GRAIN LOGISTICS

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GRAIN LOGISTICS

• September 17,2002

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INTRODUCTION

• Grain transportation is changing for many reasons
• consolidation of railroad industry and branch
  line abandonment--from comprehensive web to
  connecting major shipping nodes
• more farmers have tractor-trailer (semi) truck
  with which to haul their grain and can and will
  transport longer distances when profitable
• more grain used off-farm, but also more grain
  consumed within the larger region
• Decline in grain exports

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Railroad Efficiency Drive

• Changes from 1980 to 1996
• employment from 532,000 to 256,000 ? 48)
• trackage from 179,000 to 147,000 miles ? 82
• freight cars from 1.7 million to 1.2 million ?
  70
• locomotives from 28,000 to 19,000 ? 68
• output from 22.2 to 24.2 million cars ? 109
• intermodal units from 3.1 to 8.2 million cars ?
  264
• revenue ton miles from 919 to 1,356 billion ton
  miles ? 148

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How did Railroads ? ton-miles?

• Handle shipments over longer distances
• at greater velocity
• fewer node to service
• result of economics
• motor carriers more economical for small traffic
  areas

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Efficiency gains

• Revenue-per-ton-mile ?
• Loss and damage claims ?
• result of better track and equipment--maintenance
  on this smaller system.

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Downside

• System pretty much at capacity--no excess
  capacity
• Capacity highly sensitive to slight downturn in
  velocitye.g. situation after UP SP merger
• Todays rail system is less compatible with
  traditional grain movement methods
• seasonality of grain movement
• year-to-year variability in grain volume to be
  moved depending on crop size and export demand

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Railroads profit driven (as any business)

• ? Rate of return on assets
• ? Asset utilization
• RRs promoting arrangements that contribute to
  higher profitability, e.g.,
• shuttle trains
• discourage co-loading
• COTS/PERX to ration cars
• High value shipments receive higher priority

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From Transportation to Logistics

• Substitute cheaper information for more costly
  physical assets
• Adoption information technology--EDI
• More emphasis on continuous flow, less on
  seasonal
• less transactional and more relationship oriented
• trust relationships
• Dakota desk
• Advance notice of arrival of train

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Implications for Grain Marketing

• Less rail transportation on demand
• Long-term arrangements for large shipments, long
  distances (pool)
• between shipper and carrier
• more advanced planning of grain movement
• New farm marketing plans may emerge

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Shipper concerns

• Demanding higher railroad responsibility
• BNSFs Dakota desk is an outcome
• Negotiation on co-loading

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NGFA-Rail Industry Agreement1998- OCT 2002
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NGFA-Rail Industry Agreement(1998- OCT 2002)
Arbitration areas

• General car distribution rules that govern
  regular tariff service
• Special car-ordering and or equipment rules
• Rental rates and liability terms of railroad
  land leased to an agricultural facility

http//www.ngfa.org/
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Subjects to arbitrationcontinued

• Demurrage rules or terms
• Misrouting of loaded cars or locomotives
• Loss and damage and bill of lading claims
• Transportation contracts
• Mishandling of private cars or locomotives

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Optimal Feedgrain Movementon the High
Plains, 1998

• Based on Least Cost Transportation Network
  Modeling

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Grain transportation on the High Plains

• Railroad companies operating on the High Plains
• Union Pacific
• Burlington Northern Santa Fe
• Trucking

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Feedgrain Movement Oct-Dec
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Feedgrain Movement Jan-Mar
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Feedgrain Movement Apr-Jun
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Feedgrain Movement Jul-Sep
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Applicability of Model

• While this is based on least Transportation cost
  it is consistent with arbitrage opportunities,
  i.e., basis differentials among locations.

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Summary and Implications

• Kansas feed grains heavily trucked
• look for new grain marketing plans and
  opportunities (these plans may be more complex
  and more difficult to evaluate)