TRANSPORT

from 2023 February Ethanol Producer Magazine

CLEANING

A LOT ON THE LINES

After averting a national labor strike and starting to address declines in speed and service, the rail industry appears ready to roll past a rough stretch—and that's good for U.S. ethanol.

By Luke Geiver

While the threat of a nationwide rail strike—for now—is no longer imminent, a protracted brush with that the possibility in late 2022 threatened to leave the U.S. ethanol industry stuck in its

tracks. According to the Association of American Railroads, roughly 70 percent of all ethanol produced in the U.S. is shipped via rail from production facilities—mostly in the Corn Belt—to larger transload sites, blending locations or refineries. Each of the seven Class I railroads, big names like Burlington Northern Santa Fe and Union Pacific, move ethanol, but even the shortline and regional railroads play a significant part in moving the biofuel by rail. The AAR states that roughly 20 percent of ethanol originates from the rural, short lines across the heart of ethanol country.

A major rail strike was close to happening in December 2022, but President Joe Biden’s Administration stepped into the middle of a complicated labor dispute between the railroads and the union-represented workers to ensure it didn’t play out. The administration pushed through a tentative agreement between the numerous railroads and multiple unions to avert a major national rail strike.

The Renewable Fuels Association, along with multiple other trade organizations—all concerned about the health of the nation’s rail system—applauded the move by the Administration, noting that if such a strike were to happen it would cripple the nation’s supply chain.

While the strike was avoided, the agreement reached wasn’t favored by all parties and there were more than 10 parties involved in the negotiations. So, the possibility of another strike still remains. Understanding the factors that nearly caused the most recent rail strike will help producers monitor similar situations in the future and potentially manage challenges that are likely to happen in the event of a strike.

First, Know Your Rail Landscape

Tony Hatch, a senior transportation analyst on Wall Street for more than twenty years (and a television news contributor on the subject of rail), closely followed the rail strike threat. And starting well before the recent rail industry discord, Hatch has been

ALL DIRECTIONS: Rail plays a major role in moving ethanol across the northern and southern U.S. borders. This tank car is moving ethanol into Mexico.

PHOTO: US GRAINS COUNCIL

advising investors and companies on the state of rail and the factors worth watching regarding railroads at any given time period.

For Hatch, the recent strike was brewing for some time. Despite being oversupplied with tank cars and shipping cars, the rail industry has struggled with the right kind of trained labor to load, move and manage the nation’s fleet. Prior to its attention on the potential of a rail strike, the RFA called out the issues with rail that Hatch says were happening for some time. “Even before the labor dispute emerged, ethanol producers were experiencing a significant deterioration in rail service,” the RFA said through submitted comments to the Surface Transportation Board in May 2022.

“Rail is under huge pressure right now,” Hatch says, “even before the strike was avoided. The trade groups have been hammering the sector for the last 12 months for poor service.”

The RFA and Hatch have the numbers to back up their assertions about the poor quality of rail service over the past 24 months. “Dwell time,” one of the most tracked and talked about rail data terms, is at the heart of the issue. The seven major carriers are required by the STB to track dwell times on a weekly basis. STB tracks the average number of hours a unit train by type (ethanol for example) is at its origin site (i.e., dwelling) before moving. Since 2017, dwell times for ethanol related trains have varied widely, ranging everywhere from four hours at origin to more than 120 hours of idle time before a train moves on. BNSF had a dwell time of 7.1 hours in 2017 for ethanol unit trains, but in 2022 the number was near 52 hours.

In an April letter to the STB, the major ethanol trade groups including Growth Energy and RFA called out those dwell time numbers as part of the overall dissatisfaction felt by many toward rail service. In addition to dwell times, the number of loaded or empty cars in revenue service that have not moved for 48 hours or greater (another data point tracked by STB) is also on the rise. Ethanol groups weren’t the only ones calling out poor rail service to the STB in the past two years.

Hatch says the issue isn’t industry or sector specific, but resides instead at the personnel level. The major carriers have

been dealing with a workforce issue, and that’s significantly contributed to diminishing service due to a lack of physical man hours completed by trained personnel. The result of these workforce issues, Hatch explains, created a disconnect between the unions and the carriers. And that disconnect—fixed for now—was the reason why a major rail strike almost made a poor situation with rail service even worse. According to Hatch, understanding the factors that impact poor rail service and create the potential for a labor strike will help ethanol producers and others better understand the state of rail now and into the future. And, Hatch says, based on the agreement used to

RAIL FOR EVERYTHING: Rail and ethanol are linked through more than liquid product. Nearly a quarter of the ethanol plants in the U.S. move in grain (or move out distillers grains) via rail.

PHOTO: STOCK

end the threat of the last strike, there are better days ahead for the rail workforce and rail clients (like ethanol producers).

Expectations for Rail

The pandemic created issues with the nation’s supply chain during the past few years. For rail, it showed up with the personnel needed to move and manage cars, Hatch says. Crews got short. Many were unable to miss work because of labor regulations that made it difficult to do so. The unfavorable work conditions pushed many long-time crew members to leave the rail sector. Others that were put on furlough during the pandemic chose not to come back. On top of that, Hatch explains, because the rail network is all connected, when one region or area that is short-staffed gets slowed down, the entire system suffers. And, when one section suffers, mistakes and dwell time goes up if something breaks or requires maintenance.

Hatch’s assessment of the rail industry’s workforce issues isn’t just an opinion. The STB has already received several complaints, and the overall near rail strike of 2022 was all related to workforce issues.

Because of better pay clauses, back pay and time-off changes in the labor negotiations, Hatch believes the worker shortage and the service issues linked to those shortages will improve in the year ahead. The STB is also now tracking the efforts of the major carriers to hire more workforce. For the past two years, Martin

READY TO WORK: After the Biden Administration stepped in to alleviate a rail strike in late 2022, the STB announced it would begin tracking and posting railroad service and employment data.

PHOTO: GLOBAL ETHANOL

Oberman, chair of the STB, has been in communication with the major rail carriers about their hiring efforts. In 2021, Oberman called on each carrier to address their hiring plans, pointing out that such plans impact the industry’s rail sector. Speaking about issues brought to the STB’s attention for several months in a row, Oberman wrote in May 2021: “I am also concerned by the extent to which these service issues may be related to, or exacerbated by, a broader trend of rail labor reductions that has been occurring over the past several years.”

In December 2022, the same month the Biden Administration stepped in to al-

ON THE RISE: Pay and Volume

Salary:

The average rail employee working for a Class I freight railroad earns over $136,000 annually, plus benefits. By 2024, the compensation package could reach $160,000 per year.

Workforce Needed:

In 2020, roughly 19.2 billion tons of product was transported via rail in the U.S., and by 2040, that total will reach nearly 25 billion tons.

Ever Wonder What Fits In Just One Rail Car?

leviate the rail strike, the STB announced it would begin tracking and posting railroad service and employment data to “improve transparency into conditions of the U.S. rail network,” amid recent railroad performance deterioration. The goal of the newly formed data collection effort is to show where, how fast or how well the carriers are adding the necessary workforce.

Hatch believes everyone will see a major improvement across the rail industry. “The carriers have overstuffed their training classrooms,” he says, adding that there will be clear and noticeable improvements in the rail industry’s workforce this year.

“By the end of this year, they should be faster,” Hatch says. “New workers will be able to get empties moved on quicker. There is pent up demand that couldn’t get moved that can now move easier now that their carriers are getting better.”

The rail industry’s push to staff up is a major positive for the ethanol sector. More than two-thirds of all U.S. ethanol is moved by rail domestically. Product moved into Canada and Mexico is also mainly shipped via rail. The AAR says that in the past five years, nearly 395,000 carloads of ethanol have been moved per year. And it's not just about moving ethanol from the plant.

- Enough corn to feed 37,000 chickens for life - Enough lumber to build more than five homes - Enough grain to make 258,000 loaves of bread - Enough oil to make 13,500 gallons of gasoline - Enough ammonia to fertilize 770 acres of corn

SOURCE: ASSOCIATION OF AMERICAN RAILROADS HIGH DEMAND: Freight cars and tank cars are in strong demand post pandemic. BNSF and other Class I carriers are working to staff up eld crews.

PHOTO: BNSF

Many producers use trains to bring in grain and move out distillers grains.

With the added numbers of personnel expected in the field, Hatch says the time percentages that reflect how long cars are waiting at origin or remaining idle when they could otherwise be en route to the next location, will go in a better direction. Empties will also be turned around quicker. Failures will also go down. “I think it is already happening now,” Hatch says. “They are getting better every month. That’s what I tell investors.”

Ethanol producers, along with others impacted by rail, should watch the overall velocity of the system to see the effect of a stronger workforce. “It’s not going to be a performance disaster anymore. It is getting better.”

Author: Luke Geiver Contact: editor@bbiinternational.com