My questions today involves the relationship between shippers and railroads. As a general question: how does this work?
Some specific questions: say I’m a farmer with hundreds of acres of grain and I need a way to get it from my farm to wherever it needs to go and I want to ship by rail. Does the railroad quote me a price per shipment, or do I enter a contract with them?
If I’ve just started my farming career, am I responsible to take my product to the railroad, or would the railroad build a line to my grain silos and load the hoppers from there? Who would cover the cost of this? What if the buyer has no rails on-site? Would I be responsible for arranging delivery from the railroad to the buyer?
And I assume the scenarios would be similar (if not identical) for companies needing to ship chemicals, coal, consumer goods, etc.?
I hope these questions make enough sense so you get a general feel for what I’m asking. Any and all replies are appriciated!
The relationship between the shipper and the railroad depends very much on the specific shipper and the railroad in question. Some railroads…usually the regionals and the short lines…are more likely to work with small shippers directly while the larger class 1s often require a minimum volume…like 1500 loads per year… before they will consider working with you direclty.
Most farmers sell or broker the grain to a grain elevator or co-op, which arranges with the railroad for shipment and pays the cost of same. You’ll never see a modern railroad building a track to anything as small as a single farm’s silos - probably not even to a group of silos for all the farms in even an entire county ! Others here who are more active in the farm country and farm commodities shipping can tell you way more.
More realistically - unless you’re the next Powder River Basin coal mine bonanza - you have to either locate your farm, silos, or industry pretty close to the railroad, or be prepared to haul your stuff to the nearest rail terminal or siding of some kind. Even if you’re next to a rail line, you usually get to pay for the switch(es) /turnout(s) from that line to your industry, and then the sidetrack into your plant.
The same applies to the other end, where your buyer is, but in the opposite direction. Whether the delivery is FOB (“Freight On Board”) the railcar at the end of the rail haul, or at the buyer’s place, is determined by the business deal (“contract”) you make with him and the railroad.
For more than you’d ever want to know on all this, see things like Norfolk Southern’s - and I’m sure other major railroads have them, too - “Customer Service Guides” at:
Even if you’re not on a rail line you can hire a drayage service to provide the transport to and from the rail. Some railroads, like CN, will even do that for you so that the service you get is truly door to door. Traditionally railroads have used intermediaries like freight forwarders and Intermodal Marketing Companies for LCL and smaller carload volumes…although some carriers have of late expressed an interest in dealing with shippers direct once again.
In your example as a practical matter, you as the farmer would haul your grain to whichever grain elevator you choose to deal with. Often it will be the closest one. You may choose to sell it to them on delivery or you may choose to hold it and sell it to them later. If you choose to hold, you will pay storage charges of 1-2 cents per bushell per month.
The elevator knows what market they will sell to, todays price at that market, futures price at that market, what throughput margin they need, and the cost of freight to get to that market. Whenever you choose to sell you will get the current cash price less their margin, less cost of freight. Elevator operators like for rail rates to be stable through the marketing year so they know what their freight will be. Most grain today moves on published tarriffs or a market based program like BNSF’s Certificate of Transportation. UP has a similar program but I do not remember what they call it. Grain shippers seem to have adjusted to instantly variable barge rates however.
If you want a rail line to your farm you should expect to pay for it. I know of no spurs serving a single farm.
The BNSF system is an auction system, which gives the winning bidders a guarantee of car supply (the “Certificate of Transportation”). As you state, UP has a similar system, but they call their guarantees “vouchers”. An interesting feature of both systems is that the holder of a certificate or voucher is free to sell them in secondary markets and pocket the proceeds.
What I’ve seen in the midwest is that farmers often do not sell to the “closest” elevator. Rather, they may be much better off trucking to a more distant elevator that’s capable of loading unit trains. These elevators have better rates than non-unit train facilities,
Matt – there are several different ways to work with a railroad as a shipper. A very brief outline:
Direct rail service with your own track. The shipper can either purchase a property with an existing industrial spur, or construct new. In either case an “Industrial Track Agreement” is negotiated between the shipper and the railroad, that governs the terms of maintenance, establishes divisions of liability for damage to equipment and maintenance, and establishes that the railroad will indeed switch the spur under an established set of service terms. For example, the ITA might say that the railroad will spot individual cars, or deliver unit trains, or both. I spend a great deal of time looking over people’s shoulders as they negotiate ITAs, and they can literally take several years
I’m surprised at how many spur lines CN has right off of its high volume mainline to the west of Toronto. Even some small shippers have sidings that generally see no more than a couple of cars a week. That’s got to be expensive but I guess it was put in there long ago, and they must have a great deal with CN as far as shunting cars goes. Interestingly also…not all the spurs face the same way, which means that the engine that switches spurs that enter from the west can’t switch the spurs that enter from the east.
From my hometown experiance, farmers bring their grain to the local Farm Service. Then theay ship it to Lahoffs in Danville Ill. That company, as far as I know, ships all of it’s grain by rail. However most of the farmers around here probably don’t care about how there product gets shipped. Youre’ best bet to ship by rail would be to truck youre’ grain to a large place where theay ship by rail. As far as building a spurr to youre’ silo’s you would probably have to pay for it. Thet would be reeeeeeeeeeeeeeeeealy expensive depending on if you have any road’s to cross and you would proably have to pay for the signals along the line( for the train and RR x-ing’s too). When the grain is delivered the process would reverse. I belive that the April issue of TRAINS is going to be on how the nations railroads ship grain to feed america! We will have to see if any other info pop’s up there too.
The Chesapeake and Indiana Railroad runs from Wellsboro, In (off of the CSX E/W mainline) to North Judson, In and also to Malden, In. These are former C&O lines. The North Judson to Malden line was the Cincinnati to Chicago mainline and the line to Wellsboro branched off at Lacrosse. During the late 70’s this branchline carried C&O’s Chicago freight to the B&O mainline, including the Amtrak’s Cardinal. So, the line was laid with heavy CWR.
Now, to the rest of the story…
At Lacrosse, just west of the US421 crossing is a farm. At times there will be tankcars and covered hopper cars parked at the farm. There is no siding. I talked to a CKIN crew in December and asked why the cars are parked there. The farmer receives inbound fertilizer and possibly ships out grain (I have not confirmed the outbound grain).
So, it is possible, but very improbable to have carload service without a siding, spur, or team track. Some day, I am going to knock on the farmers door and get the real story.