Improved transportation key to North Dakota shippers
Posted on February 22, 2006
By Mikkel Pates - Agweek Staff Writer
CASSELTON, N.D. - Sinner Brothers and Bresnahan's office stands along Cass County (N.D.) Highway 10, east of town.
From his office window toward the south, Bob Sinner can gaze a half-mile across the frozen landscape to Interstate 94 and see BNSF Railway Co. track that runs along the north side of the freeway.
The number of trains traveling through Casselton have nearly tripled in the past five years - more than 80 a day. His export businesses in soybeans and other food grade commodities depend on his ability to get steel-clad "containers" to places such as Japan.
That's getting to be a bigger and bigger problem to get empty containers, affordably.
"It's ironic," Sinner says. "They say 200 empty containers pass by here every day to the West Coast - EMPTY. If I doubted that figure, it would probably be on the low side."
The problem must be fixed if the region is to stay competitive in the specialty crop production business.
Steamship lines that quote freight rates for IP containers have cut the number of containers they'll "reposition" from Minneapolis and Chicago to an "intermodal" yard where they're loaded on rail cars in Dilworth, Minn. During the past three years, attractive freight rates through that site have disappeared, Sinner says.
"Because of the cost of repositioning, the steamship lines realize an advantage to railing them through empty than to stop," Sinner says of the steamship lines.
Sinner says several of the region's communities spent much of the past few years, struggling to try to establish their own intermodal facilities - Bismarck, Minot, Fargo are the key players in North Dakota. While he understands their motivations, he says the region in the past two months has unified effort to concentrate on preserving and improving service to the current intermodal site in Dilworth.
"That's always been the focus in the Red River Valley area, and now with the increased demand for identity-preserved products from western North Dakota - peas and lentils - the potential use for the Dilworth facilities increases. It's pretty clear for those of us who have involved in this for many years that we have to get BNSF at the table."
Serious about shipping
SB&B has been involved in exporting identity-food grade food since 1987.
"We had a friend in Iowa doing a little of it," Sinner says. "I spent an awful lot of time, studying, researching and trying to understand the different shipping companies involved - how they do business, the different levels of distribution in this country and it other countries."
It was a new world.
Capitalizing on these markets required specific packaging and placing of products in sealed containers - "Identity Preserved" or simply "IP."
"No one damages or touches that product," Sinner says. "When it's contained, it is protected for food safety and traceability, as well as damage."
Containers used for food products must be "food grade." "They can't have been used for shipping things like chemicals, cow hides, or even something with an odor," Sinner says.
Earlier, in 1982, Sinner and Paul Schroeder of nearby Davenport, N.D., were instrumental in starting the North Dakota Soybean Growers Association. In 1985, he helped lobby for a state soybean checkoff to support the North Dakota Soybean Council.
He went on to the American Soybean Development Foundation. When that was rolled into the United Soybean Board in 1991, he became chairman of its international promotions committee.
In that capacity, he traveled the world and grew in appreciation for soybean meal and oil customers around the world - "how much they appreciated their U.S. origin."
Meanwhile, he convinced his partners to expand in the IP business. With the help of North Dakota State University researcher Sam Chang, they slowly gathered the credibility and experience in that area.
The pace of IP
In the 1990s, Cass County expanded into soybeans, with Roundup Ready beans, and non-GMO soybeans became more attractive in certain markets. Business was good.
Since Sept. 11, 2002, the pace in the IP world has picked up, Sinner says. "Food safety and traceability - that's what is
fueling the growth in the IP industry. You can't get those assurances from bulk shipments because there's no way of tracing it. In an IP system, you can do that very well."
In some retail markets, products carry a bar code that reveals not only price information, but also the ingredients, and how they can be traced to particular farm.
"You're seeing an evolution of the food industry," Sinner says.
Sinner says that while there has been an "explosion" in the demand for IP products, there has been an opposite trend - the advent of shuttle trains. Large grain elevator groups have invested millions in facilities that can handle 100- and 110-car "shuttle" trains of soybeans, corn or even wheat out of this region.
"You have to wonder how this is going to shake out when it's going in completely different directions," Sinner says. "Both seem to be surviving and growing, for now."
Intermodal, in its simplest form, means more than one method of transportation is needed to move a product from Point A to Point B.
This typically means loading 20-foot or 40-foot containers. Loading containers on rail cars requires a special ramp and a massive forklift that moves boxes onto and off from 18-wheel semi-trailers.
Containers primarily move on main rail lines, not on so-called short lines that feed them. Fargo, Casselton and Valley City all sit on BNSF's main intermodal line connecting Minneapolis and Chicago to the West Coast. Dilworth is it. There are no other intermodal sites in either North Dakota or South Dakota.
"Our choice is using or working with the BNSF and CP out of Minneapolis," Sinner says.
Heading west, the BNSF sends most intermodal trains to a point three miles west of Casselton then northwest to Minot and Williston, N.D., and beyond.
A key issue is the interaction between the steamship companies and BNSF. The steamship companies typically have offices in Chicago, but also Minneapolis or New York. They own oceangoing vessels, but book a transportation rate inclusively from an intermodal ramp to a foreign port. Like a travel agent, they quote the entire trip and don't separate out the rail and ocean pieces of it.
"The steamship lines work out contracts with BNSF, CP - or both of them - depending on where their lines are, and where their traffic is mostly headed," Sinner says.
Historically, a part of Sinner's job with SB&B was to talk to steamship lines and compare their rates from Dilworth to these foreign ports. Fifteen years ago, Sinner could use five or 10 different steamship lines out of Dilworth.
"Today, you're looking at two or three."
Out of balance
The increasing U.S. trade imbalance with countries such as Japan, China and Korea, is well known. The pedestrian might assume there would be a huge glut of empty containers to be used for IP agriculture.
There isn't."All of the steamship lines are hesitant to talk about it, but it's obvious to us as a shipper that steamship lines capture more revenue on inbound containers vs. outbound containers - particularly when you compare the value of freight."
A container coming from China, packed with electronic gear, is three or four times the revenue to a steamship line than if agricultural products are put in it so it can be shipped overseas. Time is money - literally.
"It can take three to four days to get it loaded at Dilworth," Sinner says. "If it travels overseas, it can take seven to 10 days before it's unloaded and available to be re-exported. That's 13 days of lost time to the steamship lines that are focusing on high-value shipments to the U.S.," Sinner says. "That's hurting our ability to expand our exports from this country, particularly in IP agricultural products."
As railroads have worked to minimize their stops and maximize their long hauls, they've cut the number of intermodal shipping points. Ten years ago, there were more than 1,000 ramps like Dilworth. Today, there are less than 200.
A cruel irony, Sinner says, is that agriculture is one of the trade areas that has been helping to reduce the trade deficit. The Red River Valley and surrounding areas in North Dakota, Minnesota and South Dakota are uniquely suited to growing a large number of specialty crops, all of which would benefit from better intermodal service.
As economies in Asia and elsewhere become more economically stable (often from the export of goods to the United States) they try to improve their diets. The United States should capitalize.
"It makes a lot of sense for the U.S. government to realize and recognize that we need to look at this, to make sure we can get these IP ag products out there in a reasonable and economical way."
Through the years, Sinner has seen steamship lines come and go and offer either attractive or unattractive rates out of Dilworth.
He isn't privy to conversations between steamship lines and railroads. Steamship line officials have said those fees can vary significantly - from $200 to $750 per container. It's become increasingly frustrating to know that its containers can be trucked out of Minneapolis and still have a better rate than obtaining equipment out of Dilworth.
The problem isn't unique to agricultural shippers.
About six years ago, the Bobcat Co. of Fargo was having trouble getting service to both the East and West coasts out of Dilworth. Sinner met with Dennis McLeod, president of the Red River Valley and Western Railroad, to see whether something could be done. That discussion evolved into a committee of shippers and government leaders, which was formed to discuss and improve logistics for the region. The committee conducted surveys to current and potential capacity for the eastern North Dakota and northern Minnesota region.
The Upper Great Plains Transportation Institute in Fargo worked on the problem, identifying that as many as 35,000 containers a year currently would go out of Dilworth ramp from a 150-mile radius of Fargo - including commercial manufacturers like Bobcat.
"That's without any growth, and BNSF has never disputed those numbers," Sinner says.
Today, fewer than 5,000 are shipped out of Dilworth, a figure which Sinner says is less than half of what was shipped from that location five years ago. BNSF has said they'd prefer 15,000 to 20,000 containers to make a ramp viable intermodal site.
"We've certainly got adequate volume for a viable ramp," Sinner says.
"I would guarantee you that you could go to any agricultural shipper here and they'll tell you we are not competitive in the world market. It's more competitive elsewhere in the Midwest and in Canada."
One answer to all of this would be if North Dakota could attract a "serious importer" so that empty containers could come here. Possibilities for this might be for some large retail chain.
Relying on commitments
Until that materializes, shippers simply must rely on BNSF coming through with commitments to a better pricing structure.
"What BNSF would like to do, rather than bringing in five, 10, 30 a day, they'd like to bring in 100, 200, 300 containers once or twice a week," he says. "To minimize their stops, they'd like a steamship line to commit to that. With this concept, BNSF has indicated they would offer more attractive or better repositioning rates to steamship lines, which in turn would create more attractive pricing to shippers."
Despite promises, little apparent progress has been made. Service has not improved, nor have rates.
Increasing fuel costs are leading to general rate increases. Some steamship lines pass all of those costs on to the shippers, others don't.
"The railroad has implemented a fuel surcharge," Sinner says. "The ironic thing is that's largely for freight heading west. If a train is going east, in many cases, there is no surcharge."
Sinner says that one hopeful sign is that North Dakota communities are all pulling in the same direction - finally. Earlier, Fargo, Bismarck and Minot were working more individually.
In 2004, officials in the Bismarck area, as well as Bobcat, and Sen. Kent Conrad, D-N.D., announced they were working on a Northern Plains Commerce Center. It would include an intermodal loading ramp, they say. A federal transportation bill that passed Congress in October 2005 included a $2 million earmark for intermodal transportation out of North Dakota. The Bismarck group asked BNSF to service Bismarck like they had serviced Dilworth.
"I have to hand it to them, I think they were very proactive," Sinner says of Bismarck's efforts. "They should be complimented because at least they're making a very sincere and serious effort to improve the freight situation in North Dakota."
Unfortunately, a number of issues prohibited the plan from working.
First, BNSF's intermodal trains didn't run through Bismarck. Because of this, Bismarck promoters were not able to establish whether their rates could compete with Minneapolis.
Second, it was quite clear that the entire state of North Dakota would be able to sustain only one viable intermodal ramp. Most of the current container activity is in the Red River Valley and northern Minnesota area.
In May 2005, Sinner met with BNSF officials in Fort Worth, Texas. They told him the railroad was committed to improving intermodal service out of the region, but that communities would have to start working together, rather than competing.
By September 2005, the Bismarck group decided the commerce center would be trans-loading, rather than direct intermodal. Trans-load means IP shippers can load commodities onto boxcars or hopper cars, which would be transferred to IP containers at ports.
About the same time, BNSF told Minot leaders that their effort would need to complement efforts in Dilworth. "A container train might come into Dilworth and be broken - with part of it going to Minot," Sinner says. "There are ways to get this to work."
About the same time, the state Department of Transportation, at the governor's direction, pulled groups together to begin a dialog for a regional freight strategy. Groups in Minot, Bismarck and Fargo are working together.
Rep. Collin Peterson, D-Minn., has been working on the issue. Shipper groups are meeting to discuss how they could handle a 100- to 200-car delivery.
"Now we're trying to get BNSF to the table to get them to buy into a strategy for a freight plan," Sinner says. "That's important."
The DOT-led group of leaders from all three cities is working toward a regional "Transportation Summit." The conference will be organized by leaders from the three cities and is tentatively scheduled in March - either in Fargo or Bismarck.
Separately, Bismarck officials of the Northern Plains Commerce Center announced a Shippers Conference March 7 in Bismarck.