ORAL
STATEMENT OF STEVE STREGE, ND GRAIN DEALERS ASSOCIATION Thank
you Congressman Pomeroy for that introduction.
You’ve been a great supporter over the years of country grain
elevators. Mr. Chairman, thank you
for inviting me to be a witness at this hearing.
Our Association represents country grain elevators that receive
grain from farmers, clean, blend, and ship it into export or to domestic
processors. We are part of
the Alliance for Rail Competition, which is part of the Rail Customer
Coalition, which together represents 55% of freight rail revenues. Grain shippers and
receivers who do not have effective competitive transportation
alternatives, are being taken advantage of on rail rates and service.
Many of these captive customers are being frozen out of the
marketplace because railroads give preference to other customers. We have various sizes of
grain shippers, those that load up to about 24 cars at one time, and
unit train shippers of 25-27 cars or 50-54 cars.
Now railroads want bigger, in the 100-110-car range, commonly
called shuttle trains. Our
recent experience, particularly with the BNSF, is that it concentrates
its service in the shuttle train segment, while others are left to wait
30-50 days, taking them out of the market at great cost to elevators and
farmers. Here’s
an everyday analogy. It would likely be more efficient for grocery stores to sell
potatoes in 100 lb sacks only. But
customers want 5, 10 and 20 lb sacks.
If a grocery store went to a policy of 100 lb sacks on time and
all others 30 days late, its customers would go elsewhere.
That’s the benefit of competition.
But in the case of these railroad customers there was no
competitive alternative so they could only sit and wait, absorbing
associated costs in the process The
law says shippers are entitled to service on reasonable request.
Railroad delivery of 26 and 52 car units 30-50 days late is NOT
reasonable. It is a
violation of law. When a
violation of law is committed there should be consequences.
The 8th Circuit Court of Appeals reversed the ICC in 1993, saying
that, if a particular railroad car distribution process "so reduces
the number of cars available for" other shippers that it unduly
impairs the railroad's ability to meet its common carrier obligation,
then the preferential program is "unlawful."
The STB refuses to follow that decision. Just
recently BNSF announced that while it continues auctions of shuttle
trains, it is shutting off orders for its assured service COT program on
other train sizes. Another example of how
farmers and elevators in our region have been deprived by railroad
practices of an opportunity to sell grain is through "inverse
pricing." Under this
practice, farmers and captive elevators who are closer to a consumption
point, and who should have a natural locational advantage in freight
rates, are put out of that market by cheaper rail rates to that market
from a more distant point that is less captive. Those who cannot obtain
service and effective rates for months on end will be weakened
financially and eventually be put out of business.
Branchlines will be abandoned through railroad discrimination and
neglect and the grain elevator industry will be forced to concentrate
into fewer mega-elevators. Farmers will lose
competition for their grain, and have to truck it farther, severely
impacting our roads and highways. You
are considering a highway bill of several hundred billions of dollars.
Add some more as rails shift grain gathering to the roads and
public sector. North Dakotans,
including our Governor, met last winter with STB Chairman Roger Nober
about this situation. We
learned at those meetings that the discrimination in the distribution of
grain cars between shuttle trains and other train loaders was not of
concern to the STB. This
leads our shippers to believe that the agency here in DC that is
supposed to be watching out for their interests will instead not take
assertive action to protect them. Mr. Nober said here this
morning that the parties (to these meetings) agreed to a set of
steps. I’d describe the
outcome as the railroad telling us what it was going to do. Recently BNSF said it is
caught up on grain railcar orders in North Dakota.
Maybe, maybe not. But
catching up does not undue the millions of dollars in economic harm done
to customers across its whole system by failure to make timely delivery
of pre-booked, and in many cases partially pre-paid, railcars. Back
in January the BNSF promised an ombudsman for our problems by early
March. Nothing has happened
yet regarding that. There is a chart on page
10 in my written testimony showing how we in the Northern Plains who are
the most captive, and who pay the highest grain rates in the country
were also the farthest behind on service this past fall and winter. Grain in the Northern Plains and other captive areas
sits until the railroad gets around to moving it.
The best marketing opportunities have often evaporated by then. Mr. Chairman I'd like to
submit for the record, copies of an article from the March 27, 2004
Bismarck, ND Tribune titled "Rail backlog leads to empty
pockets." It describes
how BNSF’s failure to deliver promised rail cars to shippers of 26 and
52 car units – a practice apparently condoned by the STB – costs
farmers and grain elevators hundreds of thousands of dollars. Captive traffic has
always paid higher rates, and we don’t disagree with the concept of
some differential pricing. But
when rates are three or four times a railroad’s variable cost, and
there is no effective remedy, something must be done.
At present, shippers have to gamble on an uncertain, expensive
and arduous process to seek rate relief, and there is no certainty that
anything will change. Under
Staggers, where competition is lacking, regulatory oversight is called
for. Unfortunately that has
not happened. Mr. Hamberger said here
earlier that we must convert to shuttle trains because the railroads are
trying to keep American farmers competitive in world markets.
If his railroad members are so concerned about that they should
reduce their rates from the 250-350 percent of variable cost levels we
now have. Shippers put up with
slow service, high rates, and dictatorial practices. Railroads are huge companies, but most grain shippers are
not. Rail-dependent
businesses must bend their ways to the railroad's will or be put out of
business. We urge you to
take action quickly to end such practices. Congressman Moran asked
about rate levels now in comparison to pre-Staggers.
We have not been the beneficiaries of any 50 percent rate
reductions as Mr. Hamberger talked about.
But let’s talk about costs. Since 1980 the rail
industry has shifted much cost to the grain industry through the
investments and ongoing additional expenses of loading ever larger and
larger trains. Rail lines
have been abandoned, saving railroads money, but also shifting cost to
the farmers and public road system. We hear a lot about Wall
Street, but we don’t hear much about Main Street and the railroad
customers who pay the bills. Congressman Baker expressed a frustration this morning about nothing getting done. It was 20 months ago to the day that the three of us here (testifiers Duval, Platz and Strege) testified over on the Senate side about these same issues. We were told that something would be done. But nothing gets done, and shippers die on the vine.
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