DOJ: News Release

Bullock Releases In-Depth Report on Montana Railroad Rates and Services Provided to Montana Shippers

Report finds that Montana shippers pay the highest rates in the country, are the most captive, and often receive substandard service

HELENA – Attorney General Steve Bullock on Thursday released an in-depth report on the rates charged to shippers by railroads in Montana. The study, conducted in response to concerns raised by the 2007 Montana Legislature, also examined the service provided to those shipping by rail.

The report, titled Railroad Rates and Services Provided to Montana Shippers, found that Montana shippers pay the highest rail rates in the country. Burlington Northern Santa Fe Railways (BNSF) controls 95 percent of rail freight transportation in Montana. This lack of competition makes Montana shippers the most captive in the country.

Despite paying the highest rates in the country, according to the study, Montana shippers often receive second-rate service. The drastic decrease in the number of grain elevators over the past two decades—due in large part to the business practices of the largest railroad in the state—has resulted in less reliable service at the elevators and greater distances to haul grain and other commodities to reach them.

Montana Governor Brian Schweitzer said that he would join Bullock in pushing for action at the federal level that will alleviate the burden placed on Montana shippers. Moreover, Schweitzer and Bullock affirmed their commitment to a recent arbitration agreement reached between the railroad and Montana agricultural advocacy groups. Both the Governor and Attorney General said they plan on working with all parties to make sure the new arbitration agreement works.

Schweitzer and Bullock also said that they would continue to work through the Rail Service Competition Council. The 2005 Legislature created the RSCC to promote rail service and competition in Montana.

“The lack of rail competition has caused both excessive freight rates and poor service,” Schweitzer said. “Our farmers, ranchers and other rail shippers deserve better.”

Bullock is spearheading efforts with the Attorneys General of South Dakota and Ohio to encourage congressional leaders to pass the Railroad Antitrust Enforcement Act, federal legislation that would subject railroads to the same antitrust laws that apply to other industries.

“This report clearly documents what Montana farmers and ranchers already know from hard experience—they are being charged excessive rates for substandard service. Shippers need competition and they need a fair rate to move their goods to the marketplace,” Bullock said. “My office is going to explore every option we have to make sure that Montana’s number one industry, family farm agriculture, is given a fair shake.”

Findings of the report include:

MONTANA PRODUCERS ARE HELD CAPTIVE TO THE HIGHEST RATES IN THE COUNTRY

  • Of the five states with the largest volume of wheat shipped by rail, in 2006 Montana shippers paid the highest rail rates whether figured per car or per ton: ◦Montana shippers paid $3,454 per carload compared to $2,623 for Kansas, $2,842 for Nebraska, and $3,336 for North Dakota.
    ◦Montana shippers paid $33 per ton compared to $26 for Kansas, $27 for Nebraska and $32 for North Dakota.
  • BNSF controls 95 percent of rail freight transportation in Montana, resulting in Montana shippers being held the most captive in the country.
  • The total overcharge by BNSF of Montana wheat shipments is estimated between $19 and $50 million dollars annually.
  • Rail transportation costs have risen from 15 percent of the price of wheat in the late 1970s to double that today.
  • BNSF has continued to report increasing quarterly revenues, despite falling freight volumes due to the current economic recession.

HIGH RATES HAVE NOT GUARANTEED GOOD SERVICE

  • From BNSF’s perspective, it’s more efficient to move Montana grain in large trains of 100 plus cars (longer trains from a smaller number of elevators). The railroad has used pricing to encourage 100- car trains, forcing many smaller elevators to go out of business.
  • While there were nearly 200 elevators in Montana in the 1980s, that number fell to less than 100 in the 1990s, and less than 50 today. Despite the decrease in elevators, grain production has increased throughout that time.
  • With this drastic drop in the number of smaller elevators in Montana, many producers are now facing longer distances from farms to elevators. Seventy percent of Montana producers are now hauling their grain further to get to elevators than 10 or 20 years ago.
  • Moreover, associated trucking costs have increased, including fuel, truck maintenance and wear and tear on Montana highways.
  • Fewer elevators has also led to a frequency in “plugged elevators” (an elevator that is full and cannot accept more grain until its contents are loaded into railcars) resulting in reduced capacity. ◦The increased number of “plugged elevators” and reduced number of elevators have led to producers holding off on deliveries where in the past they would transport to an alternate elevator.
    ◦Delays in the ability of producers to bring grain to markets can sometimes mean missing peak grain prices.

The study was conducted by a team of experts who have represented captive rail shippers for more than 30 years. The team included John Cutler and Andrew Goldstein, of the firm McCarthy, Sweeney & Harkaway, P.C.; G.W. Fauth III of G.W. Fauth & Associates; Thomas Crowley of L.E. Peabody & Associates; and Terry Whiteside of Whiteside & Associates in Billings.

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