Railroads and rail shippers are trying to figure out how to prevent a repeat of last year’s troubles in the Dakotas.
When demand and bad weather joined to make a perfect storm, farmers had a lot of trouble getting railroads to ship their crops to market. There was too much competition for locomotives and crews between South Dakota farmers and oil producers in North Dakota.
“Agriculture was derailed by big oil interests,” says Dennis Jones, a corn farmer in Bath, South Dakota. “We were basically shoved off the tracks.”
South Dakota farmers produced a bumper crop in 2014, and the North Dakota oil fields were going gangbusters, too, Jones says. The railroads couldn’t ship everything, so they had to make a choice, according to Jones.
“The railroad got paid a lot more for shipping oil,” he says. “Grain cars were unhooked so the locomotives could hook onto oil and pull more oil.”
The railroads say they didn’t favor oil over agricultural products. They say last year’s shipping problems were caused by one of the most severe winters in decades. But it is true that they can charge more to ship certain things, if there’s competition and those products could be shipped another way, such as by truck or water.
“The railroad can set any price they want to, anywhere, anytime, and they do,” says Denver Tolliver, director of the Upper Great Plains Transportation Institute at North Dakota State University.
If shippers think the railroads are charging too much they can complain to the federal Surface Transportation Board, he says. But not many do, because it’s a complicated, expensive and slow process.
It wasn’t always this way.
Railroads and their rates used to be tightly regulated. But they were deregulated in the 1980s, after railroads were devastated by a growing trucking industry.
“There was a time when you used to have what’s called’ standing derailments,’” says Frank Mulvey, a semiretired economist who spent about a decade at the Surface Transportation Board. “The railroad infrastructure was so badly deteriorated that trains that weren’t even moving, standing on tracks – waiting on tracks – would fall over.”
Some railroads went bankrupt, Mulvey says. Those that were left improved tracks and bridges, and became viable, strong companies – strong enough to turn back recent attempts at re-regulation.
“The railroads have been very, very successful as a lobbying organization,” Mulvey says.
One railroad, BNSF, spent more than $2.5 million dollars on political contributions during the 2014 elections, according to the Center for Responsive Politics.
The railroads say they can provide good service without more regulation.
So far, so good this year in the Dakotas. There’s still a lot of oil being shipped out of North Dakota. But it’s balanced by falling demand from farmers, like Jones, who won’t ship their corn at today’s low prices.
“You’re selling corn today at below the cost of production,” Jones says. “It would be suicidal almost – financial suicide – to sell it below your cost of production.”
Farmers won’t ship their corn until prices go up, he says. The railroads say they’ll be ready for the corn shipments, even if they start this winter. BNSF says it’s added snow-removal crews and equipment and heaters on some rail switches.
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