Strategic Transportation Analysis Study Shows Results

The North Dakota Biennial Strategic Transportation Analysis program is critical to managing the logistical challenges of North Dakota's industrial sectors according to Gene Griffin, director of the Upper Great Plains Transportation Institute. Several important issues were analyzed in the first-stage of the program affecting grain and oilseeds.

Phase one included evaluation of shuttle trains, heavier covered hopper cars, intermodal facilities and the influence of logistics on transporting North Dakota products. Initial information in each of the four areas indicates challenges and opportunities for North Dakotans.

Shuttle Trains

Grain flow patterns for some 162 million bushels of North Dakota HRS wheat, durum, barley and corn may well be strongly affected by the investment in shuttle facilities. Both the facility itself and its ability to utilize more competitive rates in attracting grain have the potential to strongly influence future local grain flow patterns.

As grain flow patterns adjust to new market signals, demands on the local grain gathering system must be addressed. In looking at shuttle trains as a component of the study, several factors became apparent for shipments of North Dakota grains.

Each shuttle venture has unique requirements in infrastructure, economic incentives, investment requirements and financing packages. Based on an earlier UGPTI study, a $6 million green field facility required approximately 10 million bushels handled for profitable returns. Grain companies and railroads suggest a target of 12 to 15 million bushels for a shuttle facility.

This bushel requirement compares to the current average annual handle of 1.2 million bushels for North Dakota's elevators and an average annual handle of 5.6 million bushels for the state's largest elevators. Because of this, redistribution of bushels in the local elevator industry seems imminent.

Using wheat as the base case, the boundary of grain draw areas estimated for 10 shuttle facilities in the state encompassed 45 percent of the total land area. In production, approximately 88.6 million bushels of HRS wheat and 32.9 million bushels of durum were in the estimated shuttle draw areas.

These 10 draw areas encompassed about 38 percent of the state's HRS wheat production and 39 percent, of the state's durum production. For barley and corn, the shuttle facilities have the potential to accumulate 26.5 million bushels (24 percent of average state production) and 14.2 million bushels (19 percent of average state production), respectively, based on the estimated boundaries of the draw areas.

In relative terms, 2 percent of the elevators may originate up to 32 percent of the average annual production of wheat, barley and corn. This market share of North Dakota production translates to an average 16.5 million bushels per facility.

This potential concentration of bushels has implications for local roads, short line railroads, bridge infrastructure, local processors, local communities and the North Dakota elevator industry.

Impact of Heavier Cars on Light Density Rail Lines

Railroads are for-profit businesses. When they make decisions on whether to upgrade lines with light rail to handle larger cars, they rank investment alternatives on internal rates of return. Because North Dakota grain producers rely on an efficient rail system to move their products to domestic and export markets, decisions on rail lines and grain hopper car size are critical.

In the 1999-2000 crop year, approximately 69 percent of all North Dakota grains and oilseeds transported to domestic and export markets went by rail. The recent shift to larger grain hopper cars may threaten the viability of the state's light-density branch line network. Instead of 263,000-pound cars hauling 100 tons of grain, the new industry standard is becoming 286,000-pound cars capable of hauling 111 tons of grain.

Many light-density branch lines cannot handle these larger cars. Although it is possible to load the larger rail cars at lighter weights or operate at lower speeds on such lines, railroads operating on such lines eventually face a decision between upgrading and abandoning lines that cannot handle the 286,000 pound cars at full weight.

The UGPTI study simulated the impact of handling larger rail cars on many types of rail lines, modeled the decision process used by railroads in deciding whether to upgrade such lines or abandon them, estimated the costs of upgrading rail lines that are unlikely to be upgraded, and estimated generalized highway impact that could result from the abandonment of non-upgraded lines.

Conclusions drawn show railroads make decisions on their own profit model. Railroads are likely to use a maximum of an eight-year time frame for evaluating the benefits to upgrading lines. Competition is also an important factor. Railroads look at competitors' actions in terms of upgrading their rail lines, the ability of trucks to serve destination markets directly, the location of new shuttle train facilities, operational cost savings resulting from the upgrade, service improvements from the upgrade and the cost of the upgrade.

Traffic level for railroads generally show short lines are less likely than Class I railroads to upgrade. A larger revenue share for short lines or a loan guarantee program that extends the length of loan terms available to short lines could increase the likelihood of upgrading lines with light rail on short line systems.

Highways would also be affected if rail lines were eliminated. The study shows the generalized highway impact resulting from eliminating rail lines is small in comparison to the rail upgrading costs. Using various scenarios, total highway impact may exceed $73 million but the cost of upgrading these lines would exceed $257 million. (This does not include the cost of upgrading bridges.)

Thus, a state-funded subsidy to upgrade all such potentially abandoned lines does not appear to be warranted. However, some subsidy may be justified on specific lines.

Intermodal

One of the greatest challenges facing rural communities is limited transportation options. Many small companies do not produce quantities sufficient to ship in unit trains or even full truckloads. Intermodal shipping should provide companies and identity-preserved producers with truck trailer and container convenience while taking advantage of lower costs provided by rail shipping.

Presently, North Dakota does not have an intermodal facility. Short line railroads may enhance their own traffic base and customer service by adding an intermodal option.

A North Dakota business survey of outbound and inbound transportation showed that the southeast portion of North Dakota represented some 63 percent of all traffic. This is due to a combination of business density and willing respondents.

A Commodity Flow Survey (CFS) was used to estimate potential container truck/rail intermodal traffic generated in North Dakota. The increased shipments identified in the CFS and previous study estimates of potential intermodal traffic indicate the railroad view of intermodal may depend on other variables.

In this snapshot of truck/rail container intermodal shipping into and out of North Dakota, the study revealed benefits of intermodal transportation:

• Lower overall transportation costs
• Increased economic productivity and efficiency
• Reduced congestion and burden on over-stressed highway infrastructure
• Higher returns from public and private infrastructure investments
• Reduced energy consumption and reduced emissions
• Increased safety

North Dakota's truck/rail container intermodal shipping problem in North Dakota is circular in nature. Problems exist in the form of rates and service. Rates are high and service levels low because there is no volume.

Logistics

Company investment decisions are based on profit-maximizing goals. As North Dakota competes for these investment dollars, logistical advantages such as land values and labor costs may be nullified by logistical disadvantages such as freight rates and intermodal access.

It is imperative to identify and to understand these factors to help improve North Dakota's competitive position.

When considering a business venture, other than a clear product and market definition, the next most important consideration is to define the network for the product. This includes the total size of the market, as well as the number and size of competitors. The network design should take into account the number, size and location of suppliers, producers, distributors, wholesalers and retailers.

The specific factors to examine when considering the location of one particular component of the network, for example, a value-added processing facility, include the following:

• Labor climate
• Transportation availability
• Proximity to markets/customers
• Quality of life
• Taxes/Industrial development incentives
• Supplier networks
• Land costs/Utilities
• Company preference

(Full reports are available from the Upper Great Plains Transportation Institute at North Dakota State University)