Research Shows Continued Challenge for Agriculture and Transportation
North Dakota producers face challenges particular to rural states filling the grocery shelves of the nation and the world. With farms spread over great areas and the state equidistant from both coasts, cost effectively moving grain to international markets includes analysis of many factors.
Shuttle Equipped Elevators Have Opportunities
Shuttle trains offer the most competitive rail rates. In the 1999-2000 crop year, approximately 69 percent of all North Dakota grains and oilseeds transported to export and domestic markets moved by rail.
But shippers must meet criteria including volume, transaction and operational commitments. And, discussions with grain companies and railroads suggest 12 to15 million bushels are needed annually for a shuttle facility to work. Savings for an elevator in central North Dakota shipping wheat to Portland, Ore., are significant. With a shuttle train, cost per bushel is $1.06 compared to $1.21 a bushel for a unit train.
In the Upper Great Plains Transportation Institute study, using 10 possible shuttle facilities, two percent of the elevators might originate up to 32 percent of the average annual production of wheat, barley and corn. The market share of state production translates to an average 16.5 million bushels per facility.
To operate 10 shuttle facilities, 135 million bushels, or 20 percent of the state's annual grain production, would need to be used. Dedicated land needed in the estimated shuttle facility draw areas would be 22,751,000 acres, fully 45 percent of North Dakota's land area. Wheat alone needed in the estimated area would be 121,478,000 bushels or 38 percent of the state's annual wheat production.
Together, this reflects the imminence of redistribution of bushels within the local elevator industry. Using this potential concentration of bushels, the implications for local roads, short line railroads, bridge infrastructure, local processors, local communities and the North Dakota elevator industry will all have challenges.
Heavy Loading Rail Grain Cars Impact State
Using shuttle trains to transport grain means elevator reallocation and different shipping arrangements. Compounding the decision process is the fact that since 1980, there have been more than 1,200 miles of rail line abandoned in North Dakota. Eased abandonment regulations and increased shipment sizes contributed. The current trend of shuttle train shipment, with a shift to 286,000 pound cars, is likely to lead to further rail abandonment.
Larger rail cars can create efficiency for railroads including reduced car and locomotive ownership costs; reduced labor costs; reduced fuel, car and locomotive maintenance costs and increased system capacity. Shippers average about 3-cents per bushel savings for wheat shipped in 286,000 pound cars.
Because of the savings available to railroads on mainline routes, there has been a major shift to the 286,000 pound cars since the early '90s. While less than one percent moved in 286,000 pound cars in 1993, by 1998, 28 percent did.
Using larger cars affects the rail lines in place. Light-density branch lines comprise nearly 2/3 of all North Dakota route mileage. More than half of these branch line miles have rail in place that is less than 90 pounds per yard. Simulations performed in the study suggest lines that have track, which is less than 90 pounds per yard are not likely to be viable under a switch to 286,000 pound cars. These lines perform poorly even at very low speeds. Moreover, a slow speed operation is not likely to be a viable long-run alternative since the opportunity costs associated with locomotives and cars are high.
Thus, railroads will face a future decision on whether to upgrade many of these lines or whether to abandon them.
To the extent rail abandonment occurs in the future, impacts in affected communities may include:
- increased shipper transportation costs, and a resulting reduction in producer income
- reductions in gross business volume and personal income
- increased highway maintenance costs
- decreased economic development opportunities
However, rate savings passed on to producers as a result of shipping in larger sizes and larger cars may offset the impacts of reductions in personal income and gross business volume to some extent. Moreover, in areas where shuttle facilities are built, and where larger rail cars are used, shippers and communities will benefit from the changes.
Importance of Intermodal Service to Future Commodity Processing and Marketing
The use of intermodal transportation is increasing in the United States with container intermodal shipping an important option for competing in the global and domestic market. The distance to a loading facility is an important part of making intermodal shipping economically feasible. For North Dakota shippers, current loading facilities are in Dilworth and Minneapolis, Minn., and Billings, Mont.
North Dakota's intermodal shipping is decreasing according to the Public Use Waybill. Typically drayage to an intermodal loading facility is 100 miles or less. Potential sites for a North Dakota facility are being explored.
The food industry's increasing demand for identity preserved commodities, along with the agriculture community pursuit of value added ventures, provides economic opportunity for North Dakota farmers and businesses. Transportation for a portion of North Dakota commodities will continue to change from unit trains to either truck or container. For export and long domestic less-than-trainload shipments a rail or intermodal option may lessen transportation costs making North Dakota products more competitive.
Partnerships between private and public sectors for building and operating intermodal facilities has worked in other states. This partnering as an economic development tool in North Dakota could serve to strengthen existing business and provide transportation options.
Logistical Factors Influencing the Success of Value Added Processing Facilities
North Dakota's competitiveness in adding value to raw commodities depends on logistics methods and business practices employed by the firm. Factors that need to be considered include location importance, labor climate, transportation availability, markets, product characteristics, taxes and economic development incentives, supplier network, land, utilities costs and infrastructure, and company preference.
Labor issues in rural areas may be foremost. A determination of the skill level for the available labor pool is important. Also can the community provide the support necessary to provide quality of life for the workforce. Quality of life includes things like healthcare, housing availability, education, and recreation opportunities.
Transportation and utility infrastructure may rule out otherwise desirable locations. Access to highway and rail facilities along with gas, electric, and communication availability may eliminate many locations.
Company preference may come into play for business ventures. Economic development issues along with community and state development may play a role.
Research Continues
While North Dakota and other Plains states deal with many of the same challenges, UGPTI researchers continue to create knowledge about shuttle trains, heavy rail cars, intermodal facilities and location analysis. Data gathering and evaluation of information for producers, shippers and consumers helps create opportunity and allay misfortune.
