September 08, 2014

08/09/2014: NGFA gathers support for its claim that rail rates are unreasonable

The National Grain and Feed Association (NGFA), on August 25, 2014, submitted a 17-page reply brief to the federal Surface Transportation Board (STB) urging that it reject rail carriers' plea that the agency retain the status quo regarding its current procedures for challenging unreasonable freight rates for agricultural products.

Instead, the NGFA urged the STB to proceed by developing a proposed rule containing elements of the new methodology developed by the NGFA that would replace the agency's current onerous and unworkable procedures that effectively preclude captive shippers and receivers from challenging rail rates.

In so doing, the NGFA refuted numerous arguments and assertions made by the Association of American Railroads and several rail carriers in their opening comments in the STB's grain rail rate proceeding [EP 665 (Sub. No-1)].

The NGFA said the railroads' comments "either totally disregard or attempt to obfuscate what the agency's proceeding is all about" - exploring development of a workable process that shippers and receivers of a wide range of agricultural products could use to challenge rail rates they believe are unreasonable in situations where those rail users are captive and where effective competition does not exist - a statutory protection expressly granted by Congress under the Staggers Rail Act of 1980.

"Instead, the railroads would have the STB substitute their (railroads') self-professed altruism and benevolence in rate-setting practices as a complete and total replacement for the statutory protections provided by Congress to captive agricultural rail users against predatory pricing practices," the NGFA said.

The NGFA's brief replying to the railroad parties' opening comments pointed out that the carriers in several respects reinforced NGFA's arguments about why agricultural product shipments differ from most non-agricultural commodities, and deserve a different rate-challenge method. These differences include multiple origin-destination pairs that change frequently and sometimes unpredictably, fluctuating crop yields, changing patterns of farmer and elevator merchandising based on market prices and varying demand shifts in domestic and export markets, fluctuating currency valuations and geopolitical considerations.

But the NGFA took strong exception to the railroads' contention that rail-rate challenges are not being pursued by agricultural shippers because all existing rates are reasonable and market-based.

The rail carriers also attempted to dismiss the need for a workable approach for agricultural rail users to challenge unreasonable rates by citing the last two years of record net farm income, which the NGFA called another diversionary tactic that ignores the underlying issue and the fact that net farm income can be highly variable based upon supply/demand fundamentals and mounting transportation costs associated with pervasive rail-service disruptions.

The NGFA also countered the allegation of Dr. Bill Wilson from North Dakota State University, who authored a verified statement included in BNSF Railway's opening comments, that the increased vertical integration in the grain supply chain has resulted in large grain firms that have the size and leverage to prevent any attempt by rail carriers to exercise their rate-setting market power.

"In actuality, railroads, even in competitive transportation environments, typically set rates and price their services at the maximum level they believe the market will bear," the NGFA responded. "Further, if larger grain companies have such profound 'leverage' over rail carrier pricing practices... how can (the railroads) explain the millions of dollars in fuel overcharges extracted by a major Class I carrier...?" the NGFA asked - referring to a recent proceeding launched by the STB into whether its current fuel surcharge rules have given railroads an opportunity to recover more than their actual incremental increases in fuel, thereby making fuel surcharges a profit center.

Further, the NGFA contested the assertions from some railroads that any change to the status quo when it comes to the STB's rail rate challenge procedures would undermine, if not destroy, their ability to invest in rail infrastructure. The NGFA noted that the new method it proposed to the STB for captive agricultural shippers to challenge unreasonable rail rates would not have such a result and would not cause any carrier to become revenue inadequate, even if every possible case was successfully challenged.

"Taken as a whole, it is clear from the railroads' opening comments that the rates they set for agricultural commodities are based on the maximum they think the market will bear, not necessarily at a level to capture costs and a reasonable profit and return on investment," the NGFA concluded. "Where transportation market forces are not operating, as is the case in situations where shippers and receivers are captive to a rail carrier, no such 'discipline' exists and the sole remedy available to captive shippers or receivers is to have access to a workable process to challenge rates they believe are unreasonable."

33 organisations support NGFA's call for change

In a related development, 33 national, state and regional producer and agribusiness organizations submitted a joint reply brief  to the STB reiterating and supporting the NGFA's contention that the STB's current procedures for challenging unreasonable rail rates are unworkable, and should be replaced with new rules and procedures.

The groups wrote that the new rail-rate reasonableness methodology proposed by the NGFA "provides the (STB) with a unique opportunity to adopt a set of rules for agricultural rail rates that would be relatively simple to apply, would permit cases to be processed in a timely manner and at a lower cost than the current rules, and would produce relief to captive agricultural shippers while protecting the revenues of defendant railroads."
 Organizations signing the joint reply brief were: Agribusiness Association of Iowa; Agribusiness Council of Indiana; Agricultural Retailers Association; American Bakers Association; American Farm Bureau Federation, American Feed Industry Association; American Soybean Association; California Grain and Feed Association; Corn Refiners Association; Grain and Feed Association of Illinois; Institute of Shortening and Edible Oils; Kansas Cooperative Council; Kansas Grain and Feed Association; Michigan Agribusiness Association; Michigan Bean Shippers Association; Minnesota Grain and Feed Association; Missouri Agribusiness Association; Montana Grain Elevators Association; National Council of Farmer Cooperatives; National Farmers Union; National Oilseed Processors Association; Nebraska Grain and Feed Association; North American Millers' Association; North Dakota Grain Dealers Association; Northeast Agribusiness and Feed Alliance; Ohio Agribusiness Association; Oklahoma Grain and Feed Association; Pacific Northwest Grain and Feed Association; Pet Food Institute; South Dakota Grain and Feed Association; Texas Grain and Feed Association; USA Rice Federation; and Wisconsin Agribusiness Association.

The NGFA, established in 1896, consists of more than 1,050 grain, feed, processing, exporting and other grain-related companies that operate more than 7,000 facilities and handle more than 70 percent of all U.S. grains and oilseeds. Its membership includes grain elevators; feed and feed ingredient manufacturers; biofuels companies; grain and oilseed processors and millers; exporters; livestock and poultry integrators; and associated firms that provide goods and services to the nation's grain, feed and processing industry. The NGFA also consists of 26 affiliated State and Regional Grain and Feed Associations, and has strategic alliances with Pet Food Institute and and North American Export Grain Association.

Read more HERE.

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