(The following story by Donna Evaro appeared on the Great Falls Tribune website on March 7, 2010.)
GREAT FALLS, Mont. — Three months after BNSF Railway stopped making payments to the operators of Central Montana Rail, the branch line that snakes 87 miles from Geraldine to Moccasin is still in operation.
But for how long?
Montana Attorney General Steve Bullock said farmers in that part of central Montana are in danger of losing the line as an option for getting their grain to market.
The line was acquired by the state in 1984 as part of a settlement with BNSF and is operated by Denton-based Central Montana Rail.
CMR carried 1,457 carloads of grain four years ago, but only 640 carloads last year, in part because many farmers are trucking their grain to new, competing elevators in Moore, Carter and Moccasin.
Bullock blames BNSF.
“This is a case of David versus Goliath,” said Bullock. “We need a line to serve an area like Denton. The state’s goal is to preserve choice and opportunity.”
Bullock filed a breach of contract lawsuit against BNSF in November, arguing that BNSF’s actions will lead to “injury from which (the state) may never be able to recover….”
But Kevin Kaufman, BNSF vice president of agricultural operations in Fort Worth, Texas, says the railroad isn’t trying to kill the state-owned branch line but simply exercised its right to end its 1986 agreement with Central Montana Rail.
BNSF had been making payments to CMR under a formula dating to the 1986 agreement. The payments had risen from $275 per grain car the first year to more than $800 per car last year.
The agreement contained a clause giving either party the right to terminate the contract “for any reason, including if the economics became unstable,” according to Suann Lundsberg, media director for BNSF.
“Over time, that is exactly what happened,” Lundsberg said. “CMR received a switching fee that was several times the market rate for such moves.”
“Continuing to subsidize CMR at such drastically above-market rates would eventually have led to higher shipping rates for Montana shippers and resulted in lower grain prices for Montana farmers,” she continued.
An arbitration panel jointly chosen by CMR and BNSF agreed on a 2-1 vote last May that BNSF could terminate the agreement.
CMR challenged the panel’s decision in federal court, but it was confirmed by U.S. Magistrate Keith Strong in July. After providing CMR with the required notice, BNSF stopped payments in November.
Kaufman said BNSF is willing to resume payments to Central Montana Rail but only if CMR publishes its rates so farmers can see what the real costs are for having their grain hauled to the BNSF mainline at Moccasin.
BNSF wants CMR to publish its rates according to the Association of American Railroads’ standard known as Rule 11.
Rule 11 says that when more than one railroad is involved in a shipment, each must itemize its portion of the rate.
Before the arbitration panel’s decision, BNSF absorbed the cost of the fees it was paying CMR, and the shippers — in this case the grain elevators in Denton and Geraldine owned by the Central Montana Co-op — never saw that cost on their bills.
CMR manager says line fine
Carla Allen, general manager of CMR, said last month that the short line has no plans to convert its billing practices to Rule 11 standards, despite the 2009 arbitration panel’s decision saying future payments to CMR “should be made pursuant to a Rule 11 arrangement.”
Allen said the line is not in jeopardy and that it is working within its capabilities to continue delivering loaded cars to the BNSF line in Moccasin, even though the short line has received no BNSF payments since November.
“We don’t solely depend on freight for revenue,” said Allen. “We’re in business and we plan to be here.”
Allen said other revenue is brought in from the Charlie Russell Chew Choo dinner train, storing cars and maintaining track for other rail companies.
Grain Growers support price transparency
Lola Raska, executive vice president of the Montana Grain Growers Association, said her organization supports rate transparency, and Rule 11 provides transparency.
“I like to know what I’m paying so I can put things in perspective,” added Moccasin-area farmer Bing Von Bergen, a past president of the Montana Grain Growers.
Von Bergen played a central role in four years of talks that resulted in a new dispute-resolution process announced by BNSF, the Grain Growers and the Montana Farm Bureau in January 2009.
Von Bergen said he welcomes BNSF’s newfound willingness to “sit down with producers and try to iron out differences” over the large railroad’s service and rates.
The new mediation process was put into play for the first time in December when a Shelby producer succeeded in lowering shipping rates from elevators along the Hi-Line. Before the agreement, the only formal way to protest rail rates had been through an extremely costly complaint to the federal Surface Transportation Board.
Region’s farmers torn
Some farmers in the area are torn. They clearly don’t want to lose the option of trucking grain to the nearby Central Montana Co-op elevators in Denton and Geraldine, but they are also pragmatic business operators.
Even with the extra miles, they still can make more money by driving to the new shuttle loaders built in the last decade in Moore, Moccasin and Carter.
Wiley Juedeman, a Geraldine-area wheat farmer and board member of Central Montana Rail, said in a typical year he produces about 60,000 bushels of wheat on a 2,000-acre farm near Geraldine.
Juedeman usually hauls his grain to the Geraldine elevator owned by Central Montana Co-op, but sometimes hauls the grain to Carter’s new facility, operated by Columbia Grain, if the price difference warrants.
BNSF offers lower shipping rates for grain it picks up at the shuttle loaders because the elevators are capable of loading 110 cars in 15 hours or less, compared with 52 cars in 24 hours in the previous generation of elevators.
Central and northcentral Montana produce more than a quarter of the state’s total grain, according to the National Agricultural Statistics Web site, and BNSF’s Kaufman said new developments for getting it to the market quickly are crucial.
“To meet requirements for export shipping, we need to turn around quickly to meet demand,” said Kaufman.
State and county road departments who have to pay for the extra wear and tear on the rural roads might disagree, but Kaufman argues that a truck haul to a shuttle loader within 100 miles makes economic sense for farmers.
Meanwhile, the smaller elevators owned by Central Montana Co-op, are watching their shipments decline.
Paul Clark, grain merchandiser for the co-op, said he understands the shuttle facilities are being constructed to streamline the grain-shipping process.
But much of the high-quality grain grown along the CMR route is going to the domestic milling market so needs to be handled separately from the high-volume shipments headed to the West Coast for export, Clark has pointed out in the past.
The Grain Growers’ Raska said she believes room for compromise still exists between Central Montana Rail and BNSF.
“We don’t want them to fail,” she said.