High demand for
rail & barge
t
By Joe Kelley
he large harvest may bring low prices
on commodities, but the increase in
volume translates into higher demand
for both rail and barge transportation. In fact,
this year on the rail side of the equation we are
seeing more consistent and significantly higher
rates for rail freight. Rail freight is made up
of various components and pricing options:
single car rates, which apply to car movements
of 74 railcars or fewer in size; unit train movements, which are 75 to 135 railcars in size,
depending on the carrier; and incentive trains,
which are unit trains that are loaded and/or
unloaded in a specified amount of time.
Why are rail rates so high? Not only is the
large grain crop affecting prices, so is the
tremendous growth in the energy sector.
Although frac sand haulers prefer the smaller
42-foot covered hoppers for their transpor-
tation needs, it is common to see 65-foot
covered hoppers normally used in grain trade
being leased to keep up with the high demand
for frac sand. In addition to some segments of
the energy sector competing for rail equipment
with the ag industry, the rails themselves have
seen substantial uptick in traffic with the increased crude oil and refined products movements. For example, if a company wants to
secure access to railcars via guaranteed freight
in the secondary market, such access is being
offered at $4,000 per railcar. That price is for
access to the railcar for a one time movement.
It does not include the point-to-point movement between origin and destination. That
$4,000 per railcar equates to $1.14 per bushel
based on 3,500 bushels per railcar.
The nation’s barge companies are experiencing a similar situation. The growth in the energy sector has caused a tremendous increase
in demand for covered hopper barges to trans-
port frac sand from the mines to destination
ports like the Port of Victoria. However, barge
rates trade on a different matrix — most grain
movements are moved on an affreightment
basis: “x” number of dollars per short ton from
point A to point B. The affreightment rates on
the major rivers where the majority of the corn
and soybeans originate are traded in relation to
a published tariff. As an example, the published
tariff on a river segment maybe $3.99 per short
ton between point A and point B. Affreightment movements nearby are trading at the
highest levels they have ever traded: trading
at 1,150 percent of tariff on some rivers, such
as the Illinois. So, what used to be a $3.99 per
short ton movement (at least in theory) is now
trading at $45.88 per short ton. In reality, the
affreightment movements have seldom traded
“at tariff.” Instead, the segments usually trade
in a range from 200 percent to 600 percent of
tariff throughout the year, depending on the
demand and other factors.
Association is members’ advocate
t
he South Texas Cotton Improvement
Association was established by