By Claire Hutchins, USW Market Analyst
U.S. railroads are a crucial part of the most efficient grain supply system in the world. The rail system fulfills an essential logistical function that neither grain handlers nor farmers can perform on their own.
Yet rail rates and charges paid by wheat shippers make up a large portion of export basis and directly affect the price overseas buyers pay for U.S. wheat. Farmers and the grain companies who rely on domestic rail to ship wheat are also aware that rail rates have increased at a rapid pace at the same time that export competition has also increased.
U.S. Wheat Associates (USW) and many of its state wheat commission members in 2017 formed a Transportation Working Group (TWG) to address issues of increasing wheat rail tariff rates and U.S. wheat’s competitive market position, especially compared to other commodities shipped from the same destinations to many export terminals.
The Surface Transportation Board (STB) is a federal regulatory board that has broad economic oversight of U.S. railroads. In early July, the TWG met with STB commissioners to voice support for a possible procedure that would make it easier and more efficient for shippers to challenge unreasonable and uncompetitive rail rates.
In the past year, the STB introduced the concept of a Final Offer Rate Review (FORR) that would help shippers in this effort. Over a 135–day timeline proposed under FORR: a shipper could challenge the railroad’s rate; both the shipper and the railroad could provide evidence supporting their position on the rate; both parties could suggest alternative rail rates; and if the STB finds the railroad is market dominant and imposed unreasonable rates, relief could be offered to the shipper as the difference between the initial rate and the new, lower rate offered either by the shipper or the railroad.
The USW TWG filed public comments to the STB in mid-August supporting the Board’s FORR procedure.
The FORR method offers wheat shippers a new system to challenge unreasonable rail rates. The TWG believes the FORR method is necessary because while farmers have faced depressed farm gate prices, wheat rail tariff rates have increased continually over time at a significantly higher rate than the railroads’ variable cost to ship the wheat (see chart). Additionally, wheat rates are substantially higher than the rates faced by similar commodities shipped over the exact same routes (see chart).
The TWG applauds the STB for proposing the FORR concept and believes it will help wheat shippers throughout the country challenge unreasonable rail rates which could help U.S. wheat reach overseas customers at more competitive prices.
USW, state wheat commissions and the farmers we represent look to U.S. railroads as our vital partners in a mutually beneficial effort to increase the value of U.S. wheat to end users. We appreciate their consideration of how fair rail rates can help make U.S. wheat more competitive on the world market.