rail, so we see the bottlenecks on rail where we can't get our grain timely shipped. So, I would hope the agricultural community as well as the Department of Transportation and the Department of Agriculture would be involved.
In rail transportation, what have you seen in terms of increased prices over the last 5 or 10 years on the price of hauling grain? Yes, Mr. Graff?
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Mr. GRAFF. We could never go to the west coast, the Pacific Northwest, with our grain until the UP and CNW merger. And, I'm sorry to say, we were promised rates. They charge us 9 cents a bushel at Freemont, NE to go over from the CNW just to—now, we'll pay the freight, but in addition to that, because we weren't on a UP line, just to shift that rail over, they charge 9 cents a bushel. That made the Pacific Northwest prohibitive to us. When the merger took place we strongly endorsed the merger, and I'm sorry to say they took that pretty much took that 9 cents away during the chaos of the harvest of 1995. So, while I think the rest of the rates have stayed stable, except this past summer. We knew we were in trouble when the UP said, we want big trains, we want them to go a long way. We geared up. We put a large scale system in, and this summer, instead of taking large trains and going a long way, we loaded the 75 trains and we went to Savage, which is 60 miles, and turned around and came back. And we knew we were in trouble then, Mr. Smith.
Mr. SMITH of Michigan. We're now discussing Amtrak, what we do with Amtrak. And maybe this is a question better—more appropriately—addressed to the next panel, but have you seen problems with grain transportation in terms of any interruption or slow down because of passenger traffic on some of those lines? Are you familiar with that problem?
Mr. GRAFF. We would not be privy to that.
Mr. SMITH of Michigan. Mr. Chairman, thank you, that's all I have.
Mr. BARRETT. Thank you.
Mr. Minge.
Mr. MINGE. Thank you.
One question I indicated I'd like to followup on is the service to terminals—that is shipping terminals—that are closer than ultimate destinations that might otherwise be available with rail service. And, I'm thinking particularly of an area with which I have experience in the upper Midwest. We have river terminals that can be within 50 to 150 miles of an elevator that are commonly used because those river terminals with barge traffic are efficient ways of transporting grain to the Gulf ports. Similarly, we have shipments that can go to Duluth Superior to reach ships that are on the Great Lakes.
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And, Mr. Graff, I'd like to ask if you have experienced any change in the availability of rail service since the Chicago Northwestern merger with respect to shipping to the Minnesota river ports, specifically the Savage terminal?
Mr. GRAFF. The UP definitely had in their philosophy that they encouraged us to expand to 100 cars. They wanted to put the large trains for long distances. Until this summer, when they obviously couldn't provide the power to take long trains a long distance, for us to ship on the river is not a good economic situation for us. We have to go to the river, go down through the Panama Canal and then back up to the rim countries, whereas, in taking that train right out, and our basis just widens during that time, and we lose between 15 and 20 cents on the basis if we have to go to the river.
Now, for some people that are close to the river, that's a heck of an alternative. And we need the river. But, when we spent that $4 million into going to the large unit trains, it was meant to go 1,500 miles, not 55 miles.
Mr. MINGE. I take it if elevators in the area are shipping to the river, they are then shipping by truck? Is that primarily the way they take their grain to the river?
Mr. GRAFF. We would be the exception to that. Most of the traffic to the Mississippi at Savage is by truck.
Mr. MINGE. Is the Union Pacific currently providing economical service to the river for your facility at Madelia that would compare with what the Chicago Northwestern provided?
Mr. GRAFF. Yes. The economics are the same. But, again, we need that PNW economics to go to the Pacific Northwest. But they are giving us competitive rates to the river that they did, say, 6 years ago.
Mr. MINGE. Second—and I'm not sure to whom I should direct this question, so let me simply direct it to the panel—as I understand it tariffs will change from time to time and there will be problems with the tariff and that if the tariff is protested enough, it may be withdrawn, reconfigured, and then a new tariff issued. As a consequence, there is a constant catch-up game if one is unhappy with a tariff, and it is expensive to litigate, or challenge a tariff, and the delays in getting it resolved may me that by the time you hear what the result is on your challenge to a tariff, there is a new tariff that's in place. And, have any of you had experience with this problem in trying to deal with the railroads and tariffs that you feel are unfair?
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Mr. GRAFF. We had a very serious problem in the fall of 1995. We had shipped, underneath a certain basis, and the Union Pacific, with no forewarning, didn't give us our trains in September and then raised the rates 11 cents a bushel effective October 1. So the corn we had scheduled in for September shipment, even though they didn't deliver the trains, we got an increase in tariff in October of 1995. And that was horrendous. We were talking about a little over 2 million bushels. So we were talking about a $235,000 shot with one stroke of the pen.
Mr. MINGE. One thing that I would appreciate hearing from any of the organizations that are represented here is how we in Congress could effectively adjust the laws under which the Surface Transportation Board operates to enable it to more effectively deal with changes in tariffs and the problems that you face as individual shippers, or even associations, in trying to effectively challenge tariffs that are being issued by monopoly organizations. And so, if any of you have suggestions, now, we'd appreciate hearing it, otherwise in a followup.
Mr. PTACEK. Well, I mentioned in my testimony, Congressman, that at least a board of mediation, if you will. But prior to new-to-merge changes, and new penalties, and new tariffs—and I know that we have a railcar council now—but, I guess I would like to at least see that interface between the shippers and carriers. A cooling off period so that at least members of my association can try to find out exactly what it is that the railroad is trying to solve. If there are inefficiencies, my members are willing to meet the challenges. But that doesn't mean you need to meet the challenges through the pocketbook. And, that's a very important issue. I cannot express to you enough how frustrating it has been dealing with these new-to-merge changes, and these new penalties. The National Feed and Grain Association did engage the Burlington Northern on their recent new-to-merge policy and were able to get some of those policies reversed. But, certainly, that still has a pocketbook effect on our shippers, those policies that were maintained by the railroad.
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Mr. MINGE. Thank you.
Mr. BARRETT. Mr. Thune.
Mr. THUNE. Very quickly, Mr. Chairman. I know we need to move on. I would like to echo, and followup on Mr. Minge's question of you with respect to what might be done better in terms of the STB's legal and regulatory structure and a mediation board of some sort, or what. And I appreciate the fact that in their service order that they issue that they indicated caution about interfering in private enterprise. I think that's something that we want to be careful about heading down that road again. But at the same time, if there is a way in which, when it comes to dispute resolution, that the shippers, the producers, the people who have to use the railroad service—use the transportation service—have a way to have these questions resolved in a better fashion. And sort of the whole issue of access to the process, if I might use that term.
And so, I don't know if there is anything you want to add to what you already said in response to his question, but I certainly would welcome any inputs or insights any of you might have in that regard. And, I was reading your, I guess it was some testimony here earlier, that these problems are going to continue to mount until we come up with a system that gives the shippers better access to that process.
So, I don't know if anybody would care to comment on that or not, but that, to me, is a concern as well.
Mr. PTACEK. Well, an observation, just quickly, I think my association does not want to reregulate the railroads. But, my association also knows that without our members, and without the cooperation of the railroads, the State of Nebraska couldn't have been built. I mean, it was basically a partnership between the grain industry and the railroads is what made that State what it is today: the envy of many in the world as far as capacity, as far as production. The fact of the matter is, we've lost that partnership, or that relationship, and something needs to happen.
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I think if you look at the telecommunications industry or even the banking industry, we can see the benefits of deregulation. As I mentioned in my testimony, there is a certain public trust and a certain responsibility that comes with the responsibilities of deregulation that those public interests will not be compromised; essential service, in other words.
Mr. GRAFF. Mr. Thune, if I might make on comment. We would dearly love to sit down eyeball to eyeball with the Union Pacific when we have a situation. And they simply are not available to do that with. And they will not sit down and talk eyeball to eyeball. They're in Omaha, and you would think Omaha is a 5 hour trip for us from La Salle, and that is just not available. End of conversation.
Mr. THUNE. Well, we have an opportunity to take that up with the railroads here in the next panel. So, I appreciate your answer to that.
Mr. BARRETT. Thank you, Mr. Thune.
Very quickly, it occurred to me, Mr. Kelley, you mentioned the delays affecting your business. You also suggested your associate companies are also experiencing the same problems. Any estimate of what this situation is costing the dry bean industry?
Mr. KELLEY. Not yet. But it's certainly affecting the markets because as demand moves, markets move, and if you've got demand and can't deliver the order, that affects the demand. So, it's affecting the markets right now, but I don't have any dollar figure to put on it.
Mr. BARRETT. Thank you very much.
I thank the panel for their appearances today. I think this has been very good testimony and we appreciate you going to the time and the trouble to be with us.
I would recommend, in as much as we have a pending vote on ordering the previous question, perhaps followed by 2 5-minute votes, that we recess, at this point. There are 5 minutes left for us to get over there on the first 15-minute vote, so let's reconvene at approximately 1:15 and hear our final panel.
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Thank you very much.
[Recess.]
Mr. BARRETT. We reconvene the hearing of the General Farm Commodities Subcommittee.
We thank you for your patience. This is one of those days which occasionally happens around here when we have to run back and forth. Today's relays are a little bit longer than normal, so we appreciate your patience and we're glad that you were able to stick with us.
I'd like to invite the last panel to the table. We're pleased to have with us today Mr. Drew Collier, vice president and general manager for ag products at the Union Pacific; and also Mr. Philip Weaver, vice president for agricultural commodities at Burlington Northern Santa Fe Railway. I thank both of you for, again, your patience, and thanks for being here and sharing with us.
Let's start with Mr. Collier.
STATEMENT OF DREW R. COLLIER, VICE PRESIDENT AND GENERAL MANAGER FOR AGRICULTURAL PRODUCTS, UNION PACIFIC COMPANY
Mr. COLLIER. I was going to say good morning, but I guess I'll say, good afternoon, now.
Mr. BARRETT. Good afternoon is right.
Mr. COLLIER. Mr. Chairman, and members of the committee, my name is Drew Collier, and I am vice president and general manager of agricultural products for the Union Pacific Railroad. I appreciate the opportunity to address this committee on grain car availability.
There are several issues that are important to consider as a part of this review which are covered in some detail in my written statement. These include UP's grain car fleet and allocation system, productivity incentives for unit trains, impact of service interruptions, current status of grain orders, and some improvement opportunities.
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It is important to set the stage by stating that we all share the same goal: the efficient timely movement of grain from point of production to point of consumption. Our objectives are consistent: to move the greatest volume of grain cars in the most efficient manner, to serve the consumptive needs of the market. We view grain as a part of our core business and intend to be a long-term supplier to the grain industry.
Relative to our grain fleet and allocation, we established the current system last fall that provides four methods to secure grain cars, general distribution, guaranteed freight pools, contract trains, and car supply vouchers. This program was intended to provide a fair and equitable distribution of grain cars during times of excess demand while also providing market-based tools for allocating cars to the highest and best use. Our experience through the peak-demand period starting last October indicates the program is working as intended.
We maintain a fleet of approximately 33,000 cars with a normal velocity of 1.4 turns per month. At this velocity and fleet size, we would expect to be able to meet demand for grain cars in all but the peak harvest periods and to have several thousand cars in storage for a few months each year. This year, as an example, we peaked at nearly 9,000 cars in storage and an asset base of almost $450 million sitting idle.
Addressing productivity incentives, one of the issues that impacts grain car availability is the growth in unit trains versus single-car shipment. Our approach is to share the productivity gains from these more efficient units through rate incentives. Our customers can then decide whether the capital investments are justified.
It is also our intention to continue to serve smaller elevators. However, we do expect the market, particularly on the receiving side, to move to unit train handling capability based on these economics.
Turning to the impact of service interruptions, our service problems have been well documented and resulted in dramatically slower turn times, decreasing grain car availability. While not to minimize the impact we've had on our grain customers during this period, it is most important to address what we are doing about it. The postponement of several segments of our overall traffic base has allowed us to redeploy locomotives to grain movement. We've also diverted some of our grain trains to other carriers in our most congested corridors. The recovery plan will produce greater velocity for all of our assets, including grain cars, and this should allow us to significantly increase the availability.
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On the issue of car orders, we are approximately 12,000 guaranteed car orders late and over 30 days behind in filling grain car orders in general. Based on our current recovery plan, we expect to improve grain car availability and make considerable progress over the next 60 days in working out this backlog.
Of critical importance in looking at this backlog, is the issue of grain stored on the ground, which is not an unusual situation during harvest. In fact, it is often part of an overall storage strategy for many of our customers, particularly during times when the market is carrying the grain. Unfortunately, many of the ground storage situations we face may be the result of short-term decisions based on the expected arrival of grain cars. Some of these expectations may have been optimistic based on normal conditions, and now with the backlog, appear to have created crises situations. We'll be working with our customers as we deal with this backlog of orders.
While we have made progress in many areas, opportunities for improvement still exist in areas such as communication, alternative storage strategies, and fleet velocity which are outlined in my statement.
In conclusion, it is clear from our perspective and that of our customers that we are not meeting all the needs of the industry. We are, however, dedicated to being a reliable supplier to the grain industry and have demonstrated this dedication and capability in the past. We need your support as we continue to work towards those goals.
I'll be happy to answer any questions that you may have. Thank you.
[The prepared statement of Mr. Collier appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
Mr. Weaver.
STATEMENT OF PHILIP F. WEAVER, VICE PRESIDENT FOR AGRICULTURAL COMMODITIES, BURLINGTON NORTHERN SANTA FE RAILWAY COMPANY
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Mr. WEAVER. Mr. Chairman, my name is Phil Weaver, and I'm vice president for agricultural commodities for the Burlington Northern Santa Fe Railway Company. I'm here today representing Rob Krebs, who's unable to appear before the subcommittee. Mr. Krebs was in Washington on Monday and met with some of your colleagues and tried to meet with some of you, and I realize how busy some of your schedules are.
BNSF appreciates the opportunity to present our views of the grain transportation market. Grain is an important part of BNSF's transportation business, but it does create unique challenges to the railroad. Our grain market is segmented into origin shippers, that is country elevators and large sub-terminals. We try to keep their doors open so that they have space when the farmers wish to sell.
When we look at receivers, our market is segmented into domestic receivers which are: feed lots, feed mills, flour mills, and oilseed processors, with a relatively steady demand year round. The third is the export grain market, which is much more erratic, and is constantly responding to worldwide events.
BNSF and its customers are active participants in all of these markets. In fact, we need all of these markets. But the different requirements of these market segments result in periods of surplus capacity followed by periods of concentrated demand. For example, in May and June of this year, we stored more than 5,000 grain hoppers, while today, obviously, from the statements of our customers that appeared before you, we are not meeting all of our customers' requests.
This year's crop started with what was expected to be a disastrous southern hard red winter wheat crop due to an April freeze. However, between April and July, the crop made a miraculous recovery and produced a record Kansas wheat crop. We also expect a record soybean harvest, a somewhat disappointing spring wheat crop, and a good corn crop.
Beginning in July, grain loadings picked up on Burlington Northern Santa Fe, loading 19 percent more cars—approximately 25,000 car loads between June 28 and October 18 of this year—than in the same period last year.
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Each year we go from storing surplus cars to a capacity shortage at harvest time. While we concentrate on car orders at country origins, the loading and billing of cars is not the whole story. The receiver must also be in a position to receive and unload the cars. Today, we are 2 to 3 weeks behind filling car orders at origin. However, we have 62 percent of the fleet under load, and there are significant queues of cars waiting to be unloaded at receivers' facilities.
Last Friday I took a snapshot of what our queues looked like. As of October 31, it showed a total 9,349 loaded cars of grain in route to various destinations on BNSF. One thousand twenty eight were in the transportation pipeline for the export facilities at the Head of the Lakes, which is Duluth, MN, and Superior, WI. Forty five hundred and forty-seven were destined for export facilities in the Pacific Northwest—that is Portland, OR; Seattle, Tacoma, Kalama, and Vancouver, WA. Twenty two hundred and twenty-five cars were destined to export facilities at the Gulf of Mexico—that is Houston, Galveston, Beaumont, Corpus Christi, TX and Mobile, AL. And 1,049 cars were destined for the Mexican gateways of Laredo, Eagle Pass, Brownsville, and El Paso, TX. To deal with this backlog, we have temporarily embargoed the Texas Gulf elevators and the Mexican gateways, and will only allow shipments as the queues are reduced.
Over the longer term, we and other market participants are concerned about demand for this year's crop. While we have heavy demand for cars at origin, the consumptive markets, especially export, are not strong. Many of our customers that have bought guaranteed freight from us are concerned that once the nearby problem is taken care of—and we are committed to get it cleared up—an anemic remaining demand will leave them with purchased rail freight in excess of demand.
For example, in USDA's latest shipment and sales commitment report, foreign exports and open sales show 501 million bushels for this year's crop, versus 756 million for last year, and 1.55 billion for 1995. Similarly, wheat exports and open sales are 637 million bushels, down 30 million from 1996, and 90 million from 1995.
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BNSF is committed to improving rail service to all our customers, especially grain. In October, we announced the acquisition of 6,000 new C6X jumbo covered hopper cars for the years 1997, 1998, and 1999. In addition, we plan to acquire 409 new road locomotives in 1998 to try to meet the increasing demand for rail transportation. Previously, we had already acquired 227 units in 1996, and are taking delivery of 232 locomotives in 1997. This is basically a capital program of $2 billion each of the last 2 years and the same for the next year.
But to respond even more effectively to these grain market segments, we need more consistent demand. To compete for scarce capital when the business is characterized by boom and bust is very difficult. Efficient, consistent use of cars, locomotives, crews, and track space is critical as we invest to grow our business in the 21st century.
This completes my prepared remarks, and I'd be pleased to answer any of your questions.
[The prepared statement of Mr. Weaver appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
Mr. Collier, in your testimony, you mentioned that when the issue of grain car availability is dealt with in terms of economics and facts, then explaining the issue becomes a little more manageable, perhaps, and I guess very few would disagree with that. What would you think are the most common misconceptions by Congress, perhaps by the general public, about the current situation that UPSP is facing?
Mr. COLLIER. Mr. Chairman, I think the issue that would help us all understand the issue of grain car supply better is to understand the full economic impact of the full supply chain and all the issues that impact it. Obviously, we are—we being rail transportation—is a critical element of that chain. But, as has been pointed out, the issue of the futures market, of the export demand, all these other factors, the ability of the market place to deal with allocating grain over a whole year period, those are all issues that need to come into play and be understood in economic terms if we are truly going to come to grips with the issue. And part of the role of the National Grain Car Council that we participate on is to try to get those issues out on the table and to talk about the facts and details behind those issues so we can all better understand them.
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Mr. BARRETT. Has UPSP been unnecessarily maligned through this present crisis or not?
Mr. COLLIER. I would say that our issues that we have faced have been figured prominently in the media and that's probably not a very comfortable place to defend yourself. We certainly have our own set of issues and we've struggled hard this summer to overcome them. I think that if we are portrayed as having a lack of desire to deal with those issues, than that would be unfair. I think we are all focused on getting back to the level of service and commitment to our customers that we know we can perform. And so, that would be the only unfair part of it.
Mr. BARRETT. Let's talk about computers again; the fact that they're not communicating; the fact that we have cars that we can't find and perhaps power as well. When can we expect that situation to be resolved?
Mr. COLLIER. Well, one of the key elements of the merger plan was the incorporation of our transportation control system—our computer system—on the Southern Pacific. And that was also one of the root issues that we faced with the CNW merger. What can't be underestimated, though, is the complexity of accomplishing that; that these computer systems that actually drive the operations of the railroad are so critical to its efficient operation, are very complex systems and take a lot of input from people and implementation.
One of the things that we've been criticized for was not implementing those systems soon enough. And in our view, we think that a hasty implementation of those could be a worse problem than doing it properly at the right time. Now, we're working very hard to make sure that we implement that system—transportation control system—on the former Southern Pacific as soon as possible, and by next spring we will be done with that process. But we said in the merger application, that it would be a 2 year process of implementing these computer systems and we are trying to accelerate that. Until we get those tools in place, there are inherent problems. We're trying to operate a railroad under two separate systems and we have glitches in that process so we are working hard to overcome that.
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Mr. BARRETT. I believe your answer as to when, was next spring?
Mr. COLLIER. Yes, we should, I believe, by May, we will have all the SP into the transportation control system operated by the Union Pacific.
Mr. BARRETT. Going back then to a question that I asked Chairman Morgan earlier today, when can the farmers out there expect some predictability? When can those September cars be expected?
Mr. COLLIER. We are currently working out the backlog as we speak. Right now, we are into filling guaranteed orders for October. So we're catching up now. We've got most of our September orders cleaned up. We're probably 30 to 60 days behind. We expect that by the first of the year we'll be back to a level of balance between supply and demand on cars. So, our intention is to make progress over the next 60 days, through the holiday period. A lot will be dependent on market conditions that Mr. Weaver outlined, and what the weather and holiday situation does to us.
Mr. BARRETT. The first of the year?
Mr. COLLIER. The first of the year.
Mr. BARRETT. Thank you.
Mr. Weaver, BNSF had a rate increase of what, $100 per car earlier this year, I believe it was, according to my information?
Mr. WEAVER. We have rate increases from time to time, sir, and we've had some decreases, but I'm not familiar with that particular. We recently increased some southern moves to Mexico to try to shift demand to the Pacific Northwest. Is that what you are referring to?
Mr. BARRETT. Well, let me rephrase it. Do you expect another increase in the immediate future?
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Mr. WEAVER. No, sir. Our intent was to, we were getting far too much grain loaded to go south to the Texas elevators and to Mexico than the system can handle, and we're trying to turn cars. Many of those trains that are sitting at origin have no where to go and that's been a problem to us and why we have a capacity to the Pacific Northwest and we're trying to shift our flow west.
Mr. BARRETT. Thank you. My time has expired again.
Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman. I'd like to express my appreciation to both of you for coming on behalf of the systems that you represent. And also, I'd like to recognize that we have had a good working relationship with your Washington office, and when we called some problems to your attention, there has been a response. And we appreciate that.
I would like to raise several issues that are a matter of really grave concern to me. And at the outset, I'd like to bring up the topic of retaliation. Now, I don't allege that this is an official policy of either of your railroads, or any other railroad with which I am familiar, but I have heard directly from an elevator manager that was a victim of this, that when he went public with complaints about railroad service, that for a year following, the elevator that he managed did not receive more than a token amount of cars. The consequence was that the Board had to let him go in order to receive cars. And when he was discharged, the elevator began to receive cars. This was not something, to the best of my knowledge, that was ever litigated with a claim against the railroad, but this story has circulated and it's well known by, I imagine, hundreds of elevator managers in the Midwest.
And I would like to have each of you state for the record here today that not only is that not your policy but that you would vigorously seek out and appropriately deal with any railroad person that would engage in that type of retaliatory activity. Because I find that unacceptable and I expect your railroads do as well. Would that be the case?
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Mr. WEAVER. Mr. Minge, I can commit to you both personally and on behalf of our CEO, that we would consider that unethical behavior and it would result in discharge of an employee who did that. If—I don't know where this location is, but I would be willing to look into it, on a personal basis, and respond back to you, on a personal basis, and put my own integrity on the line to make sure, to check and see if it really happened; if it did, who was responsible and report fully to you. Because that is not our style of doing business, nor, quite honestly, sir, the number of people complaining about service with valid reasons, it would be very difficult to single out one individual for such a thing. Not that I would condone that at all.
Mr. MINGE. Mr. Collier?
Mr. COLLIER. I would certainly mirror those remarks. From a personal point of view, that certainly would not be something that would be condoned within my organization. I have responsibility for customer relationships for all the grain industry that Union Pacific serves and I have a number of people working for me that have direct responsibility. I would not, personally, tolerate that. I participate in all the senior-level meetings at the Union Pacific and I can't imagine anybody at my level or above that would condone that type of behavior. And I think, whether it be Dick Davidson, or my boss, that would not be part of our management style.
Mr. MINGE. Well, I will speak with the individual. He is now an elevator manager for a larger company and I'm not sure he wishes to pursue this at this stage in his career.
Mr. BARRETT. Will the gentleman yield?
Mr. MINGE. Yes.
Mr. BARRETT. Thank you for mentioning this. Let me simply say that I met with about 12 elevator operators out in my district last weekend. This is not an isolated situation. I have four pages of notes here from that meeting. One of them said it's publicly hard to say things against the railroads because of a fear of retaliation. His elevator knows first hand, from a few years ago, how painful that can really be. That's just one comment. So, thank you, Mr. Minge, I offer that for the record and for both of you gentleman.
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Mr. MINGE. Well, I would like to urge that each of your railroads, since you are dominant carriers in the western half of the United States where much of this grain is being produced, circulate a memo to your dispatchers and others that directs them in this regard. Because I have certainly found in visiting with elevator managers the same thing. We have had hearings and we have had meetings and elevator managers and elevator boards have told the managers not to go to the meetings because they don't want to be publicly identified. They will talk to us about it, but they do not want to visit about it in public. It's essentially the dispatchers, I think, that they see this type of retaliation coming from.
I certainly appreciate the fact that you are investing in cars and that you are committed to improving service, but, there is a recurring set of problems that really haunts us, and I'd like to start with the stranded train issue. What can be done to avoid a situation where a train is stopped on the main line so the crew can get off and then that train sits there, maybe several hours at worst, before a replacement crew comes; or it stops on a siding within view of its destination, and may wait even longer? Is there any reason why we can't eliminate that very annoying and difficult-to-understand situation, especially with modern communications?
Mr. COLLIER. Congressman, I will try to address that. The reason that happens is, if I understand the situation properly, when a crew goes dead because of their hours of service——
Mr. MINGE. They've reached the 12-hour limit and so they go dead. But I'm sure that the time when the place where that train will be when the 12-hour limit is reached is known at least 2 or 3 hours before they reach that point.
Mr. COLLIER. That would be possible, yes. Generally what happens when a crew goes dead is we have got to get vans out there to pick that crew up, get them back to a reasonable point to where they can be rested, and then get another crew, again, back out there. And when that happens, when the 12-hour limit hits and a place is remote, that can be a very difficult situation. Obviously, from our perspective, that is not a very desirable situation; to have a train stuck either on the main line or on a siding in a place that's not accessible to other crews. So we try to avoid that wherever possible. Now, the fact that it happens obviously, indicates that we're not always successful.
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Mr. MINGE. Well, what I have been told in visiting with elevators and with others, is that there were enough train crews that were bought out at times in the past that you were left short and that you are not in a position to rehire people at—or are on—early retirement, and as a consequence, you have to hire brand new crews. And I can't understand how we got ourselves into a situation where we don't have adequate crews. It would be like an airline having to land a plane in Omaha on its way from San Francisco to New York, and say, well, the pilot can't fly any more. But, I've never heard of an airline setting down a plane because of this situation. And, I don't know why the railroad would have to set idle a train, with all of the modern communication skills that we have, in 1997.
Mr. COLLIER. Well the reason for the idling, is because of the labor agreements we have that say we can't work anyone beyond that 12 hours.
Mr. MINGE. Well, it's a Federal law; it's not just a labor situation. And we're in discussions with the locomotive engineers and others and I would like to have a meeting with the railroads and the unions and see if there is anything that prevents us from making the law, perhaps, slightly more flexible so you can go 5 minutes longer, or do something to deal with this, or have an auxiliary engineer on that train so that it can reach its destination. Because, when an elevator has a 24-hour loading requirement, or whatever the requirement might be—and it's changed here in the last few months, two or three times—and they bring a crew in that probably already has worked a full shift, and that crew is there waiting for this train to arrive and they've been told to expect it, and then they sit there for several hours and they're being paid time and a half while your train is on a siding within sight, it is something that just drives that community crazy. They can't understand why the railroad is operating that way.
Mr. WEAVER. Congressman, I share your frustration. But the answer is with better planning on our part. I mean, we shouldn't be running it up to a 12-hour window. The reason the law exists, I'm sure, is for safety. And while this doesn't happen all the time, any time it happens and you can see the train and you have your crew standing by, the frustration level is unbelievable. And we try to get a crew out there as promptly as possible because not only do we have the train there, we have the locomotives, which I think is our real problem today is locomotives, locomotives, locomotives.
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Mr. MINGE. Well, I would like to explore with you, if that's what it takes, to see if there is some way that we can bring closure to this particular frustration, because it, of course, handicaps your ability to move grain.
I see my time is up.
Mr. BARRETT. Thank you.
If a letter of sorts is communicated, would you be kind enough to share it with the full committee on this matter of retaliation?
Mr. COLLIER. Yes.
Mr. WEAVER. Yes, sir.
Mr. BARRETT. We can make it a matter of the permanent record, then.
Mr. COLLIER. Alright.
Mr. BARRETT. Thank you.
The gentleman from Kansas, Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. We have a lot of issues in agriculture that we have dealt with this year in this Congress; many of them long-term. From my perspective there is no greater short-term crisis in Kansas agriculture, and perhaps American agriculture, than this issue we are talking about today. And yet, I'm frustrated to know what my options are as a Member of Congress; someone who's trying to take care of a constituency. Any suggestions about what role that either Congress or the Surface Transportation Board can or should play in resolving the issues that your railroads face today, and as a result of that what my farmers and shippers face as well? Mr. Collier or Mr. Weaver?
Mr. COLLIER. Congressman, I think there is two separate issues obviously related. One is the issue that was talked about in terms of the role of the STB in our current situation with the service interruptions. And that process is ongoing and they, obviously, have a very critical role in oversight to make sure that we are addressing issues as quickly as we can, and for them to intercede in any way that they feel they can accelerate that recovery. And that process, I think, is one that we've just got to let play out and we have an obligation to perform.
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In terms of the broader issue, the longer-term issue that's now impacting us about grain car supply, there are a number of forums that exist both in the public sector and commercial arenas to try to deal with that issue. The National Grain Car Council that was mentioned before is one that allows us to try to get those issues out on the table. Obviously, from a commercial arrangement, we deal directly with our customers on their concerns and how we can better serve their needs, and we have made progress in a lot of cases through those methods.
So, myself, I'm not clear what additional role Congress can play in dealing with those issues, but there are a number of places where the issue is being addressed.
Mr. MORAN. Well, you know, it's very frustrating for someone who wants to solve problems, as I assume you do, and certainly in the role that we have here in Congress, it's difficult to deal with people with real problems and no apparent solution other than to beg, argue, plead, request assistance that you provide service to your customers.
I look at this as a result of three things that has, or are, happening. The merger between Southern Pacific and Union Pacific; the magnitude of the harvest that we had, certainly in my State; and also a long-term trend that I see toward moving away from the country elevator toward the unit car train, the terminal elevator, and a desire on the part, I assume of the railroads, to intensify the locations—to consolidate the locations—in which they serve. Are there more factors in what I think is the cause of what we're facing today? Is that accurate?
Mr. COLLIER. Well, all those things I would say are contributing factors. We have a little different perspective, obviously, when you talk about the latter issue, and that is the consolidation, the movement of unit trains, movement to shuttles. We have found that as we've gone away from what was a system that tended to move grain in railcars from point of production into terminal areas and stored there under transit rules and then off, eventually, into the market, as we've moved away from that into sub-terminals like Colby, KS, and different places where we've been able to use the country elevators as satellites storage facilities for unit train loading stations and move shuttle trains to the market as the market wants them, we have been much more efficient, we have been able to do it at a lower cost and generally have taken care of the needs of the marketplace through those systems. So we think that's more the solution than the source of the problem.
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Mr. MORAN. Is there more of that solution out there or are we about done with that solution? Do you think that's the trend continuing? We'll see more and more larger elevators and the unit car train is just the standard way we operate?
Mr. COLLIER. I think it depends on the density of production. In a lot of areas we are where we need to be with those types of stations. An example: out in Wakeeney, KS, we just built, just this last year, two new facilities out that way—Wakeeney and Ogala—which were very efficient facilities. The industry felt they needed more of that capacity there. In other places we are probably sufficiently built. Nebraska is an example.
Mr. MORAN. I'm going to run out of time. Let me ask just quickly, you talked about the backlog. How do you decide what part of the backlog that you are going to solve. A couple of sub-questions, I mean, do you give priority to certain shippers, certain types of commodities? Is there a priority for grain or commodities that may perish? And is there a different fee? Do you make more money by hauling one type of commodity as compared to another type of commodity such that there is an incentive built into the process?
Mr. COLLIER. If you look at it between commodities, if you will, lines of business, there is no process where we allocate resources between those in a way that's predicated on profitability or some other priority other than the priorities that are set as part of the contractual arrangements that we have with those customers. Some types of shipments require a different transit—different characteristics of transportation—and so we will commit to that. But in general, we're after as much business as we can get over the long run.
In terms of grain car allocation, there is a process we use that is outlined in my written statement that talks about how we allocate cars among all the different uses. And we try to be, again, fair and equitable in that distribution and publish the rules so everybody can see how it is we're going to approach those situations. And generally, we follow those rules. So people have a fairly good idea of how we're going to go about it.
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Mr. MORAN. Are there reasons that you are solving problems in Texas and not Kansas; or solving problems in Kansas and not Texas? Are there pressures to do something different?
Mr. COLLIER. No. The problem is that source of our current congestion started in Texas and we felt that—we believe that—you've got to start with the source of the problem and fix it from there. So, we're working hard on all parts of the system, but a lot of it emanates from Texas.
Mr. MORAN. Mr. Chairman, thank you for my time. I do have a written statement that I would like to make a part of the record and it includes letters from our secretary of agriculture, our governor, the Kansas Feed and Grain Association that I'd like to have made part of the record.
Mr. BARRETT. Without objection, so ordered.
Mr. MORAN. Thank you, Mr. Chairman.
Mr. BARRETT. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. Thank you, gentlemen, for joining us today and trying as best as you can to respond to the questions that we have. You can understand the dilemma that we have. And sometimes, as my friend from Kansas alluded to, it's not an easily solved dilemma. We don't deal as directly with the UP as we once did, but of course, there are always connecting points in the railroad system in this country.
But, Mr. Weaver, we've dealt with your railroad at great length over the years and appreciate the good working relationship that we've had and your railroad's responsiveness to the specific concerns that we have raised at this level, and certainly in the State, and your willingness to come out and meet with our shippers at times.
I appreciate too that the investment that you are making—the capital investment—in more power and cars. It seems to me for some strange reason in the past we've had—the problems have been cars. And I think, it's also cars, but now its locomotives; this year at least. And the problem that we run into in terms of having cars spotted and loaded and then not having power there to pick them up is one that I know you are trying to address.
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But, again, I come back to the point that is sort of troubling to me about all this is—and I know and you mentioned in your statement that loadings are up and everything, and that that's attributable at least partially to the extraordinary harvest—but if you look at overall grain numbers in terms of the harvest this year, according to statistics we were furnished by the feed and grain folks this morning, it's not all that different. And yet, the problem—the car shortage, the power problem—seems to be more pronounced this year than it has in any year in my memory, in terms of the delay, the backlog. And, I'm just wondering if there are other reasons that you can give for that, and if there might be some way in which we can address those.
Mr. WEAVER. Congressman, you are correct. My own belief is that we came into this harvest with no excess capacity around. And, while we've always defined it as a ''car shortage,'' I think we're just getting more sophisticated; that it's not loading a car, it's moving the car, it's unloading the car and getting it back to origin. But if we look at all lines of our business, we are turning away customers, business, because of the economy. It's a blessing and a great frustration. And whether that be coal, intermodall, general merchandise, or grain, the economy is such, and the demands on our capacity are so great, that we come into a harvest and I think it hit us harder than we had expected.
We had also hoped to get a better move to the Lakehead this year than we had. Historically, from your area and from North Dakota, we've had pretty good programs at the Head of the Lakes. This year we moved a lot of wheat early. The wheat market is an unusual market and people were trading El Nino at the time; raised the price; farmers were willing sellers; and we loaded up a lot of wheat cars for the Lake-head and got this queue built up, and then beans came and that's where the real program's been. I didn't go into great detail, but there is plenty of demand for our soybeans, it's getting it around some of the other commodities.
The only thing that we know to do is to keep investing in assuming that this business is for real and will grow going forward. Rob Krebs has stated: One thing I'm going to buy enough locomotives until I don't have to ever hear that we have a locomotive shortage. If there is another problem, we'll deal with that one next.
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But it's remarkable the demands that are being put on us right now. And it's very frustrating when we are not able to make commitments to the customers that appeared before you today for us, because they are long-term customers and we are hurting their business and we recognize that.
Mr. THUNE. I would also hope that, again, it seems that one of the long-term trends in the industry is toward the economies-of-scale thing, and the whole notion of having an elevator which might have a—where you would get a tariff car, and now its costs and everything else. And the question was raised earlier today, and I think there are a lot of smaller elevators in my State that build units, sort of by a pooling arrangement—separating cars out, building unit train—and I would hope that the dynamics of the industry don't change to where that's sort of lost in the equation. I realize those are partially economics, but it sort of comes back to what Mr. Moran was asking, that was how do you prioritize where you'll go first. And he would like you to go to Kansas, we'd like to have you go to South Dakota. I mean we all have to deal with that.
And I also think too that we can improve a lot of this just by the communication that we have with the shippers. And, as I said, I think that's something that you have all worked. I'd be interested to hear comments that you might have to the statement that Mr. Graff made this morning about the UP. But, in my view, at least, a lot of this could be addressed by availability, accessibility, if they need somebody out there that can at least look them in the eye and tell them, this is what the situation is on a routine basis. I think that would go a long ways toward addressing some of the tensions out there. This is just an observation. Feel free to comment if you would like.
Mr. COLLIER. For the record, I would like to comment relative to the unavailability. We obviously have a lot of people in the field that call on people, Mr. Graff, and we pride ourselves on having relationships with our customers, and it's very disconcerting to me to have his perception be that we're not available. Some of us are not as available as we would like to be because of constraints on our time, but we have—at least I personally—have never turned down an invitation to meet with somebody. So, we will make sure that we followup and are available.
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Mr. THUNE. Thank you, Mr. Chairman.
Mr. BARRETT. The gentleman from Louisiana, Mr. Cooksey.
Mr. COOKSEY. Mr. Collier and Mr. Weaver, I grew up on the Burlington spur of the Missouri Pacific Railroad, at a sawmill, not at a grain elevator. I'm aware of some of the problems that your company has had with the merger, and I am a great believer in market forces and the free market system. I trust it more than I do a system that's affected by politicians and regulators. But, apparently, your company has had some significant problems as a result of this merger process. How much of an impact has that had on this problem that we've got with the current grain shipping shortage? And what are you doing to make this merger smoother, more effective, and ultimately, I hope, solve this problem?
Mr. COLLIER. Well, the way we're looking at it is—relative to the merger—is that, the full implementation of the merger, getting our labor agreements in place, getting the computer systems in place is the solution, not the problem. And, we've just got to get through that. We had a plan when we filed for the merger and went through that process that said it was a 2 to 5 year time frame, depending on the issues to get the merger implemented; and we're right in the middle of that now. You know, there is a considerable record in terms of our statements about how we have accomplished that and some of the areas where we have failed. But getting the merger actually implemented, and getting all that work done is really the solution.
Now, how much it has affected the grain car issue. We would be in this type of situation whether we had the merger or not. It is an issue of supply and demand and right now we have excess demand. It may not be quite as bad as it is right now, but it wouldn't go away just because of the merger—or that can't be identified as the root cause.
So we're working hard to overcome those issues.
Mr. COOKSEY. Who owns most of these cars?
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Mr. COLLIER. The vast majority would be owned by ourselves, either owned or leased—long-term leases. We've got, out of 33,000 cars, we've got about 8,000 that are private cars that we've internalized in a pooling arrangement, so the vast majority would be ours.
Mr. COOKSEY. Isn't there a method to allow private individuals to build, buy, and lease these? And if so, is that being done on a greater schedule, or on a faster track?
Mr. COLLIER. The issue is not so much whether we have enough cars or whether anybody would want to build cars, in our case, as Burlington Northern pointed out, we were storing cars this summer. And when you can only use a railcar for 6 to 8 months out of a year, it gets to be a very dicey equation for a shipper to go out and buy a car for only that kind of use.
So, the real issue we have to deal with is if were going to invest in a larger fleet, is what are we going to do with it for those 3 or 4 months out of the year when we're not using it.
Mr. COOKSEY. Last question. What does a car cost to build, and what do you pay per year to lease it?
Mr. COLLIER. A standard covered hopper car now is about $50,000 to $55,000. A monthly lease would be around $500 per month.
Mr. COOKSEY. Thank you, Mr. Chairman.
Mr. BARRETT. Thank you, sir.
In as much as we are expecting a 15-minute vote again, perhaps followed by two or three or more 5-minute votes, Mr. Minge and I will try to finish up very quickly, and we will then adjourn the hearing.
But, I can't help but think about the coal trains that go through my district—right through the plains filled to the brim. They come back empty. They are deadheading back. My producers out there are saying why in the world can't those cars be filled somehow with grain. Your comments?
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Mr. COLLIER. I think they are moving in the wrong direction. [Laughter.]
Mr. BARRETT. That's true.
Mr. COLLIER. In fact, we have used scenarios in year's past in moving wheat to the Gulf. I can remember one time when we used open topped cars. The risk is huge. The risk, as in putting grain on the ground is a significant risk and not one that's worth the economic potential loss.
Mr. BARRETT. It is possible?
Mr. COLLIER. It is possible.
Mr. BARRETT. But economically not feasible?
Mr. COLLIER. I think that would be accurate.
Mr. BARRETT. Thank you.
Mr. Minge.
Mr. MINGE. Well, I have a series of issues that I'd like to raise, and request a response from you. Is that possible, in terms of a written response.
Mr. COLLIER. Certainly.
Mr. MINGE. The first has to do with the merge charges and tariffs. We have heard repeated complaints today about how these are issues. They have not been the subject of some discussion or hearing. There is normally advanced notice which is appreciated, but there is not the opportunity for the shippers to discuss the problems that they face in trying to work with the tariffs, whether it be loading or other tariff provisions—demurrage charges. And they would like to have a process developed by the railroads where this is handled on the basis where it can be negotiated and there is a chance for that type of input before the tariff is released. And we don't have the ICC anymore, I'm not proposing to go to that, but I think that unless the railroads improve on this policy, there is going to be congressional—political—pressure to return to some of the ICC days.
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Second, with respect to the tariffs and demurrage charges, we have heard about the problems of symmetry, that the shippers are paying this if the cars are not filled on time and ready to be picked up by the locomotives; but on the other hand, if that train sits there, or that train is not moved to its destination in a timely basis, the railroad does not have a parallel damage that it is paying to the shipper. And we've heard from at least one elevator today that has a destination for that train and has a customer at the other end that's waiting for the train. It's not as if that's a train that can't be unloaded. And the train is still sitting on the siding waiting to be picked up.
We've heard about the turn times. I appreciate the fact that you can turn cars much more quickly, that we can load cars much more quickly, but we obviously are not turning those cars. As I understand it, it's like, there was a figure of 7 days to a turn on Kansas-originated freight in January, up to 17 days, now in October the same year. So, for the railroads to say that you don't have fast enough action at the elevators to use your cars efficiently, it's become clear here that in 1997, you are not moving your own cars as well as you did a year ago, and that that's a very substantial factor.
We have talked this afternoon about the problems that the shippers are expecting too much in the railroad, and you have to work with this merger problem with the Southern Pacific. Granted. But, as I understand the testimony that we heard today, the shippers didn't believe that you could provide the service in the fall of 1997. And the trade publications were saying that. And the railroad was saying we can. And you sold certificates of transportation and these other guaranteed car programs. The shippers invested in that. They entered into contracts with customers on the other end. They've purchased grains from farmers. And then, the cars weren't delivered, or they weren't pulled away.
So, I don't think the railroad's dealt in good faith with the shippers this fall. If you knew you were having problems with the computer system at the Southern Pacific stations, this is something you could have told your shippers, and these shippers could have planned accordingly. But they've been left out.
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And that leads to the problem of damages. How is the railroad going to treat its shippers fairly. When you do not move those cars, and the railroad is piling grain on the ground at 20 cents a bushel at a minimum, that's not the customary way of doing business. They don't want 20 cents a bushel extra cost. And if they can plan and avoid that, they will. That grain could be stored on the farm in many cases. And so the elevators ought to have the chance to do that, and if you are not providing the freight to say that liquidated damages is $150 a car, or $300 a car, or whatever the figure might be in your published tariffs, that is a limitation on damages which has left your customers holding the bag and taking tremendous losses.
With respect to the contact that your customers have with you. If you have an elevator that's doing $1.5 million worth of freight business—that's what they're paying you—I would think they would have a person they could call up any time of day or night and talk to them about the availability of service, rather than going through a voice mail and being placed on hold or disconnected. And I've heard from several elevators that have put in 110 car facilities, they can't talk to a live person at the railroad to find out what's going on. And it's both of your systems that their pointing to in this regard.
We have problems about the ability of elevators to determine whether or not they can invest in facilities. I have several elevators in my congressional district—cooperatives—that are on the verge of investing in 110-car facilities, at about $2 million per elevator. They see the service that is being provided here in the fall of 1997, they are very reluctant to invest $2 million because they can't recover that investment unless they have a commitment for service. And if I were providing, making a long-term investment, I would be looking for a contract on the other side that I could bank on. And if I can't bank on that contract, but I have a tariff that can be changed on, let's say, 90 days advanced notification; that's not something that you can build an elevator on. You could not get your banks to finance railroad expansion on something that would be as speculative as that, I guess. They're looking for a firmer opportunity for return on their investment.
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There are—I've been told to wrap it up here pretty quick. We have problems with shortlines; elevators on shortlines that can aggregate cars to produce 110-car trains. They are denied the tariff for 110-car train. Those short-line shippers are at a severe disadvantage. The value of their elevators is destroyed by that type of discriminatory tariff. And the Burlington Northern is the one that I've heard of where there's been that problem in the most severe fashion.
Finally, leased facilities. We have leased facilities on your railroad right-of-way, and these elevators may be making improvements. They need to know, can they purchase that leased ground and know that's their land so that they don't run the risk of being told you have to move that big concrete silo. I mean, that's crazy. And I've seen this negotiating process with the railroads, and it is unacceptable, I think, in 21st century America.
Again, I'd like to thank you for coming.
Mr. BARRETT. Thank you, Mr. Minge.
Thank you gentlemen for being with us. We appreciate your comments, your feedback. Chairman Morgan, thank you for sitting through this hearing, and also you are colleagues as well.
The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of the panel.
Without objection, it is so ordered.
This hearing of the General Farm Commodities Subcommittee is now adjourned.
[Whereupon, at 2:50 p.m., the subcommittee was adjourned subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
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Statement of Hon. Peter A. DeFazio
Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before the subcommittee today to express the concerns of the forest products industry arising from rail service problems in the Western United States. I want to emphasize that these service problems are being felt all over the United States. There has been a great deal of attention focused on the rail service crisis in Texas. I'm here to tell you that Oregon has also been seriously hurt by Union Pacific's service problems. The forest products industry in particular is uniquely reliant on rail transportation and is facing serious production curtailments.
Oregon shippers have experienced service delays, railcar shortages, and lost railcars which have led to devastating cutbacks in production and employee layoffs. These cutbacks are not because of a lack of product but are directly caused by the inability of shippers to get their goods to market. Every day I hear about more production facilities closing down or cutting back and with the busy Christmas season approaching I fear an even greater debacle. Oregon's rail service is a $400 million industry responsible for exporting more than 40 percent of Oregon's products. A healthy and productive railroad is an essential part of our state's economy. As the result of its merger with Southern Pacific, Union Pacific now controls 90 percent of the rail traffic generated in Oregon.
However, what concerned me most about the current service failure was the discovery that most of Union Pacific's customers in Oregon were afraid to speak out publicly about their service problems. In an effort to understand the impact of the service problem in my state, my staff has contacted a number of shippers who were quite critical of Union Pacific but were unwilling to talk ''on the record.'' This speaks to a long time concern of mine regarding the dangers that massive rail mergers in particular, and deregulation of this industry and many others in general, pose to U.S. consumers. It also harkens back to the earlier part of this century when railroad monopolies terrorized our nation. While I'm not suggesting the situation is identical or that the merger be re-opened, I do want the Board to know that there are many citizens who feel at the mercy of Union Pacific.
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While this is not the subject of today's hearing, I am also very concerned about Union Pacific's safety-related problems which have come to light in recent months. I have long been critical of the old Southern Pacific Railroad's safety record and spent many years urging the Department of Transportation to scrutinize the reasons for the numerous accidents and derailments that seemed to plague that company. I had hoped that with the merger, Union Pacific would better address these important issues. I was pleased when, earlier this fall, the Federal Railroad Administration (FRA) stepped up its inspections of Union Pacific and began taking worker complaints of fatigue and poor training seriously. It is unfortunate that railroad employees had to lose their lives before the FRA acted.
I believe that the Union Pacific's service and safety problems are directly related to the recent merger of the company with Southern Pacific. As part of the merger proceedings, Union Pacific laid off experienced Southern Pacific employees, shut down track lines, and failed to invest adequate resources in infrastructure improvements. Although Union Pacific management claims it did not anticipate the great burden of taking over Southern Pacific's infrastructure, many Oregonians, including myself, could have attested to the degraded condition of Southern Pacific's infrastructure prior to the merger. Following rail service problems in Texas, railcars were diverted from the Northwest, exacerbating the pre-existing Southern Pacific problems in Oregon. Last year's severe weather caused a system already operating under marginal conditions to deteriorate even further. All of these conditions should have been readily apparent to Union Pacific when it began merging the two railroads.
While cutbacks and layoffs may look good in the shortrun to stockholders, it is ironic that the great lengths that Union Pacific went to in order to satisfy its shareholders, have now caused such severe service problems that the company's stock has declined significantly. I would suggest that management place a greater interest in the long-term health of the railroad rather than the short term stock gains created by cutting costs and curtailing services.
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As the regulatory agency charged with overseeing rail mergers and the economics of the railroad industry, I also place responsibility for the current rail crisis on the Surface Transportation Board (STB). Last week I testified before the STB and asked the Board members to take action to alleviate the rail service crisis. I was disappointed with the STB's subsequent action which I feel is far too modest and only addresses problems in Texas. I specifically asked the Board to consider the serious problems in Oregon and do not believe that allowing trackage rights to two railroads in Texas is adequate.
The STB and the FRA need to take a more active role in the oversight of the railroad industry. The STB should act swiftly and boldly to alleviate the current service problems. The Board has the power to do it and should use it. Union Pacific's customers and U.S. consumers should not expect any less. If the STB continues to act tentatively, Congress should intervene with a legislative directive.
Rail Service Problems in Oregon
As I have stated, Oregon's Union Pacific customers are facing serious service problems which are causing plant shutdowns and layoffs and are at risk of losing their market share permanently. For the record I would also like to include the testimony given by Ms. Claudia Howells, Manager of the Oregon Department of Transportation's Rail Section before the STB on October 27, 1997 (Attachment A). I would also like to describe some of the conditions I have uncovered.
While all types of Oregon shippers have been impacted by the slowdown in service, most of Oregon's rail-dependant goods are forest or grain products. For example, Oregon is the grass seed capitol of the nation, with grass seed being Oregon's number two agricultural export. Barenbrug USA, a grass seed company based in the Willamette Valley, is experiencing shipping delays of 30 to 50 days. As a result of these delays, some customers missed the growing season entirely. Barenbrug, USA is a major economic presence in Oregon, last year shipping 100 railcars with about 15 million pounds of grass seed.
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Georgia-Pacific's mills in Fort Bragg, California and in Oregon at Coos Bay and Philomath were shut down the entire week of October 20. It is unlikely that the Philomath mill will be running this week either, because it cannot ship the inventory currently in its yard. Hampton's mill in Fort Hill, California has also been shut down and the company has curtailed production at a mill in Willamina, OR. Roseburg Forest Products in Winston, OR has stopped production in its mill every other week. Seneca Sawmill Company in Eugene has cut back production two hours per day, five days a week and has stopped taking any new orders.
I have also been told of production reductions at Burle in White City, Mednite in Medford, Umpqua Lumber in Round Prairie, DR Johnson in Riddle, Roseburg Forest Products in Riddle, and Glide Lumber in Wilbur. Recently, Crown Pacific laid off 111 workers from two mills in Prinevile and Gilchrist partly due to rail service problems.
These curtailments have contributed to substantial economic losses for these companies. Ms. Howells included statements in her testimony before the STB which estimate financial damages caused by Union Pacific's service problems to DR Johnson in Prairie City and Wallowa, Swanson Superior in Noti, Douglas County Forest Products, and Burrill Lumber Company in White City. These losses in turn has caused anxiety among the shippers' creditors, further evidence of the economic domino effect created by rail service problems.
In Grants Pass, OR Spalding's production has been cut back 20 percent and is only operating four days per week. WTD Treesource in Philomath is shut down indefinitely, an incident one regional forest products expert called ''the first such instance I can recall in more than 23 years observing this industry.'' WTD's Sedro Wooley facility in Washington State is down for three weeks. Weyerhaeuser's mill in Cottage Grove, OR may also soon have to curtail production due to lack of shipping capacity. Sun Studs in Roseburg, which ships wood products primarily to Pheonix, AZ, informs me that while it used to take 10 to 15 days for shipments to arrive, it now takes up to 30 days.
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These delays are damaging customer relationships, and mills are losing market share to Canadian lumber companies. For example, transit times from Seneca Sawmill in Eugene to Chicago have jumped from 15 days to more than 30 days, to Texas from 15–22 days to 30–45 days, and to Los Angeles from 12–13 days to 25–30 days. One Hampton customer in Richmond, CA has been waiting since September 12 for a shipment which was seen in Oakland on September 9, then in Portland on September 28, back in Oakland on October 6 and then in Washington State on October 24. Another Hampton delivery to the same Richmond, CA facility was loaded on July 9, tracked to Oakland on July 17 and then found in Green Bay, WI on August 9. Hampton resold the car at a loss (which was, to its credit, made up by Union Pacific).
A Seneca railcar sent to a customer in Camp Strake, TX on September 17 was last seen in Linwood, KS on October 21. Another railcar bound for a Seneca customer in San Antonio, TX was loaded in Eugene on September 18, was tracked to Tucson, and as of October 27 had no estimated arrival time.
Not only are shippers frustrated by delays in shipments already sent, they are anxiously watching production yards fill up with product already sold but which they are unable to ship. Seneca Sawmill in Eugene is 3 weeks behind on railcar loading, with its oldest unshipped order dated October 2. The on-ground inventory at this mill yard has tripled and it has become necessary to modify orders to fit available rail equipment. This has resulted in higher freight costs of $200 to $500 per car.
Many Oregon shippers do not have an efficient alternative to rail transit. Trucking forest products is difficult because of their unique characteristics. A rail car holds approximately the same amount of timber as three to four trucks. In addition to the higher expense of shipping agricultural products by truck, the cost of trucking goods has skyrocketed as demand has increased. Trucks normally charging $730 for a shipment from Eugene to the San Francisco Bay area are now charging $830 for the same shipment. From Eugene to Los Angeles, the price has increased from $1,125 to between $1,300 and $1,500. These increased shipping prices are now being reflected in increased consumer prices.
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The Christmas shipping season in Oregon is just around the corner and it looks like Union Pacific may just be ''The Grinch Who Stole Christmas.'' Oregon exports more Christmas trees than any other State. Most are sold during a 3-week rush starting in mid-November. This highly perishable product must be sold within 2 weeks of being cut. If service delays are not improved in the next few weeks, Oregon's important Christmas tree crop may be in danger.
Holiday Tree Farms, Inc. in Corvallis, OR sells 1 million trees a year. During the 1996 Christmas shipping season the company shipped 430 uniquely designed ''piggy-back'' trailers filled with Christmas trees to California and Arizona. These trailers, sized to fit on flat rail cars, allow Holiday Tree Farms to predictably and consistently deliver its product to customers. They cannot be delivered by truck. One day last year, the company loaded 55 cars with $500,000 in Christmas trees on one train for delivery to San Francisco and Los Angeles. This year the company has orders to fill 680 trailer loads. Continued delays to service in this corridor will jeopardize this industry. Promises of better service by January are useless.
Union Pacific customers are not the only Oregonians inconvenienced. Shortline railroads, which must rely on Union Pacific to move products out of southern Oregon, were 500 railcars short in September and expect a similar shortage in October. In addition, Amtrak's passenger rail service has experienced delays because of problems with Union Pacific's dispatching. Oregon is investing in upgrades to increase the speed of passenger rail and attract new riders and these efforts are damaged by Union Pacific's service delays.
I was first informed of the seriousness of these problems when some of my constituents began receiving sample letters from Union Pacific, with the suggestion that the letters be sent to the Surface Transportation Board. This sample letter, which I would like to submit as part of my testimony (Attachment B), states that Union Pacific's service problems have improved and the STB should not intervene. It asks that the letter be part of the public record of the recent STB hearing. When I testified last week at the STB hearing I suggested that the Board review these letters with the knowledge that they were generated by Union Pacific and, in my opinion, often under duress. I would advise the subcommittee members to do the same.
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My constituents felt that they were obligated to send these support letters or risk receiving even worse service. It is my understanding that the letters were circulated in response to a similar and opposing effort by competing railroads which should also be regarded with skepticism. Frankly, I find the effort wholly inappropriate and very alarming. Any citizen should be free to ask regulators for help without fear of retribution. With Oregon shippers almost completely reliant on Union Pacific, the company seemed to be resorting to monopolistic tactics.
Rail Safety Concerns
Just as Union Pacific is causing service problems, it has also been the source of many safety concerns. Earlier this year, the Federal Railroad Administration sharply criticized Union Pacific after the railroad experienced a series of major accidents resulting in seven deaths in just two months. According to the FRA, dispatchers and train crews were overworked and fatigued, train crews were being forced to operate trains with defective equipment, and there was widespread evidence of employees being harassed and intimidated into covering up safety-related incidents. These revelations reinforced my greatest fear regarding the Union Pacific-Southern Pacific merger—that Union Pacific would be no more concerned with safety than Southern Pacific. For years Southern Pacific had failed to provide proper maintenance and infrastructure improvements causing Union Pacific to inherit a deteriorated rail network in Oregon.
During the early 1990s I was active in rail safety issues relating to Southern Pacific Railroad. Following reports from employees at the railroad, I was shocked to hear that the FRA was failing to enforce basic safety regulations under the Rail Safety Act of 1970. In 1993, my constituents repeatedly asked the FRA to investigate a number of alleged safety violations by Southern Pacific. The FRA did not respond. When I asked the FRA to conduct an investigation, the agency complied with my request and later reported it has found numerous safety violations and had implemented appropriate corrective actions.
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However, serious violations continued to occur—a derailed car in the Eugene rail yard barely missed a tank car full of liquid propane, one area of track was in such bad shape trains were forced to slow speeds 11 times in a 140 mile stretch, and areas of track were coated with oil because of poorly maintained rolling stock. Later in 1993, a train derailed near Lowell, OR causing the release of toxic chemicals and the evacuation of a nearby school. At that point, I asked the Department of Transportation's Inspector General to intervene.
Part of the reason I did not oppose the Union Pacific-Southern Pacific merger was because I hoped that safety standards would improve under new management. However, Oregon transportation statistics show that Union Pacific trains derailed 27 times in Oregon during an 18-month period ending last June. Seven incidents involved colliding trains. While I am not aware of injury or fatality statistics for Oregon in 1997, I find the FRA's recent findings and Union Pacific derailment statistics very troubling. I agree with FRA Administrator Jolene Molitoris that the safety incidents are directly related to the merger. Cutbacks in staff and associated worker fatigue and lack of training have led to safety failures.
Safety concerns are so bad that recently the Oregon Department of Energy took the unusual step of asking the Department of the Navy to temporarily ban rail shipments of spent fuel on Union Pacific track. The Oregon Department of Energy recommended in a letter dated October 20, that no fuel should be shipped from Puget Sound Naval Shipyard to the Idaho National Engineering and Environmental Laboratory (INEEL) until after Union Pacific can sufficiently address current safety concerns (Attachment C).
I want to acknowledge and commend the recent actions by the FRA. However, I also believe that these actions should be the norm, not an extraordinary exception, and strong mandatory safety measures should be enacted into law. In fact, I have cosponsored legislation introduced by Congressman Jim Oberstar and Congressman Bob Wise, Ranking Democrats on the House Transportation Committee and the Subcommittee on Railroads, that would enhance safety enforcement by hiring more inspectors, reduce worker fatigue by setting more reasonable working hours, protect passengers by requiring safer rail cars, improve grade crossing safety and protect whistle-blowers.
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Although the FRA's recent actions are commendable, they should be routine. In addition to the problems I had experienced when dealing with the FRA in the early 1990's, a recent GAO report found that FRA's shift from a violation and penalty-based approach to a cooperative approach, with respect to enforcement of Federal safety regulations, has resulted in fewer inspections of the nation's railroads. The report follows criticism from the Department of Transportation's Inspector General that FRA inspectors did not ensure that railroads complied with safety standards or follow up to make sure repairs were made to equipment. This is inexcusable for an agency charged with protecting public safety and I'm hopeful that the FRA's new attitude will continue.
Recommendations and Policy Considerations
I am pleased that Union Pacific has acknowledged service and safety problems exist and has submitted a detailed recovery plan to the STB. However, this recovery plan is voluntary and does not have the weight that any action the STB required would have. In addition the STB's recent action is not adequate to address service problems in Oregon.
I support the recommendations of the Oregon Department of Transportation, which include increased monitoring and reporting, a capacity review and most importantly I ask the Board to rigorously review the operating plan Union Pacific submitted at the time of its merger with Southern Pacific. Union Pacific has admitted that it underestimated capacity needs and we should not assume that the company won't do this again.
Specifically, I have asked the STB to review Union Pacific's plans to close the Eugene Railyard, lay off several hundred railroad employees in Oregon and close the Modoc line which runs southeast through Klamath Falls. I believe implementation of these plans could be a serious mistake. Without the Eugene railyard, there would be no Union Pacific switching yard or maintenance facility between Roseville, California and Hinkle, OR. If the Eugene yard had been closed immediately following the acquisition of Southern Pacific, as originally planned, the current service problems would be even worse. Because Roseville is not yet completed, the Eugene yard has been picking up the slack generated by the overwhelming and unanticipated service needs. There is no evidence to show that similar problems would not occur again in the future. The former Southern Pacific employees at Eugene know how the system works and can best provide the service that Oregon needs.
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In addition, Union Pacific should not close the important Modoc Line. During severe winter weather—a common occurrence in the Pacific Northwest—the Modoc line serves as an alternate route to Union Pacific's mainline which runs through the Feather River Canyon in California and the line through the Columbia River Gorge, in northern Oregon. These two lines are vulnerable to washout and were, in fact, out of service during the 1996–97 winter season. With severe weather and flooding predicted for the upcoming winter, it would be foolhardy to close the Modoc line. Again, I refer the subcommittee to Ms. Howells' testimony before the STB. As Oregon's lead railroad expert she is most familiar with the unique needs of the forests products industry.
I have strongly urged the STB to use its regulatory authority to impose mandatory requirements on Union Pacific. It seems that the railroads are accountable to no one because the Board has been reluctant to take definitive action. The STB has the trust of the American people and Congress in its hands and if it does not take prompt and decisive action, my constituents and other Americans will be at the mercy of the an industry that has failed it miserably. We should be able to expect more from the Board as regulators; the STB should expect more from the railroads it regulates.
Statement of Linda J. Morgan
Mr. Chairman and members of the subcommittee, I am Linda J. Morgan, Chairman of the Surface Transportation Board (Board). I am here at the request of this subcommittee to discuss actions taken by the Board in connection with recent rail service problems in the West. My testimony will focus specifically on the proceeding recently initiated by the Board to examine rail service problems in the West; the hearing held by the Board on October 27, 1997, to focus on possible solutions to those problems; and the order issued by the Board on October 31, 1997, to address those problems.
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Background on the Board
The Board was established on January 1, 1996, as a decisionally independent, bipartisan adjudicatory body with jurisdiction over certain surface transportation economic regulatory matters. It was created by the ICC Termination Act of 1995 (ICCTA), which terminated the Interstate Commerce Commission (ICC) effective December 31, 1995; authorized the Board through fiscal year 1998; eliminated various functions previously performed by the ICC; transferred licensing and certain non-licensing motor carrier functions to the Federal Highway Administration within the Department of Transportation (DOT); and transferred remaining rail and non-rail functions to the Board, with significantly reduced budget and staffing levels.
The Board has a staff of roughly 135 individuals, a budget of approximately $15.8 million, and a steady caseload of about 500 pending matters. The Board is headed by Board members appointed by the President and confirmed by the Senate. The Board is authorized to have three members, each with a 5-year term of office. The Board's Chairman is designated by the President from among the members. The Board's current members consist of myself and Republican member Gus A. Owen, who serves as Vice Chairman.
The Board adjudicates disputes and regulates interstate surface transportation under various statutory provisions pertaining to the different modes of surface transportation. In this regard, the Board's general responsibilities include the oversight of firms engaged in transportation in interstate and in foreign commerce to the extent that it takes place within the United States, or between or among points in the contiguous United States and points in Alaska, Hawaii, or U.S. territories or possessions. Surface transportation matters under the Board's jurisdiction in general include railroad rate and service issues, rail restructuring transactions (mergers, line sales, line constructions, and line abandonments) and labor matters related thereto; certain trucking company, moving van, and non-contiguous ocean shipping company rate matters; certain intercity passenger bus company structure, financial, and operational matters; and certain pipeline matters not regulated by the Federal Energy Regulatory Commission.
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The Board's Proceeding
In late summer and early fall, the Board became aware of railroad service problems in the western part of the country through formal filings submitted to the Board, public accounts, and, more recently, informal communications made to the Board's Office of Compliance and Enforcement by affected persons and entities about specific service problems. These rail service problems most recently have involved severe congestion on the lines of the Union Pacific and Southern Pacific railroads (UP/SP).
In response to the information that it had gathered, on October 2, 1997, the Board on its own motion initiated a proceeding, STB Ex Parte No. 573, and announced the scheduling of a public hearing on October 27, 1997, in Washington, DC. The hearing was set up to provide the public the opportunity to report on the status of rail service in the western United States and to review proposed methods, both governmental and non-governmental, for solving existing rail service problems, particularly with respect to the UP/SP system. The objective of the proceeding is to focus on the immediate resolution of those problems.
In connection with this hearing, the Board also directed UP/SP to provide certain information on its service that would allow the Board and interested parties to monitor UP/SP's service problems. Specifically, the Board directed UP/SP to present the 12 categories of information that the carrier had suggested it could provide, but also to present an additional 7 categories of information that the Board found necessary as benchmarks for determining service levels and improvements. This information relates to rail yard and terminal activity, siding congestion, locomotive availability, and car utilization. To give other participants in the October 27 hearing an opportunity to review UP/SP's information, the Board directed the carrier to file weekly reports beginning on October 20, 1997.
The Board's Hearing
On October 27, 1997, the Board conducted a 12-hour oral hearing, during which the Board received testimony from over 60 witnesses, and in connection with which the Board amassed some 500 pages of submissions. These witnesses included the UP/SP, the Burlington Northern Santa Fe (BNSF), Kansas City Southern and the Tex Mex Railway (Tex Mex), the Department of Agriculture, the Federal Railroad Administration (FRA), various agricultural shipper representatives, representatives of agricultural states, as well as a variety of smaller railroad interests, labor representatives, other shipper parties, and other state and local entities.
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The written and oral testimony outlined in vivid detail the recent rail transportation problems in the West, principally involving—although not limited to—the services provided by UP/SP. Shippers from California to Oregon and the Midwest to the Texas Gulf testified about the difficulties they have had in moving, and sometimes even locating, their freight, and about the resulting negative economic impact on their businesses. Operators of rail passenger services testified about the difficulties they were facing in their efforts to achieve on-time performance in California and the Gulf region. Short line railroads testified about the difficulties they have had in moving their cars over UP/SP and in recovering empty cars already in the UP system. And Members of Congress, along with state and local government agencies, testified as to the commercial problems that have accompanied the service failures of the railroads serving the western part of the country.
UP/SP has acknowledged its service failures, but it asserted at the hearing that government intervention was not necessary. Rather, its position was that its own ''service recovery plan'' that it recently initiated had begun to take effect, and that the crisis was beginning to abate. UP/SP expressed its fear that government intervention could only interfere with its own efforts to resolve the service problems, and could aggravate rather than ameliorate the crisis.
The views of the other interests participating in the hearing were varied. Although some of the participating shippers expressed skepticism about the near-term impact of UP/SP's recovery plan, many of the shipper and other interests commenting in connection with the hearing appeared to share UP/SP's view that its recovery plan should be allowed to work without governmental intervention. Agricultural shippers in particular expressed concern that any Board action enlisting the services of another carrier, such as BNSF, to help resolve the UP/SP service problems might erode the services already being provided by that other carrier. The Department of Agriculture expressed similar concerns and suggested that the Board continue to monitor UP/SP's progress closely for an additional period of time before taking action, and that the Board require additional monitoring information from UP/SP targeted at services provided to agricultural shippers.
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Similarly, the FRA and the United Transportation Union (UTU) supported UP/SP's statement that the situation was improving, and expressed concern that injecting new carriers into the mix in the West could reverse that improvement and could pose potential safety concerns. Like shippers that participated in the hearing process, the FRA and UTU urged the Board to devise contingency plans, but to give UP/SP an additional period of time (30 to 60 days) before acting to see if UP/SP's service recovery plan in fact produced tangible results.
By contrast, other shipper and railroad interests suggested plans for immediate Board intervention. The suggestions ranged from short-term rerouting measures designed to relieve the pressure on particular lines or yards, to more expansive plans for replacing UP/SP with other carriers to operate various services, to more long-term ''open access''-type proposals that would fundamentally alter the way in which railroad service is currently provided.
In particular, on October 21, 1997, three shipper groups—The Society of the Plastics Industry, Inc., The National Industrial Transportation League, and the Chemical Manufacturers Association—filed a petition asking the Board to issue an emergency service order. Although these petitioners did not propose a specific plan, they asked, in general, that the Board provide increased access by other railroads in congested areas, a request supported by certain other rail carriers in the region.
The Board's Order
The provisions of 49 U.S.C. 11123 authorize the Board to issue emergency service orders whenever it determines that any ''failure of traffic movement exists which creates an emergency situation of such magnitude as to have substantial adverse effects on shippers, or on rail service in a region of the United States.'' Service orders, which may not exceed 30 days initially, but which may be extended for an additional 240 days, authorize the Board, among other things, to
(1) direct the handling, routing, and movement of the traffic of a rail carrier and its distribution over its own or other railroad lines; (2) require joint or common use of railroad facilities; [or] (3) prescribe temporary through routes.
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The Board found that the comments and testimony that it received, particularly concerning the impact of UP/SP service problems, clearly demonstrated that an emergency exists, and that it has had substantial adverse effects on shippers and on rail service in a broad region of the United States. Therefore, the Board decided that it had to take action to facilitate the resolution of the emergency.
Several of the shippers at the hearing indicated that they had seen no improvement in recent weeks, while other shippers indicated that they had noticed recent improvements. The Board recognized that the effects of UP/SP's plan would not be felt by all shippers evenly; thus, notwithstanding the experience of some shippers, it found no reason to doubt UP/SP's statement that its service recovery plan is beginning to take hold. Therefore, the Board found no basis on which to supplant UP's services, or its managerial control, with those of another carrier or group of carriers. However, even if UP/SP's plan is gradually breaking the logjam, the Board projected that surges in grain and seasonal traffic would impose new strains on the carrier's services. Therefore, it concluded that the recovery effort needed to be more aggressive than that proposed by UP/SP and that the Board needed to act to supplement UP/SP's recovery plan.
At the same time, the Board shared UP/SP's concern that any remedy that it directed involving other carriers should not unreasonably impede UP/SP's own efforts to mitigate the crisis. The Board also shared the concerns of many of the hearing participants, particularly agricultural shippers, that any Board order not undercut service being provided by other rail carriers in the region. Thus, it decided not to impose many of the more intrusive measures that were suggested, but instead to use Tex Mex to divert some traffic off of UP/SP and away from Houston. Given the concerns expressed by many shippers at the hearing about BNSF's own service inadequacies, the Board sought to impose remedies that would not materially tax BNSF's resources. Additionally, the Board imposed other requirements to address specific service matters.
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A summary of the measures the Board imposed in STB Service Order No. 1518 follows:
1. Tex Mex to Serve Houston Through HBT and PTRA. It was evident from the record that the genesis of the problems in the West is the congestion at Houston, and that any assistance that can be provided in alleviating the congestion at Houston would likely have a salutary effect on UP/SP's service generally. To relieve pressure on UP/SP particularly in and out of Houston, and to facilitate the movement of traffic out of Houston, Tex Mex was authorized to accept traffic routed to it by Houston shippers that are switched by the Houston Belt Terminal Railroad (HBT) and the Port Terminal Railroad Association (PTRA). UP/SP was directed to suspend the service contract obligations of all shippers at Houston that wish to route shipments over the Tex Mex instead.
2. Tex Mex Trackage Rights. To mitigate the significant congestion over UP/SP's ''Sunset Route'' out of Houston toward the West, Tex Mex was authorized to utilize trackage rights over the Algoa route south of Houston, between Placedo, TX and Algoa, TX (a distance of 118.8 miles). In this connection, the Board required BNSF to grant Tex Mex trackage rights over its portion of the Algoa route.
3. The Caldwell to Flatonia Line. To facilitate rerouting of traffic around Houston, UP/SP was required to maintain in effect its temporary grant of trackage rights to BNSF via the Caldwell-Flatonia-Eagle Pass line, and to permit BNSF to interchange Laredo run-through traffic with Tex Mex at Flatonia if BNSF desires to do so.
4. Track Access. To help expedite operations, the Board required UP/SP to facilitate the existing operations of BNSF and Tex Mex in the Houston area, and to maintain open use of mainlines and sidings on the Houston-to-Memphis and Houston-to-Iowa Junction routes.
5. Augmented Reporting. To facilitate efforts to measure the progress of the recovery effort, the Board directed UP/SP to augment its current weekly reporting by providing several categories of additional information, including information on movements of grain suggested by the Department of Agriculture and other agricultural interests; coal; and terminal information for West Colton Yard in the Los Angeles area. In particular insofar as grain is concerned, as recommended by the Department of Agriculture, UP/SP is to provide specific information on the placement of empty grain cars in each of the eleven-state grain producing areas; to provide shipment times for wheat from Kansas to the Gulf Coast; and to provide shipment times for corn shipments from Nebraska to Pacific Northwest ports.
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6. Illinois Central. To better evaluate all potential solutions, the Board directed UP/SP to respond, by November 14, 1997, to the suggestions made to it by Illinois Central Railroad (IC) as to IC's suggested measures to assist UP/SP's service recovery.
7. Specific Shipper Complaints. The Board directed UP/SP to report, by November 14, 1997, on what it has done to address the specific service concerns raised by each of the participants in the October 27 hearing.
8. Anticipated Traffic Increases. To address potential new service issues, the Board directed UP/SP and BNSF to report, by November 14, 1997, on their respective plans for meeting increased holiday service demands and increased service demands associated with the imminent grain harvest.
9. Passenger Issues. To address issues concerning problems with transit times on passenger lines operating over UP/SP, the Board directed UP/SP, Amtrak, and the Southern California Regional Rail Authority to file a joint report on the progress made at their scheduled meeting, in which each shall indicate its view of whether, in light of the meeting, unresolved issues remain, and if so, what type of Board involvement, if any, each suggests.
10. BRGI. In response to a request to expedite the handling of border traffic, the Board required UP/SP, to the extent possible, to facilitate the operations between Texas and Mexico of the
Brownsville and Rio Grande International Railroad.
11. Further Actions. The service order, by its terms and in accordance with the law, will expire in 30 days (from the order's effective date of November 5), unless extended. In this regard, the Board will hold a hearing on December 3, 1997, at which UP/SP will address the progress it has made in relieving the service problems on its lines, and after which the Board will determine whether extension of its service order is required and whether additional actions by the Board are necessary.
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Summary
I appreciate the opportunity to discuss with the subcommittee the actions that the Board has recently taken to address the rail service problems in the West. I believe that the Board's order is significant, timely, and constructive, and is a balanced and reasonable approach that reflects the record compiled by the Board. Additionally, the Board's actions to date reflect many of the concerns raised by the agricultural community at the Board's hearing. In particular, the order provides for relief in the system without taxing BNSF's service; it provides for increased reporting, particularly with respect to agricultural movements, to ensure appropriate monitoring of rail service in the West; and it directs UP/SP and BNSF to submit plans as to how they will provide the service required to accommodate the impending grain harvest. Furthermore, the order makes clear that the Board will continue to be actively involved to ensure that the service problems are resolved.
Statement of Michael V. Dunn
Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee and commend you for holding this hearing to address railroad transportation problems that are currently being experienced by agricultural shippers in the Western United States. This is indeed the most serious crisis facing our Nation's railway system since passage of the Staggers Act in 1980. Accompanying me today is Thomas O'Brien, Acting Administrator of the Agricultural Marketing Service (AMS), and James Baker, Administrator, Grain Inspection Packer and Stockyards Administration (GIPSA).
Mr. Chairman, almost daily over the past 6 weeks, news accounts have documented the seriousness of the railroad service problems currently being experienced by agricultural shippers in the Western United States. These accounts have indicated that:
recently harvested grain in many states in the Midwest and the Pacific Northwest regions of the United Stated is being stored on the ground because of western railroad transportation problems;
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that Union Pacific and Southern Pacific (UP/SP) service problems are causing delayed deliveries to some meat and poultry processors;
that lower and upper plains grain shippers cannot ship their grain and are at risk of losing their crops because of railroad service problems;
that elevator operators are generally frustrated by the inability of railroads to move the grain crop; and
that agricultural shippers are concerned about the ability of U.S. farmers to satisfy foreign demand because of railroad service problems.
Earlier last week I appeared before the Surface Transportation Board (STB) which held a forum to examine rail service problems in the western part of the United States. I would like to provide a copy of my submitted statement before the STB on October 23, 1997, to be inserted for the Record.
For some time now, USDA has been receiving information on the severity of the western railroad services problems. We have been contacted frequently by agricultural shippers and community officials from the West and Midwest, complaining about poor rail service and the shortage of rail cars.
During this period, USDA has also been actively engaged in soliciting and receiving input from agricultural shippers about the effects of the current UP/SP operating problems. We held ''listening sessions'' in Dodge City and Wichita, KS, on August 7 and 8, 1997, where agricultural and rural shippers and local officials had the opportunity to present information on the adequacy of rail service. At both sessions, shippers focused on the poor service from the UP/SP and the lack of effective alternate rail competition.
Grain car loading data from recent weeks show the seriousness of these problems. Since September, the western railroads—-Burlington Northern Santa Fee (BNSF), Union Pacific Southern Pacific, and Kansas City Southern (KCS)—-have averaged just over 16,273 car loadings of grain per week. This is 21 percent lower than the level the western railroads managed during the severe 1995 grain car shortage problems.
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USDA is particularly concerned about the impact of these service problems as the feed grain harvest in the western cornbelt and southern plains enters its final stages. These regions account for more than one-half of all U.S. corn production and more than 90 percent of all sorghum production. The USDA crop progress report for the last week in October indicates that there is still a substantial amount of grain to be harvested, particularly in these areas which have been the hardest hit by service problems and are the most dependent on rail service. More than one-fourth of the corn and sorghum crops in these regions remain in the field. This amounts to 1.5 billion bushels of feed grains that will have to move to market or into storage as these crops are harvested, further increasing demand for rail transportation in those areas which are already experiencing problems. Extended storage of this grain outdoors could cause serious deterioration in its quality and value. Further compounding these problems are those brought on by the blizzard that hit the western plains in late October. Snow-related problems further complicated the already difficult rail transportation and crop storage situation. The current difficulties affecting livestock and poultry feeders are likely to escalate sharply in the weeks ahead if rail shipment disruptions and congestion do not ease. Clearly, Mr. Chairman, this is an extraordinary crisis calling for extraordinary responses by all parties.
USDA Response to Western Railroad Problems
USDA is greatly concerned about the impact of operational difficulties of the western U.S. railroads and the ability of agricultural producers to market their products. To deal with these problems, USDA is taking a number of actions to improve the ability of the western railroads to address their current operating difficulties. To ensure that the Federal inspection of rail shipments does not increase car cycle times, USDA is adopting several measures to provide better and more Federal grain inspection service to domestic railcar shippers. These measures include: (1) the development of onsite inspection services, whereby inspection services will be provided at carloading locations from mobile inspection labs by USDA personnel; (2) electronic certification, whereby a computerized system will allow inspection certificates, issued at several widely scattered points, to be delivered to the company's main office within hours of the completion of the service; (3) relaxed equipment requirements, where grain loaded onto railcars may be inspected using USDA-approved equipment that is owned by the grain elevator; and (4) batch grading, which effectively reduces the number of cars to be inspected in a unit train by up to 80 percent.
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Also, USDA is taking a number of actions to reduce the harvest-time pressure to move grain off farm. To deal with this year's harvest, for instance, we are allowing warehousemen in federally-licensed facilities to use emergency storage for grain owned by the Commodity Credit Corporation (CCC) of the USDA or for grain held by CCC as collateral under commodity loans to producers. USDA is generally allowing emergency storage upon request from harvest through January 31, 1998, although emergency storage in the Pacific Northwest has only been approved to December 1, 1997. And finally, where firms are having difficulty meeting their supply commitments to USDA because of the current rail problems, we are granting penalty-free extensions, when appropriate, upon written request.
USDA Proposals Regarding Western Rail Service
At last week's hearing before the STB, USDA offered two specific proposals for STB consideration in addressing the current western rail service problems. These proposals are based on USDA's strong belief that rural agricultural shipments shall not be forced to bear the brunt of service recovery on the UP/SP in favor of other types of traffic on which the UP/SP faces greater competition.
USDA concern over UP/SP service to agricultural traffic is based upon the previously described service disruptions which agricultural shippers are enduring and a review of UP/SP's Service Recovery Plan. In this plan, the UP/SP offered no specific information as to minimum levels of service it would maintain to agricultural shippers during the recovery period. This lack of attention to agricultural shipments is conspicuous in light of several initiatives the UP/SP is taking to accommodate coal and intermodal traffic.
Specifically, to ensure that rural agricultural traffic is afforded a minimal level of service from the UP/SP during the recovery period, USDA recommends:
First, STB already requires the UP/SP to provide weekly system-wide operation information so that the operating condition of the carrier can be monitored. USDA requests that the STB also require the UP/SP to provide the following weekly indicators of UP/SP service to agricultural shippers: (1) placements of covered hopper cars for grain loading by state, (2) car velocity times from Kansas to the Gulf for export wheat shipments, and (3) car velocity times from Nebraska to Pacific Coast for export corn shipments. Such data would allow USDA and other agricultural interests to monitor the extent to which rail service is improving to UP/SP agricultural shippers.
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Second, should UP/SP service to agricultural shippers continue to be inadequate, USDA recommends that the STB use its emergency powers under 49 U.S.C. 11123 to direct the handling, routing or movement of traffic so as to improve the level of service being provided to specific agricultural shippers. USDA requests that the STB exercise such emergency powers when agricultural shippers currently being served by the UP/SP have identified alternative rail service providers that are able to serve them. The STB should ensure that such alternative service does not compromise recovery of the UP/SP under its recovery plan. Because many agricultural shipments originate at locations removed from UP/SP main lines, USDA believes that there are a number of locations at which such directed service by the STB would result in at least some service to UP/SP agricultural shippers with a minimum or no disruption to the UP/SP recovery.
Conclusions
The interest of USDA in this hearing and the STB proceeding stems from the fact that rail service is critical to the economic well-being of this Nation's agricultural and rural economies. Agricultural shippers generally have limited access to alternative providers of transportation services because many shippers are located beyond effective trucking distances from their markets and far from available waterway transportation.
USDA is especially concerned about the impact of railroad service problems on the future ability of agricultural producers to market their products. Legislation enacted in 1996 decreased the importance of the traditional farm support programs and increased reliance on marketing opportunities in the determination of farm income. For this reason, USDA believes that adequate railroad transportation services are essential for agricultural producers to take advantage of domestic and international marketing opportunities in the future.
Our comments reflect extensive input from rural and agricultural shippers gained through listening sessions on the adequacy of railroad services and meetings that were held with major farm organizations. USDA is taking several specific actions to improve the efficiency of Federal grain inspection services, to mitigate the impact of harvest-time volumes on the immediate demand to move grain, and to allow suppliers under contract with USDA to delay delivery without penalty.
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Above all, USDA hopes that STB policies resolve the current operating problems of the western carriers by promoting a balanced recovery from these service disruptions for all shippers, but especially those rural agricultural shippers who have no practical alternatives to rail.
Statement of Drew R. Collier
My name is Drew Collier and I am vice president and general manager of agricultural products for the Union Pacific Railroad. Agricultural Products, which includes Grain and Grain Products, represents approximately 15 percent of the overall annual revenue to the Union Pacific or nearly $1.5 billion. I have had responsibility for this area since 1989 and have been with the Railroad since 1978.
I appreciate the opportunity to address this committee on the issue of grain car availability. There are several issues which I believe are important to consider as part of the review of grain car availability, including: UP's Grain Car Allocation System, UP's Grain Car Fleet, Productivity Incentives for Unit Trains, Impact of Service Interruptions, Current Status of Grain Car Orders and Future Expectations, Improvement Opportunities
I believe it is important to first set the stage by putting this issue into context. All those involved in the marketing of grain (the railroads, grain merchandisers, farmers, et cetera) all share the same goal, that is the efficient, timely movement of grain from point of production to point of consumption. The economic value of the grain is realized and the railroad makes money only when that occurs. Accordingly, our goals at the Railroad are set around moving the greatest volume of grain cars in the most efficient manner to serve the consumptive needs of the grain market. We view grain as part of our core business and intend to be a long-term supplier to the grain industry.
In spite of the commonality of goals, the issue of grain car availability has always been a source of contention between the railroads and the grain industry. The root causes are well known and easy to understand: grain is produced seasonally, market forces tend to compress demand for transportation into peak periods, and yet the asset base supporting the movement to market (farm storage, elevators, grain cars, rail and barge capacity, etc) need to be justified on an ongoing, year round basis. While the tension between these forces is easy to understand, the issue does not lend itself to simple solutions. We believe, however, that we have made progress in many of the areas impacting this dilemma. The issues that I will touch on will offer support of this progress.
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UP's Grain Car Allocation System
The Union Pacific established the current Grain Car Allocation System (GCAS) in October 1996. The details of this program are attached as exhibit A. In general terms, the allocation program has four methods for our customers to secure grain cars.
General Distribution is a systematic allocation of grain cars based on a sequential application to registered shipping facilities, allowing cancellation without penalty, offering no guarantee of placement.
Guaranteed Freight Pool is the internalization of private grain cars resulting in a guaranteed placement of empty grain cars for loading, with secondary market flexibility, allowing the customer to trade or sell its car supply commitment to others.
Contract Trains are shuttle or cycle trains of 75 to 100 cars in length that are under contract to a specific customer for a specified time frame.
Car Supply Vouchers offer the guaranteed placement of grain cars at a future period, based on a bid process, with secondary market flexibility.
Since this program was established last fall, it has met with acceptance and support from the majority of our customers. It is intended to provide a fair and equitable distribution of grain cars during times of excess demand, while also providing market based tools for allocating grain cars to the highest and best use. Our experience through the peak demand period starting last October indicates GCAS was successful in accomplishing this. It is our intention to retain this program as we move forward, while recognizing that no allocation system for grain cars will be universally accepted, particularly when demand greatly exceeds the available supply of cars.
It is important to point out that the secondary market flexibility for both Vouchers and Guaranteed Freight Pools adds a significant dimension to the planning process for our customers and their management of grain car supply. These tools, which did not previously exist on the Union Pacific, provide a grain shipper with important risk management tools for ensuring grain cars are available when market conditions support the movement of grain. This secondary market has been widely used by our customers and has become a critical element of their planning process.
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UP's Grain Car Fleet
The Union Pacific maintains a fleet of approximately 33,000 grain cars. The normal velocity of the fleet has been approximately 1.4 turns per month. At this velocity and fleet size, we expect to be able to meet the demand for grain cars in all but the peak harvest periods and expect to have several thousand cars in storage for a few months each year.
Our experience with the combined UP-SP system, starting last fall, indicates that this grain car fleet is adequate. We were able to keep up with demand during the fall harvest last year and by the first of the year were meeting all demands. As the year progressed we moved cars into storage, which peaked at nearly 9,000 cars during the early summer prior to wheat harvest. While it is difficult to portray the last crop year as normal, I believe the majority of our customers would say we met their needs for grain cars from October through March, the normal peak volume period. On the other hand, having an asset base of 9,000 cars or $450 million sitting idle was very concerning and raised many questions within the Union Pacific regarding proper fleet sizing.
The most significant leverage we have on the availability of grain cars, at least in the short term, is velocity. At the normal average turns of 1.4 per month we can expect to meet demand. As this velocity falls the overall availability is dramatically decreased. Our current turns are closer to 1 per month, resulting in a 40 percent reduction in car availability. I will address this in more detail in the Impact of Service Interruptions. On the other hand, shuttle trains in normal conditions can achieve 3 to 4 turns per month, generating significant improvements in effective car supply versus the normal average turns. We believe under normal operating conditions, working with our customers, we can improve the overall average velocity of our grain car fleet and dramatically improve grain car availability. I will address some of those in Improvement Opportunities.
Productivity Incentives for Unit Trains
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One of the issues that impacts grain car availability is the growth in unit trains versus smaller units or single car shipments. Our approach to this issue has been to share the productivity gains from these more efficient unit trains through rate incentives. Our customers can then decide whether the incentives offered justify the capital investments necessary to obtain the incentives. It is not our intention to eliminate all but unit train shipments, and we will continue to serve smaller elevators. On the other hand, we do expect the market, particularly on the receiving side of the equation, to move rapidly to unit train handling capability. As this occurs, the market for smaller shipments or single cars will naturally shrink, making it more difficult to compete. This is the nature of the economies of scale that drive all commercial activities.
We believe, if properly managed, this movement to more efficient, lower cost transportation alternatives will result in more value available for everyone in the supply chain. Additionally, we can move more grain to market when it is needed. To ignore these economies by maintaining pricing structures that support the least efficient unit size will only decrease the competitiveness of U.S. grain in the world market place.
Impact of Service Interruptions
The service congestion and interruptions we have experienced since July have been well documented, both in the media and in regulatory forums. I will not attempt to recover this ground, but will state the obvious, that these service interruptions have dramatically slowed the average turn time of our grain car fleet and therefore, grain car availability has decreased. Our average turn times have been reduced by nearly 40 percent , and we have had grain trains sitting for extended periods. In spite of our desires and efforts, we are not meeting our customers' needs or our internal goals for the movement of grain.
While not to minimize the impact we have had on our grain customers during this period of service interruptions, it is most important to address what we are doing about it and when we expect to be back to normal. Our Service Recovery plan has also been well documented, as outlined in exhibit B attached hereto, and I will not cover it again here, other than to point out those issues that relate specifically to grain movement.
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The temporary postponement of several segments of our traffic base has allowed us to redeploy locomotives to grain movements. We have recently increased the number of locomotives in grain service by nearly 60 percent in an effort to move more grain trains. As our Service Recovery plan continues to free up more locomotives we will continue this redeployment to grain until our fleet velocity is up to normal levels.
We have also diverted some of our grain trains to other carriers in our most congested corridors. Most notably, the KCS is handling unit trains for us between Kansas City and the Texas and Louisiana areas. While resulting in marginal economics for us, this diversion strategy has been effective in allowing us to move more grain trains in these congested corridors. We plan on continuing this arrangement until we are back to normal service levels.
Finally, the Service Recovery plan will produce a greater velocity for all of our assets, including grain cars, as we return to normal levels of operations. This should allow us to significantly increase the availability of grain cars for loading for all of our customers. We have seen improvement in overall velocity with many of the key terminals and corridors returning to normal levels already. This recovery process is being documented weekly in reports to the Surface Transportation Board, and is also made available directly to our customers so they can track our recovery.
Current Status of Grain Car Orders and Future Expectations
As of November 3, 1997, we are late on delivery of approximately 12,000 guaranteed cars and over 30 days behind in filling grain car orders in general. To put this into perspective, attached as exhibit C, is the current report to the Surface Transportation Board on our Recovery Plan, including grain car loadings by state. Based on our current Service Recovery plan, we will continue to improve grain car availability and would expect to make considerable progress over the next 60 days in working off this backlog.
Of critical importance in looking at this backlog of grain car orders will be to address the issue of grain stored on the ground. Ground storage is not an unusual situation during harvest in many of the areas we serve. In fact, it is often part of overall storage strategy for many of our customers, particularly during times when the market is carrying the grain, i.e. the future value of the grain is more than its current price plus inventory costs. Properly prepared and stored, ground piles can be a long-term storage option. Unfortunately, many of the ground storage situations we now face may be a result of short term decisions based on the expected arrival of grain cars. Some of these expectations may have been optimistic based on normal conditions, and now with the backlog, appear to have created crisis situations. We will have to be cognizant of these situations as we work off this backlog of orders.
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As we complete harvest and the grain goes to storage, either on the farm, in elevators, or in properly prepared ground piles, the pressure on grain car availability should decrease, particularly since the market appears willing to carry the grain until later in the crop year. Combined with our Service Recovery efforts and increased availability of grain cars, we would expect that by the first of the year we will have supply and demand in a reasonable balance.
Improvement Opportunities
While we as an industry have made progress in many areas, opportunities for improvement still exist. Many of these ideas are being dealt with directly with our customers or are being addressed in industry forums or through the National Grain Car Council. I will touch on a few of these opportunities.
Communication
We have developed many communication vehicles to share information regarding grain car availability with our customers. The national grain car scorecard being developed by a sub committee of the National Grain Car Council or information available on railroad websites on issues impacting car availability, are just two examples. As railroads, we need to find ways to better communicate with our customers on issues such as notification of placement of empty trains, estimated times of arrival, and when we will fill car orders. We continue to work on these areas and are dedicated to improving. As we deal with our customers and other constituencies, we have found that when the issue of grain car availability is dealt with in terms of economics and facts, in lieu of emotion and rumors, it becomes much more manageable. We all need to support this type of communication and work to find new channels to understand the issue in its broadest context.
Storage Alternatives
We have seen a growth in on farm storage in many areas we serve. As mentioned earlier, ground storage has become a long-term strategy for some of our customers. We have seen country elevators become satellite storage facilities for unit train loading stations. Given the tension between seasonal production and year round consumption, the more effective storage alternatives we have the more we will be able to spread out the demand for transportation. We need to support the exploration of the economics of alternative grain storage strategies and be open to the changing roles and methods.
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Fleet Velocity
As mentioned earlier, we believe we can make significant progress in increasing the velocity of our grain car fleet and thereby increasing grain car availability for all of our customers. Some of the ways we are addressing this with our customers is in the increased use of shuttle trains, weekend loading, and increased elevator track space to avoid main line tie ups. Support of these efficiency improvements will be important to our overall success in increasing grain car availability.
Conclusion
It is clear from our perspective and that of our customers that we are not meeting all the needs of the industry. We are, however, dedicated to be a reliable supplier to the grain industry and have demonstrated this dedication and capability in the past. We need your support as we continue to work towards those goals.
Statement of Gary L. Kelley
Good morning. My name is Gary L. Kelley. I am president of the Kelley Bean Co. in Morrill, NE, and I am representing the National Dry Bean Council. My company receives and processes dry edible beans at 35 locations in seven western States.
NDBC is a national organization which represents both the growers and shippers of edible dry beans. The council is comprised of 12 State and regional groups, which in turn represent virtually all dry bean growers and shippers in the United States.
In any given season, our industry produces between 1.0 and 1.4 million metric tons of dry beans. Of this, about 40 percent is exported.
The U.S. produces about 13 varieties of dry beans. Soybeans are not included in the definition of dry beans, nor are peas and lentils.
Dry beans are produced on 1.7 million acres in 17 states, predominantly in the West, Midwest, and along the northern border with Canada.
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Dry beans are more difficult and slower to process than grain. A typical mill will only produce ten ton per hour.
The dry bean industry is highly dependent on rail shipping. About 65 percent to 75 percent of the dry beans produced in the U.S. are shipped by rail.
Current rail service to our members is a failure—far below even the most minimum reasonable standards. This lack of service is severely affecting the dry bean industry in three areas:
By an inadequate system for ordering cars, and poor delivery performance.
By increased shipment sizes and demurrage schedules and rates.
By the poor physical condition of rail cars.
Inadequate Ordering System and Poor Delivery Performance Issues
When our shippers try to order cars, they are frustrated by theconfusing telephone system for ordering rail cars and the inability to talk to an actual human. Cars are delivered late, and the railroads supply fewer cars than ordered.
For example, the Cal-Bean & Grain Cooperative, which represents 200 to 300 growers in California and uses Southern Pacific, reports: ''Bulk car orders seem to be automatically put on a waiting list. They arrive a week to 10 days after the requested *date needed* (The railroad) seems to have computer tunnel vision. If we can see that an ordered car is not spotted on our spur, and their computer says it has arrived, we have to convince them that we don't have what we should.''
ASI, of Westminster, CO, uses the Burlington Northern Santa Fe Railroad. ASI has seen delivery times increase from five to seven days to at least two to three weeks, which makes JIT (just in time) inventory customers rely more and more on expensive truck freight costs.
The Kelly Bean Company in Morrill, NE, is located near the main line of both the Union Pacific and the Burlington Northern. At our Ovid, CO, plant we ordered a car on August 27, 1997, and did not receive it until October 7, 1997—a 42 day delay. Do you call that service?
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The New Alliance Bean & Grain Company of Alliance, Nebraska, repeatedly receives fewer than half of the boxcars it orders:
Week of September 29 Ordered - 4; Delivered - 0.
Week of October 6 Ordered - 14 Delivered - 6.
Week of October 13 Ordered - 14 Delivered - 7.
Week of October 20 Ordered - 14 Delivered - 7.
Ed Anderson of New Alliance comments: ''As you can see, we are restricted to half speed, resulting in down time, temporary layoffs (lost wages) and the potential of not delivering on our customer's orders (unknown potential losses).''
KBC Trading & Processing Company, a division of ConAgra, in Stockton, California, adds: ''While New Alliance was only getting half their orders, we were getting nothing. During the weeks of October 13 and 20, we had asked for 12 cars. (As of October 23), none had come in and only six had been assigned.''
In another case, Stockton District Kidney Bean Growers, Inc. in Linden, California, reports they were told by the Stockton Terminal and Eastern Railroad, which is their short-line service, that approximately 300 railcars are stored in the Mojave Desert area. They were told that the Union Pacific is short engineers and therefore is not drawing on these railcars because of their cutback in personnel.
The Trinidad Benham Co. of Denver, CO, shipped a carload of rice on September 12 from Lake Charles, LA, to Mineola, TX (approximately 400 miles). It arrived on October 30—42 days later. In another case, they shipped a car of beans from North Dakota to Mineola, TX routed BN-UP on August 12. It arrived October 12—62 days later.
Increased Shipment Sizes and Demurrage Schedules and Rates
Regarding shipment sizes, the Rocky Mountain Bean Dealers Association, which includes shippers in eight states east of the Rockies, reports smaller shippers are concerned about recent discussions on setting minimum ordering rates to five cars. This would all but eliminate their ability to ship by rail. It would force them to rely on more costly truck freight shipping.
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The North Central Bean Dealers Association, which represents our industry in Minnesota and North Dakota, reports that shortening loading times from 48 to 24 hours and unloading times from 72 to 48 hours has placed undue pressure on shippers and receivers.
Beans, unlike coal, cannot be handled rapidly or roughly, making the decreased loading times more impacting to shippers.
New demurrage schedules are extremely rigid, and are costing dry bean shippers considerably more now than in the past. However, the railroads are not held to stipulations such as those for non-delivery or late delivery of ordered cars.
Frivolous demurrage charges against a shipper can be reversed only by written authorization from the customer service representative who made the changes that resulted in demurrage. The fear of further delays in delivery prevents our members from withholding payments in resolving demurrage issues.
Poor Condition of Cars
Our members report the general physical condition of the cars they receive are in poor condition.
According to Southwest Multi-Foods, Incorporated, in Dalhart, TX, at least 50 percent of the cars it receives are so poor that valuable time has to be spent to clean the car, patch holes, and repair doors so that they can be opened and shut.
Conclusion
Our industry appreciates the opportunity to share the types of problems it has with the current rail system. It looks forward to any improved service that results from actions taken by this body.
Testimony of Michael Randall
Thank you Chairman Barrett. My name is Mike Randall. I farm near Dell Rapids, SD and serve as the co-chair of the National Corn Growers Association's (NCGA) Transportation Task Force. I am currently the Chairman of the South Dakota Corn Growers Association. The NCGA represent 30,000 members in 25 affiliated states. We appreciate the opportunity to testify today.
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NCGA is pleased to see the topic of rail transportation as the focus of this hearing. However, we are not pleased about the circumstances that have brought us here today. The link between agriculture and rail transportation is vital for the success of the Nation's corn farmers.
There is no doubt that a transportation emergency is facing our Nation's farmers. The Surface Transportation Board acknowledged this on Friday in announcing their service plan for the Union Pacific/Southern Pacific Railroad. NCGA believes that the STB was correct in its decision to take actions to control the spreading rail service problems. We agree that interference by the Federal Government into private business matters is regrettable. However, the effects of the railroad operations and lack of service have repercussions on many other industries. Agriculture faces direct costs from any reduced, untimely or unreliable rail service, in the form of increases in basis price, and transportation costs and decreases in market opportunities. The STB decision does not adequately address the implication of severely strained rail service on agriculture.
US Agriculture has invested millions of public and private dollars in developing a reputation as a reliable competitive supplier for domestic and international markets. The investment that the House Agriculture Committee has made in market development programs is for naught if we cannot get corn to market to fulfill customer demand.
The experience of shipping grain by rail is very much the same each year. Fall harvest results in reduced availability of grain cars and strained rail service. This year the rail service problems have intensified. Corn is piling up on the ground in several States. In Nebraska, for example, the Public Service Commission has issued temporary licenses to elevators to store up to 50 million bushels of corn on the ground. As this corn sits on the ground, with the winter weather approaching, its value diminishes due to spoilage. The ability to move that corn off the ground after a snow storm or heavy freeze is lost.
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Storing corn on the ground increases costs because additional labor is required to move the corn and there are drying costs for corn exposed to varying weather conditions. Estimates of the labor costs for moving the corn alone are an additional 7 cents per bushel. Ordering new cars to replace canceled or late trains can range from $150 to $300 per car in certain areas. As a consequence, elevators are turning growers away and no longer taking wet (higher moisture) corn that can not be stored on the ground. This results in corn being left in the field, subject to changing weather conditions which can reduce its market value by between 5 and 30 cents a bushel per acre.
As the railroads move to resolve this service crisis, as we have noted service problems on both the Union Pacific Southern Pacific lines and Burlington Northern Santa Fe lines. Grain shipments must not be ignored. It is imperative that these commodities move in a timely manner. NCGA believes that priority should be given to the movement of agricultural commodities. This priority setting will require the focus and support of members of this committee.
Farmers' stories are much the same across the western corn belt. Reports are that the Pacific Northwest elevators are bidding 3 to 5 cents less to Midwest elevators because they can not meet unloading requirements and are faced with demurrage passed on from shipping vessels. These delays are on Burlington Northern lines. These additional costs to elevators in the Pacific Northwest are passed on to those in the Midwest. We have heard estimates that trains in Nebraska are running about four weeks behind. Leading to an 8 to 13 cent drop in cash prices that a grower receives for corn.
In South Dakota, the majority of the corn leaves the state. Some is utilized by livestock within the state. However, a lack of in-state corn processing means excess production is shipped out of the state. The majority of this movement is by rail. Rail shipments in South Dakota are running two to four weeks behind schedule. With the corn on the ground, elevators are faced with substantial costs from interest charges alone. Estimated carrying cost for the elevators for grain stored on the ground is 0.005 cents per bushel per day at an 8 percent annual interest rate. For example, the interest on one million bushels of corn at 8 percent interest approaches $400 per day.
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In my local area in South Dakota, we are served by the Burlington Northern Railroad. Our elevator can load 54 car trains. Currently, the elevator is paying between $250 and $300 per car for a train under BN's Certificate of Transportation (COT) program. This is how the majority of cars are ordered. The elevator has a train that has been loaded and has been sitting for over a week, ready to be moved by the railroad. The elevator is five trains behind—one has been canceled and four are late. The BN is not required to reschedule the canceled train, but they are paying a $300 per car per day penalty. However, the elevator has 200,000 bushels of beans that should have gone out on each of those five trains. The elevator's risk on one train shipment alone is $1.2 million (figuring $6 per bushel) whereas the railroad's risk is $16,200 per day.
The rail service problems everyone has noted in the news are causing the current rail logistical difficulties but several changes that the railroads are making could also have long-term effects on agriculture. For example:
In some areas, rural communities and small elevators are no longer allowed to pool shipments. Pooling means allowing several elevators off the main rail lines to separate unit train cars, load them, and then reconnect them into a unit train. These requirements will force elevators to consolidate along rail lines to enable them to load 100 car unit trains. As I stated about my local elevator, they are only equipped to handle 54 car unit trains. It would cost them between $1.25 to 1.5 Million to be able to handle 108 car unit trains.
In some areas, shortline railroads are not allowed to use their own power, but must wait for the class I railroad to supply power. Although, some of the class I railroads have indicated they will be purchasing more locomotives, they are still lacking power.
Saturday train deliveries raise safety concerns at the elevators. Crews that are called to work Saturdays and Sundays without notice are often required to work longer than normal shifts, in some cases up to 24 hours at a stretch. Labor costs and demurrage costs from weekend activity are often substantial.
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The focus of our testimony has been on the problems of moving grain. We do not want to diminish the related effects of the lack of rail shipments moving into the Midwest. Agricultural supplies, such as fertilizers, are also affected by the rail service problems.
NCGA believes that a successful relationship between the growers and railroad is based on accountability, availability, and reliability. Farmers and elevators can predict when cars and service will be needed. However, if trains are canceled without notice, which has been done, or if service is several weeks late, which it is currently, the resulting effect on farmers can be costly. We understand that the operation of the railroads is a business and that they should be allowed to operate as a business, but with that comes responsibility to their customers. In addition, railroads do have a monopoly on service in certain areas and therefore have a responsibility to not only provide service, but be accountable for the availability of their service. We encourage open communication between growers, elevators and the railroads. Further understanding of railroad operations, logistics and fluctuations can assist elevators in planning their transportation needs to correspond with the railroads' ability to provide service.
NCGA supports a competitive infrastructure of rail, waterways, and trucks that provide service to shippers. Investments need to be made in facilitating the competitive growth of our Nation's infrastructure. A viable, competitive river system must be available to carry grain shipments on a regular basis and during peak times when other transportation modes are unable to fill their transporting obligations. Investments in waterway infrastructure must continue to ensure that waterborne transportation remains a viable option for agriculture.
Finally, NCGA is concerned about reports of retaliation by railroads because some small customers have spoken up with the action of their rail service providers. We have the ability to speak as a national organization, but for certain individuals, the fear is real.
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Mr. Chairman, we appreciate the opportunity to testify today. NCGA requests that this committee continue to scrutinize this issue for the next several months. Our highest concern is that, as the railroads set priorities for the next several months that, we ensure that service to agriculture one of those priorities.
Statement of Philip F. Weaver
My name is Phil Weaver and I am vice president for agricultural commodities for the Burlington Northern and Santa Fe Railway Company (BNSF). I am here representing Rob Krebs who is unable to appear before this subcommittee today. BNSF appreciates this opportunity to present our views of the grain transportation market.
Grain is an important part of BNSF's transportation business, but it does create unique challenges to the railroad. Our grain market is segmented into (1) origin shippers (e.g.. country grain elevators) who try to keep their doors open so that they have space when the farmers wish to sell, (2) domestic receivers (feedlots, feed mills, flour mills, and oilseed processors) with relatively steady year around demand, and (3) the export grain market which is more erratic and is constantly responding to worldwide events. BNSF and its customers are active participants in all of these markets, but the different requirements of these market segments result in periods of surplus capacity followed by periods of concentrated demand. For example, in May and June of this year, BNSF stored more than 5,000 grain hoppers, while today concentrated demand has prevented BNSF from being able to fill all of our customers' requests for cars.
This year's crop started with what was expected to be a disastrous southern hard red winter wheat crop due to an April freeze. However between April and July, the crop made a miraculous recovery and produced a record Kansas wheat crop. We also expect a record soybean harvest, a somewhat disappointing spring wheat crop, and a good corn crop. Beginning in July, grain loadings picked up with BNSF loading 19 percent more cars (approximately 25,000) between June 28 and October 18 of this year than in the same period in 1996.
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Each year we go from storing surplus cars to a capacity shortage at harvest time. While we concentrate on car orders at country origins, the loading and billing of cars is not the whole story. The receiver must also be in a position to receive and unload the cars. Today, we are two to three weeks behind in filling car orders at origin. However, we also have 62 percent of the fleet under load and there are significant queues of cars waiting to be unloaded at receivers' facilities.
A snapshot taken last Friday, October 31, showed a total of 9,349 loaded cars of grain en route to various destinations served by BNSF. One thousand twenty-eight were in the transportation pipeline destined for export facilities at the Head of the Lakes (Duluth, MN/Superior, WI); 4,547 were destined for export facilities in the Pacific Northwest (Portland, OR, Seattle, Tacoma, Kalama, and Vancouver, WA); 2,225 cars were destined to export facilities at the Gulf of Mexico (Houston, Galveston, Beaumont, Corpus Christi, TX, and Mobile, AL); and 1,549 cars destined for the Mexican gateways of Laredo, Eagle Pass, Brownsville, and El Paso, TX. To deal with this backlog, we have temporarily embargoed the Texas Gulf elevators and the Mexican gateways and will only allow shipments as the queues are reduced.
Longer term, we and other market participants are concerned about demand for this year's large crop. While we have heavy demand for cars at origin, the consumptive markets, especially export, are not strong. Many of our customers who have bought guaranteed freight from us are concerned that once the nearby problem is taken care of, the anemic remaining demand will leave them with purchased rail freight in excess of demand. For example, USDA's latest Shipment and Sales Commitment Report shows corn exports and open sales of 501 million bushels for this crop year versus 756 million for 1996 and 1,055 million for 1995. Similarly, wheat exports and open sales are 637 million bushels, down 30 million from 1996 and 90 million from 1995.
BNSF is committed to improving rail service to all our customers including grain. In October we announced the acquisition of 6,000 new C6X jumbo covered hopper cars for 1997, 1998, and 1999. In addition, we plan to acquire 409 new road locomotives in 1998 to try to meet the increasing demand for rail transportation. Previously, we had already acquired 227 units in 1996 and are taking delivery of 232 locomotives in 1997.
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But to respond even more effectively to these grain market segments, we need more consistent demand. To compete for scarce capital when the business is characterized by boom and bust is very difficult. Efficient, consistent use of cars, locomotives, crews and track space is critical as we invest to grow our grain business into the 21st century.
I am also providing the subcommittee with additional written information concerning BNSF's Agricultural Commodities Business Unit.
Answers to Submitted Questions from Mr. Minge to Burlington Northern Santa Fe
Is it possible for the rail industry to set up a process whereby shippers are notified of, and consulted about, demurrage and tariff charges prior to their taking effect?
BNSF uses its electronic bulletin board, ACRES, which is accessible over the Internet to notify its customers of upcoming changes in rates and service. Over 500 of our customers routinely consult our bulletin board, and the information is rebroadcast over many private and public wire services. Customers routinely call with suggestions and objections to these proposals. In addition, any change to our tariffs which result in an increased cost to our shippers must be done with 20 days prior notice by statute to allow time for comment and market adjustment.
Shippers are asked to pay demurrage if a car is not loaded and ready to go within a certain period of time. Why shouldn't the rail industry pay a similar penalty if the cars are not moved when indicated?
BNSF does not sustain an economic penalty when it does not move loaded cars promptly since it pays for the asset and pays penalties if it does not perform on guaranteed service. it should be pointed out that loading cars is only part of the chain. The destination must be fluid and able to unload cars. Otherwise, it is a waste of scarce resources to pull cars from destination and then park them on a siding or in a yard awaiting unload.
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Shippers invest in facilities at the railroads urging and based on its announced policies for priorities in providing cars and moving freight. What type of contractual obligation are the railroads prepared to make to shippers to assure them of service for a time period adequate to amortize their investment in those facilities?
BNSF currently has both contract and tariff car guarantees programs for its shippers. Failure to perform by either party results in a payment. In terms of facilities, BNSF has made contractual commitments to encourage the construction of efficient facilities.
Car supply and rates are always sensitive issues. How does the railroad plan to deal fairly with shortline railroads and small elevators that are located on shortline railroads that are willing and able to aggregate cars to ensure that these types of operations can remain competitive?
BNSF has car supply agreements with its shortlines and is committed to treat them fairly. Approximately 24 percent of our grain originates on our shortlines. Co-loading is permitted on some branch lines where larger, efficient elevators have not been built. However, we are also conscious of the investments that our customers have made in modern efficient facilities and do not create programs which interfere with their economic viability.
Many elevators lease property from the railroad. Some elevators that lease property are leery of making investments because they may have to move their operations at some point because they don't own the property. Would railroads be willing to sell leased property to elevators prior to substantial investment?
In 10 years with the railroad, I know of no instance of the railroad requiring the elevator to move. BNSF sells property to customers and has long-term leases which protect the customer's interests.
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[Copy of memorandum submitted with answers to questions:]
BURLINGTON NORTHERN SANTA FE
Date: November 19, 1997
To: Agricultural Commodities Team
From: Phil Weaver
Subject: Customer Service
During the House Agriculture Subcommittee hearing on November 6, a concern was raised that some customers who complained about service problems felt that they might be subject to some kind of retribution.
While their is no specific evidence to substantiate this concern, I want to reiterate our policy that all customers be treated fairly and with respect.
["The Official Committee record contains additional material here."