Transportation efficiency: It's your business

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Ancient locks and dams•monopolistic railroad service•skyrocketing fuel surcharges: A crumbling transportation infrastructure may seem like someone else's problem. But it's really a pain in the behind for farmers — i.e. a pain in your pocketbook.

That's one of the points Mike Steenhoek is trying to drive home these days as executive director of the Soy Transportation Coalition, a group established late last year by seven state soybean boards, the American Soybean Association and the United Soybean Board to provide information and education on behalf of the U.S. soybean industry on shipping and transportation.

The farmers on the STC work overtime to try to feret out information that may lead to improving efficiencies when it comes to getting your commodities on to ships and trains and eventually into people's stomachs. "The goal of STC is to make the journey from farm to dinner plate as efficient as possible,•bCrLf says Steenhoek (below).

In a way this group is working for all farmers as a kind of watchdog on the transportation industry, but it's also working to build relationships within that industry so that every one wins from greater efficiencies. The railroad companies know they have a sweet deal by having nearly no competition among themselves. But they don't like bad publicity and agriculture is a major rail customer.

The value of a soybean on your farm is nothing until you factor in the cost of transport, processing and everything else needed before that oilseed feeds someone, here, or 5,000 miles away.

Today we have higher rail costs, higher fuel costs for trucks, and higher barge rates. Ocean freight rates are through the roof. Will higher transport costs damage grain exports?

If infrastructure costs continue to skyrocket, we will be pricing ourselves out of business? As globalization continues and we become more integrated with the world community, how do we buttress U.S. agriculture, especially if more decisions are made in Geneva than Washington?

"One way to fortify it is to have an efficient logistics channel that is always WTO compliant,•bCrLf says Steenhoek. "It's not acute right now but it will be in the future.•bCrLf

STC is putting the wraps on a new study on basis, and what causes gaps in basis in various regions of the country. The group is hoping to find out if there's more to basis weakness beyond typical seasonality, supply and demand, or cost of storage.

Rail worries One of the biggest areas of concern for STC is rail issues. Over two decades ago there were dozens of class one railroads (revenues in excess of $320 million); now there are seven. A lot of track has been abandoned, providing fewer alternatives to farmers.

"It used to be every country elevator 20 miles apart from each other had a railroad that called on them,•bCrLf says Steenhoek. "The rail industry increasingly says, we can't be stopping every 20 miles. The two most expensive miles a train takes is the first mile when they leave and the last mile upon arrival. When they're chugging along the countryside at 50 mph that's what they do best.•bCrLf

Even as rail service vanishes, the rail companies have had "significant•bCrLf cost escalation with rates and fuel surcharges. "It's not widely known or understood by the farmers,•bCrLf says Steenhoek. "What farmers need to realize is that when the elevator pays a higher rail rate, there's a corresponding effect on the amount of money they offer to pay farmers for their grain.

"The farmer is the one entity that can't pass on costs; it's unique that they are price takers on both their input costs and on the revenue side as well.•bCrLf

On the other hand, most people don't understand that the rail industry is privately financed. "The fact is we in this country have obligated the rail industry — unlike the road and interior waterways — to finance their own maintenance and expansion,•bCrLf says Steenhoek. "It's one of the most capital intensive industries on the planet. A new locomotive costs $2.5 - $3 million. So we can't just simply berate them for not providing the service we would like. The rail industry has the highest degree of reinvestment in their own industry of any in this country.•bCrLf

Higher fuel costs STC will also do a study of how higher fuel costs impact the soybean industry. If oil soars to $200 a barrel, will we still be competitive on a global scale? And if not, what's the ripple effect on the soybean crop?

"Roughly half of the crop finds its way into the international markets,•bCrLf says Steenhoek. "If all of a sudden transportation becomes much more costly it's going to impair our ability to move it into markets. To what degree are we going to maintain our customer base - whether its livestock in the southwest, swine in North Carolina or poultry all over the world?•bCrLf

Steenhoek is hoping that the more farmers learn about inefficiencies in transportation, the more active they will be on the issue. That's the only way to minimize losses resulting from higher fuel costs or less-than-competitive modes of transport.

"We need farmers to regard transportation as similar in importance to other issues critical to the industry such as renewable fuels, market access and production research," he says. "After all, if we have a breakdown in our distribution system, producer investments in these other areas will not be fully realized."

 

 

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