Transportation Overview: U.S. Keeping Pace . . . For Now

By Gerry Whitty and Elise Sommerfeldt

From the Obama Administration’s proposals to improve the nation’s transportation infrastructure to a view of the current state of grain transportation and improving transportation efficiencies at the elevator, FEED & GRAIN looks at what’s at stake and what’s in store for grain transportation in the United States.

With insurance, brokerage and banking giants managing themselves into oblivion, a foundering global economy hurting trade, and unemployment numbers on the rise, it’s becoming increasingly difficult to ferret out good economic news.

At least our grain exports are holding their own . . . well, they were until stronger global grain stores combined with weaker than expected demand, conspired to undercut an already skittish export market.

Is there any good news out there? Actually, yes, there is. Somewhat.

“When it comes to transporting grain to the marketplace, the efficiencies found in systems in the United States is unrivaled,” says Vince Peterson, vice president, overseas operations, U.S. Wheat Associates. “Our ability to originate, move and deliver volumes of grain in a timely manner to our customers is envied around the globe.

“However, if we don’t continue to make the investments required to improve and push our transportation delivery-system infrastructure to an even higher level, that advantage could vanish as the rest of the world makes 21st century investments of their own,” Peterson notes.

Peterson’s observation about foreign infrastructure investment is especially poignant as it has been confirmed at key industry conferences. In March at the GEAPS Exchange in St. Louis, attendees learned how motivated Brazil is in improving its road and rail infrastructure — with the help of huge investment from both private and public/government sectors — in order to sustain an export market that’s exploded in the last five years ($24.8 billion in 2002 vs. $58.4 billion in 2007).

We’ve seen how adept Brazil is at producing grain, beef and poultry products, now imagine how the landscape of the marketplace would change if they moved these products to the market as quickly as their North American counterparts. Especially with an economy that isn’t reliant on foreign oil to keep moving. An eye-opening thought for certain.

WHAT A DIFFERENCE A YEAR MAKES

A year ago the marketplace was defined by high product demand, corresponding price volatility, spiraling fuel costs, and high rail and ocean-going freight rates. Fast forward to today and the only item which remains from that list is the high rail freight rates.

“If you were to ask someone a year ago to predict today’s grain prices, I doubt many people would have landed on the prices seen currently,” notes Jay O’Neil, senior agricultural economist, International Grains Program, Kansas State University. “The high demand and price volatility seen were considered to be part of the ‘new operating environment’ in agriculture, and many projected this environment would remain for awhile. However, few could have predicted that within six months a dire global economy would arrive and bring with it a new operating environment.”

O’Neil says the combination of tight money supplies, a grain glut, reductions in animal units and a corresponding drop in feed requirements have conspired to weaken demand for U.S. products. Nevertheless, he also wants to remind people that if there’s one lesson to be learned, it’s that everything you know as real today can most certainly change tomorrow.

“It’s this volatility that makes having an infrastructure capable of reacting to the needs of a changing marketplace, critical to our agriculture,” he says. “While the stimulus package can offer some immediate benefits to improving roadway infrastructure, its lack of attention for improvements on the Mississippi and Illinois river waterways represents a major lost opportunity for meaningful infrastructure improvement.”

Don’t look for major improvements in rail infrastructure either. The majority of the $8 billion appropriated for rail improvements are earmarked for passenger rail service, so the five Class I railroads that move most of the agricultural products will be responsible for funding major infrastructure improvements to rail corridors — which means, of course, customers will bankroll the lion’s share of the bill via rates and surcharges.

Kendell Keith, president, NGFA shares O’Neil’s chagrin over the omission of waterway projects in the stimulus package but vows to keep this issue and others in the forefront of their legislative mission.

“While the lock and dam provisions may have missed out because they weren’t ‘shovel ready’ in the eyes of the Corps of Engineers, we intend to work more closely with industry leaders like the grain grower associations, to help move the needle on these critical projects,” says Keith. “You must also remember that this administration is very new and still needs to fill some key positions. Many earmarks have not been articulated in the Recovery Act package and other legislation. As a result, action and dollars may take a while to trickle down to ground level.”

WATERWAYS IN TROUBLE

The locks and dams on the Mississippi and Illinois Rivers are among the most neglected segments of infrastructure in the United States, according to Garry Niemeyer, Auburn, IL grain producer and member of the board of directors for the National Corn Growers Association. The locks and dams were built in the 1930s and designed to withstand only 50 years of practical use.

For that reason, Niemeyer and the NCGA has lobbied for the past 15 years to pass legislature to update this vital system, specifically Mississippi River locks #20, 21, 22, 24 and 25, and the Illinois River’s Peoria and LaGrange locks. Yet, after more than a decade of campaigning, he describes the results of the 2009 American Recovery and Reinvestment Act as disappointing as attempts to appropriate these seven locks in the stimulus package failed.

A DISAPPOINTING OUTLOOK

Although nearly 20 percent of the $787 billion stimulus bill will be spent on infrastructure updates, the dams and locks are not eligible for funding because only projects that are “shovel ready” (meaning they must have already received the necessary approvals from the Army Corps of Engineers) will be appropriated.

Niemeyer thought he was on the right track when in 2007, after the first Water Resources Development Act to be passed in nearly seven years was signed; the Mississippi and Illinois Rivers projects received authorization from the Army Corps of Engineers. “After receiving authorization, many of us [lobbyists and congressmen] thought our job was done,” says Niemeyer. “We quickly learned, however, that authorization and appropriation are two very different terms.”

Now Niemeyer and others fighting to improve our waterways are back at square one. The $410 billion Omnibus bill, which the Senate approved on March 10, also failed to appropriate the locks and dams. Niemeyer is not exactly optimistic about the immediate outcome, but is hopeful for the future.

The NCGA is currently lobbying to secure funding for the locks and dams through the FY 2010 Appropriations Bill, which should be signed by the end of April.

“Unless we can change the ‘no new starts’ stipulation, it’s going to be difficult to get these projects off the ground,” he says. “One thing about our organization though is that new people always step up to the plate and accomplish the goals we’ve set the stage for, and we’re not giving up. “

ECONOMIC RECOVERY

Despite the fact the locks and dams did not receive their much needed makeover, Rep. Steve Kagen (D-WI), who serves on both the House Committee on Agriculture and the House Committee on Transportation and Infrastructure, says the stimulus package gives the feed and grain industry plenty to look forward to. Kagen stands firmly behind the American Recovery and Reinvestment Act.

“Investing in our transportation infrastructure is vital for us to build a better future and spur recovery,” he says. “It creates jobs and is important for businesses that rely on our rails and ports for commerce.”

Swift allocation of funds was a high priority for Kagen. The American Recovery & Reinvestment Act requires that half of the transportation infrastructure funds be allocated within 180 days after enactment of the legislation.

“We fought for this provision because I have seen the speed of government and I know people cannot wait that long,” Kagen says.

The billions of dollars to be invested in new infrastructure this year marks the largest increase in funding for our nation’s roads and bridges, and railways since the 1950s. Each state, local and tribal government is eligible for highway formula funding.

These entities may also apply for competitive grants (minimum $20 million, maximum $300 million) for highway and bridge projects, public transportation projects, passenger and freight rail projects and port infrastructure investments.

Although high-speed passenger trains are a high priority, Kagen hopes freight railways will be updated, as well.

“Updates to rail infrastructure could lead to a better quality rail industry in America and encourage more companies to join the marketplace, thus increasing competition,” Kagen adds.

There is also money available for seaport infrastructure. Small shipyards can apply for the $100 million in nationwide competitive grants to improve infrastructure, but the Maritime Administration intends to award no more than 25% of the funds to shipyards with more than 600 production employees. Applications are due to the Maritime Administration on April 20, 2009.

INFRASTRUCTURE ON THE GROUND LEVEL

Under the American Recovery and Reinvestment Act, feed mills and grain elevators are eligible to receive funding for their own infrastructure projects.

“This bill is not limited to solely supporting government infrastructure projects,” says Kagen. “Individuals, small businesses, family farms and private companies can apply for existing grants, loans and other programs by contacting program coordinators at the state level.”

Gerry Leukam, senior vice presidentm, technical operations, at T. E. Ibberson Company, says plenty can be done to improve both rail and truck infrastructure at the site level.

RAILWAYS

Rail companies give discounts to large-volume shippers, those who can unload an entire shuttle train of 90 to 110 cars in 12 to 15 hours. In order to take advantage of the freight savings and avoid additional fees, Leukam suggests adding rail infrastructure and high-speed unloading systems and possibly motion rail scales to existing facilities.

“Feed mills and elevators need enough track on-site to get the train off the main line and onto their property,” says Leukam. “When the train is dropped off, the rail company may leave the engines on, allowing you to move the train on your property so it can be loaded or unloaded within a required amount of time.”

Leukam says that if more facilities could update their rail infrastructure, it would indirectly affect our highways for the better. “I believe if more facilities were able to utilize freight rail, we would see trains used more than trucks, which would decrease traffic on other infrastructure [highways and interstates] systems,” Leukam says. “The rail companies need to regain customer confidence for consistent delivery and pickup schedules.”

ROADS AND HIGHWAYS

When it comes to improving road infrastructure on a facility level, Leukam says speed, safety and automation are all key points.

Investing in automation software can also help improve the flow of traffic.

“There are computer programs available today that automatically process orders as the driver pulls up to your facility,” says Leukam. “As the driver comes into the gate, they simply swipe an identification badge and the program already knows what order’s being picked up. Then it prestages the order, so by the time the driver gets to the driveway, the load is already staged up above and the truck is instantly loaded.”

Steven Day, senior product manager, John Deere Agri Services, Inc., has assisted a growing number of customers in improving traffic flow with tools like their oneWeigh™ scale automation system.

“There’s a direct correlation between improving traffic flow and enhancing productivity with automated systems,” says Day. “Our customers are being asked to handle more tasks with fewer people. Under those circumstances the chance for errors and delays rise dramatically. Automated processes reduce errors, improve traceability and keep drivers in the truck and moving on to their next task.”

Day says the key to designing a blueprint for improving speed, accuracy and flow at a facility is to take stock in how your operation is positioned to meets customer needs today and in the future.

“Look at areas that really slow down your employees,” Day points out, “and typically if you can bring efficiencies into areas like reducing handwritten tickets, automating data entry functions with RFID tags and using outdoor message boards to interact directly with drivers, you can recoup your automation investment in a relatively short amount of time.”

Although speed is important, it is essential to not sacrifice speed for accuracy. Leukam says weighing every truck on the way out to get an accurate shipping weight not only preserves infrastructure on the site level, but on the national level as well, and can help feed mills avoid fines.

SUMMARY

While the president’s stimulus package may have some positive impact on rural infrastructure, it leaves improvements to the rail and waterways systems in the hands of those who use it. Keeping an open dialogue (and a little lobbying) with key stakeholders like the Army Corps of Engineers, Department of Transportation and the Class I railroads may be the best stimulus package the feed and grain industry, and American production agriculture in general, can hope for now — and for years to come.