Rail delays hurt energy and commodities

In Alma, Wis., a power plant has cut electric generation and is hauling in coal with semitrailer trucks because freight trains are too slow.

A Winnebago, Minn., ethanol producer also struggles with the nation's congested railways: Unable to ship as much fuel by rail, the plant now puts more into tanker trucks.

Across the northern United States and Canada, commodities such as fuel, fertilizer and grain have been moving at a frustratingly slow pace on freight-clogged, heavily booked and winter-battered railways.

Customers of some lines, especially BNSF Railway, are unhappy. Oil trains are getting some of the blame for Upper Midwest rail congestion. But BNSF and others say freight overall is up — amid a harsh winter that slowed everything down.

"This is the worst I've seen in 20 years," said Dan Mack, vice president for rail transportation and terminal operations at CHS Inc., the nation's largest farmer cooperative whose shipping needs range from grain to propane.

With winter officially over, some of the weather-related congestion is easing. But Mack and others say rail shipping problems could persist into 2015. BNSF and other railroads are making significant investments to speed freight, but track upgrades themselves can cause slowdowns.

In New York, the wholesale price of ethanol has climbed by $1.20 per gallon this year, thanks to shortages on the East Coast attributed to slow rail shipping. In the face of the rail congestion, many U.S. ethanol plants cut production. Output is down 13 percent to 869,000 barrels per day since December, though up slightly last week, said Geoff Cooper, senior vice president of research and analysis for the Renewable Fuels Association, an industry group.

"Lots of plants completely filled their on-site storage tanks," Cooper said.

Corn Plus, one of Minnesota's first ethanol plants, has 65 tank cars to ship fuel. The problem, said General Manager Mark Drake, is that Canadian Pacific has been slower and more unpredictable about hauling empty tank cars back to the plant. "If those cars aren't returning, you are pretty much forced into the truck market," he said.

At Dairyland Power Cooperative, an electric utility based in La Crosse, Wis., coal trains from BNSF are taking two to three times longer to arrive. "Overall we are getting only about half the coal that we would normally see," said John Carr, the co-op's vice president for strategic planning.

At one point in February, he said, the utility got down to as little as 10 days of coal for some units along the Mississippi River. Plant operators prefer to have 30 days' supply or more. Dairyland has trucked coal from another plant and from a Minnesota utility to its plants in Alma, Wis., to rebuild stocks.

Minnesota utilities, including Xcel Energy, the state's largest power company with 1.2 million customers, said the rail congestion has put a strain on coal supplies, but companies were coping. Minnesota still gets about half its power from burning coal. One of Xcel's plants, in Becker, Minn., burns up to three trainloads per day.

Minnesota Power, based in Duluth, had a lot of coal on hand before winter and pressed BNSF to speed up shipments when deliveries lagged. Wind power, which was particularly strong in January, helped offset the need for coal burning, said Al Rudeck, the utility's vice president for strategy and planning.

Many of the rail problems began late last summer, as track construction projects extended into fall. By midwinter, said Steve Sharp, president of Consumers United for Rail Equity, "it was a crisis."

That's when passenger service hit snags on Amtrak and the Northstar commuter line in Minnesota. Northstar's operator said its problems are over, but Amtrak said it's still facing delays in the region, though not as severe as before.

"This seems to have started with the uptick in shipping … shale oil, especially from North Dakota," said Sharp, who also is director of fuels for Arkansas Electric Cooperative Corp., a wholesale power supplier in Little Rock.

North Dakota now ships most of its crude oil by rail, on trains of 100 tank cars or more using BNSF and Canadian Pacific tracks. Union Pacific, which delivers coal and ethanol, but not North Dakota crude oil, has not faced as many problems. A shipper survey by Argus Media, which tracks transportation and commodities, found that Union Pacific's on-time performance remained good while BNSF's dropped below acceptable in January, the most recent data available.

"They weren't prepared to handle all of the grain, all of the crude, plus the resurgence of coal when the natural gas price went up," said Todd Tranausky, U.S. transportation editor for Argus Rail Business.

BNSF and Canadian Pacific said shipping is up overall, with crude oil a small share of traffic. BNSF declined a request for an interview, but spokeswoman Amy McBeth said in an e-mail that consumer product shipments — ranging from beer to car parts to home decorations — grew the most. The railway, she said, has added employees and locomotives, has worked with shippers to solve problems, and has a record $5 billion capital plan for 2014, much of it focused on the Upper Midwest.

"It's been an ongoing, day-to-day process," added Ed Greenberg, spokesman for CP, whose U.S. headquarters is in Minneapolis. "The entire transportation system has been dealing with extreme weather as well as congestion through an important center, and that is Chicago."

Clogged traffic in Chicago, a key waypoint for freight moving east and west, left trains idle on sidings and tracks as far away as Minnesota. "Trains were backed up — literally anyplace you could park a train," said CHS' Mack.

In Canada, Canadian Pacific and Canadian National are under pressure to improve grain and other shipping. In the coldest temperatures, trains can't be as long as usual because the cold diminishes the effectiveness of air brakes. That forces northern railroads to run shorter trains, requiring more crews and locomotives to ship the same amount of goods.

Canadian National said it recently improved its grain car service, delivering 4,300 cars for loading per week compared with 2,900 per week in February.

Looking ahead, the next rail-delivery worry is over propane.

A pipeline that supplies 40 percent of Minnesota's propane is shutting off permanently this month. In its place, the propane industry will rely more heavily on shipments by railroad tank cars. The new supply chain must be in place before next fall and winter, when demand peaks.

CHS, based in Inver Grove Heights, is a major wholesaler and retailer of the fuel. It is investing more than $24 million in its regional supply infrastructure and is leasing more than 640 rail tank cars at a cost of more than $7 million a year. Others in the fuel industry are adding trucks, storage and terminals, too.

But CHS's Mack said that rail is less predictable than pipelines. That could make it even harder for the industry to respond to propane shortages like the one that drove up prices this past winter.

"I don't want to be an alarmist, but it is a different supply chain," Mack said. "People in need of the product need to be aware of a significant change."

David Shaffer • 612-673-7090

@ShafferStrib