Study of Rural Transportation Issues

Abstract

This report is in response to Section 6206 of the Food, Conservation, and Energy Act of 2008 (PL 110 246), which directs the Secretaries of Agriculture and Transportation jointly to conduct a study of rural transportation issues. The report reviews transportation and its effect on rural communities, with an emphasis on agricultural transportation. It looks in depth into each of the four major modes of transportation commonly used by agriculture in the United States: trucking, railroads, barges, and ocean vessels, examining each in the light of its ability to meet rural America’s transportation needs now and in the future. It identifies some broad issues that merit attention from policy makers. Transportation is critical to U.S. agriculture, which raises the food for America and feeds a hungry world with its abundance. Our transportation system moves food from farms to our tables, and to ports for export to foreign markets. The four major modes work together in a seamless network, cooperating and competing with one another in a balanced and flexible system that delivers products efficiently and economically in an ever changing market. Agriculture is the largest user of freight transportation in the United States, claiming 31 percent of all ton miles transported in the United States in 2007. Much of this freight travels out of the country. Global agricultural supply and demand have changed rapidly since 1990. Corn and soybeans have increased dramatically in both consumption and production. During the past 5 years, half of American wheat was exported, along with 36 percent of the soybean crop and 19 percent of the corn crop. These exports travel from the inland areas of the United States where they are produced to borders and ports by way of a network of trucks, trains, and barges. The need for agricultural transportation will continue to increase, based on projected growth in the demand for U.S. agricultural products domestically and overseas. Transportation Issues Affecting Agricultural Shippers This study highlights some policy issues that should be examined. These issues are described in greater detail in Chapter 15: Multimodal Issues. • Transportation needs should be viewed from a system standpoint. Current governance oversees each mode of transportation—trucks, railroads, barges, and ocean vessels—separately and disparately rather than as a single interlocking system of transportation. The U.S. agricultural supply chain is a major user of the nation’s transportation system, so its needs, especially in rural areas, should be taken into account in the planning and oversight of transportation in the United States. • Ocean shipping and railroads are exempt from many antitrust rules. These exemptions have the potential to decrease competition, reduce service, and raise rates. However, since each of these industries cooperate as part of a network (although in different ways), carriers believe the limited antitrust exemptions have facilitated this cooperation. • The rapid consolidation of the railroad industry through mergers has resulted in a decrease in the unrestricted interchange of traffic, routing choices, and the level of competition among railroads. Shippers are concerned with switching limitations, restricted interchange, paper barriers, inconsistent service, high rates, excessive fuel surcharges, bottleneck rates, and the effectiveness of the rate challenge process. However, railroad productivity has increased greatly since deregulation in 1981, and rates have fallen for many shippers, although to a lesser degree for grain and coal shippers. At the same time, the financial health of the rail industry has improved, benefiting farmers and rural areas. • In 2005, Congress clarified the 100 air mile radius agricultural exemption from the hours of service rules, first granted in 1995. It means that drivers transporting an agricultural commodity or farm supplies for agricultural purposes are exempt from the maximum driving and on duty time provisions required of long haul drivers. The agricultural exemption is important because of agriculture’s unique requirements; however, questions remain about its impact on highway safety. • Funding for new waterway projects is nearly depleted, and there is a growing funding gap to finance ongoing projects. A consensus on the best way to tackle these funding issues is needed. Transportation Supports Rural America An effective transportation system supports rural economies, reducing the prices farmers pay for inputs, such as seed and fertilizer, raising the value of their crops, and greatly increasing their market access. The economies of rural areas are intertwined. As agriculture thrives, so does its supporting community. Providing effective transportation for a rural region stimulates the farms and businesses served, improving the standard of living. The interaction of agriculture and the off farm jobs it supports provides a solid base for rural communities. Agriculture is far from the largest employer in rural America. Four other sectors—services, government, retail and wholesale trade, and manufacturing—comprise 80 percent of rural employment. Agriculture is responsible for less than one in ten rural jobs but, because it is so capital intensive, it generates much more economic activity in the community than just the jobs it creates. The transportation system that contributes to the success of agriculture also supports rural manufacturing. Although the traditional view of rural America is agricultural, it is, in fact, manufacturing that is critical. Manufacturing employs 15 percent of the rural workforce. As a share of total employment, manufacturing is 42 percent more important to rural America than to metropolitan America. The availability of rail, air, and highway services is one of the most commonly cited requirements of manufacturing and commercial establishments. Transporting Biofuels The burgeoning use of biofuels contributes towards our country’s policy goals of addressing climate change, supporting the domestic economy, and reducing the nation’s dependence on imported petroleum. By 2008, U.S. ethanol production had reached 9.2 billion gallons—equivalent on an energy basis to approximately 36 percent of the gasoline produced from crude oil imported from Persian Gulf countries. Renewable fuel standard (RFS-2) goals target biofuel use to be 36 billion gallons by 2022—a very brief time in which to develop the distribution infrastructure. The biofuels most commonly used in the United States are ethanol and biodiesel. Ethanol is produced in much greater quantities than biodiesel, making its transportation requirements more complicated because more demand is placed on the transportation system. Most is currently produced from corn, and most ethanol plants are in the Corn Belt. As cellulosic ethanol is commercialized production density is likely to remain in the Midwest due to the abundance of crop residue. To achieve the RFS-2, EPA estimates that 40 unit train destinations will be needed by 2022. There are currently 13 unit train destinations. Additional unit-train destinations would create more ethanol corridors on the rail network, preventing congestion points that could develop with increased biofuel shipments. Future transportation needs will be influenced by the location of feedstocks and production facilities and the extent to which the next generation of biofuels can use existing distribution infrastructure. Transporting Coal Coal is a major source of energy in the United States. In 2006, it was responsible for one-third of domestic energy production and almost half of electric power generation. Despite the growth of alternative energy sources, coal will continue to be a major source of power for rural consumers. Because coal plays such an important role in generating electricity, its costs—including its delivery costs—are reflected in the price consumers pay for electricity. The cost of coal delivered to electric plants has increased every year since 2000. The Clean Air Act Amendments of 1990, which limited sulfur dioxide emissions, increased the demand for coal with less sulfur. Production shifted from the Appalachians to the Powder River Basin of Wyoming and Montana, which now produces 43 percent of the Nation’s coal. This western shift has resulted in the use of cleaner coal, but production is now far from river transportation systems, and competitive access to railroads is limited, raising issues about generating electricity at affordable prices. Since 1979, when the first coal mines began production in the Powder River Basin, the railroad industry has constructed the longest new rail line built in the 20th century, purchased many locomotives and coal hoppers, and made investments in existing infrastructure on routes from Wyoming to coal consumers in the Midwest and on both coasts. Railroad investment in this infrastructure has benefitted shippers of other commodities as well, since few rail lines carry only coal. Railroads are vital to coal transportation, and coal is vital to railroads. Coal accounted for 46 percent of railroad car loadings in 2007 and will continue to be important in the future. Sufficient railroad capacity is essential to move this traffic. Coal shippers are concerned about bottleneck rates and contractual paper barriers that prevent interchange with competing railroads, which can result in higher rates. Railroad service problems and high rates can directly impact rural consumers by pushing up electricity rates. Rail Competition and Agriculture Rail is the only cost effective mode of transportation available to many agricultural producers. Railroads transport nearly all the grains and oilseeds produced in Montana, more than 70 percent of the commodities produced in North Dakota, and more than half of those produced in Arizona, Oklahoma, and South Dakota. The Staggers Rail Act of 1980 economically deregulated railroads, encouraging grea