The roads must roll

News items: 

1. Bakken Shale makes North Dakota the second-largest oil-producing state, as of 2012.
2. White House approval for the Keystone XL pipeline, touted as a needed new route for both Canadian and northern U.S. plains oils, is indefinitely on hold.
3. The U.S. Department of Agriculture forecasts record or near-record crops for corn, soybeans and wheat.
4. Crops from the Northern Plains and upper Midwest rely on trains for shipment to processors and exports markets.
5. About 70 percent of the oil from Bakken Shale is now being transported by rail.

Farmers are delighted to have a bumper crop, but where to take that crop, along with dramatically lower prices, provides more than a little anxiety. There is a widespread impression that the two major freight-rail systems are giving preference to valuable oil shipments and not paying sufficient attention to moving not only this year’s pending crop, but also the stock of last year’s crop that ought to move first. Predictably, there are calls for government to intervene on behalf of justifiably nervous farmers.

More news items (all from Oct. 8, 2014):

“The Surface Transportation Board [STB] announced today that it is requiring all Class I railroads to publicly file weekly data reports regarding service performance to promote industry-wide transparency, accountability, and improved service.” —Surface Transportation Board

“I welcome the additional transparency the STB is seeking from the nation’s largest freight railroads as service delays continue to cause challenges for agriculture producers and other shippers across the country.” —Sen. John Thune (R-S.D.)

“Rail service in Minnesota is a mess — it’s hurting farmers, businesses, utilities, and communities throughout our state. … They all tell me that shipping delays are a serious threat to their livelihoods, and that they’re fed up with rising prices and subpar service. Ever since joining the Senate, I’ve had a simple message for the STB: do your job by forcing the railroads to do theirs.” —Sen. Al Franken (D-Minn.)

“For more than eight months, our farmers and grain elevators have lost out because of serious agriculture shipment delays across the state. … To stop these delays, prevent them in the future, and help our farmers do their jobs, we need to hold the railroads accountable. … Today, the STB is taking needed action to hold the railroads accountable, require more transparency from the railroads on all products shipped on the rails, and make sure all products — whether grain, oil, coal, or anything else — are treated equally and fairly in how they are transported.” —Sen. Heidi Heitkamp (D-N.D.)

Reality reminds one of fiction. In Ayn Rand’s novel Atlas Shrugged, character Clem Weatherby, a “man from Washington,” tells Dagny Taggert, COO for Taggert Transcontinental Railroad that:

“Well, my thought is that if you granted the unions’ wage raises … we might drop the question of cutting [freight] rates, for the time being.”

Taggert later responds with:

“But listen, Clem, you know — you know just as well as I do — that we can’t afford it!”
Mr. Weatherby shrugged. “That’s a problem for you to work out.” 
“How, for Christ’s sake?”
“I don’t know. That’s your job, not ours. You wouldn’t want the government to start telling you how to run your railroad, would you?”

(The fictional exchange is about public concerns on pricing, not availability, but then one is simply the mirror image of the other.)

One would imagine that owners and managers of rail companies have a pretty strong profit motive and the instincts to follow it. Whether or not that results in all products being “treated equally and fairly” is a different burden.

While the U.S. Senate and others sort that out, here is a final thought. The U.S. rail freight system was born in the 19th century. It was built on the efforts and investments of private entrepreneurs at a time when public investment in infrastructure was largely infeasible, never mind unthinkable. Our highway system, on the other hand, was built in the 20th century, at a time when public investment became eminently thinkable and fiscally doable. Freight trains are businesses that provide services to other businesses. Highways provide pathways for commercial trucks, but most of the vehicles are for the personal to and fro of all of us.

At the moment, the ability to haul grain, oil and “anything else” is constrained by track and equipment. Investing in track, in particular, is a private investment decision that has to be based on long-term expected return. It doesn’t happen quickly or casually and supportive conditions are not especially predictable. I’ve often wondered how more reliant we would be on very cost-efficient rail transportation if tracks were built and maintained by state and federal governments, like our highway systems. Alternatively, imagine a world where the highways were owned by trucking companies who charged competitors and private users for the privilege of using them.

Novakovic is the E.V. Baker Professor of Agricultural Economics at Cornell University.