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7/16/2007



Rail News: Rail Industry Trends

Rail rates and service will be issues as U.S. ethanol production rises, shippers say; destination terminal capacity a bigger concern, short line says



The Bush Administration’s energy bill that aims to lessen the nation’s reliance on foreign fuel sources likely will boost U.S. ethanol production. But are railroads capable of moving large volumes of ethanol at a rate customers are willing to pay?

The short answer is “no,” according to Consumers United for Rail Equity (CURE) and other rail shipper organizations.

“If the raw materials and finished product can’t get where they need to go at a price shippers can afford, then consumers will ultimately pay the price,” said CURE Chairman Glenn English in a prepared statement.

U.S. Rep. Tammy Baldwin (D-Wis.) recently added an amendment to the energy bill that calls for the U.S. Department of Energy to conduct a study to determine if the nation’s railroads can meet ethanol producers’ transportation demands.

The study would analyze rail capacity, including tracks, locomotives and tank cars; projected capital costs of improving the rail system and who would bear those costs; the state of rail competition; and whether federal agencies have adequate legal authority to ensure reasonable rates and adequate service in areas without rail competition.

The amendment is backed by CURE, the Edison Electric Institute, American Coalition for Ethanol, American Chemistry Council, American Public Power Association, National Rural Electric Cooperative Association, United Transportation Union, American Farm Bureau Federation and other shipper organizations, which also support rail industry re-regulation bills the Railroad Competition and Service Improvement Act of 2007 (H.R. 2125/S. 953) and Railroad Antitrust Enforcement Act of 2007 (H.R. 1650/S. 772).

“As our country’s energy policies place more importance on the role of renewable fuels, we are very glad that Congress is interested in finding out whether the railroad industry will be able to provide adequate service to ethanol producers and at fair rates,” said Josh Morby, executive director of the Wisconsin Bioindustry Alliance.

U.S. railroads already move 170 million tons of farm products annually — with corn accounting for half the grain railed — and have the capacity to handle more without eroding service, according to the Association of American Railroads, which is conducting a “Freight Rail Works for Ethanol” ad campaign to tout roads’ ethanol-hauling capabilities.

Moreover, the shipper organizations’ concerns are misdirected because the serious issue facing ethanol transportation is lack of capacity at destination terminals, says Dan Sabin, president of the 163-mile Iowa Northern Railway Co., which serves a Hawkeye Renewables ethanol plant in Fairbank, Iowa, and will serve several more plants in the state within the next two years.

“Most of the blenders were designed to receive commodities by pipeline or water vessel, and most of them are land-locked,” he says. “Until the receivers of ethanol can handle large blocks of cars or full unit trains, the single-car moves will have the effect of choking the rail system. If Congress would provide incentives for railroads, including short lines and regionals, to build rail-to-truck terminals in consumption regions, tremendous efficiencies will result and the flow of product will improve dramatically.”

As for escalating rates, it won’t matter what railroads charge ethanol shippers because the prices will “always seem too expensive,” he says.

“Some of the concerns of ethanol producers are a result of their own poor logistical planning with their plant site selections and locking themselves in to single Class I that will favor their own long hauls,” says Sabin. “That’s why you see a mad scramble for new production facilities to be built on short lines with multiple connections and a willingness to provide high service attention levels.”

Jeff Stagl


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