(The following story by Tom Lutey appeared on The Billings Gazette website on February 11, 2009.)
BILLINGS, Mont. — In the monopoly game Bruce Wright and other grain farmers play, the money is real, there’s no $200 for passing Go, and the railroad runs the board.
Montana grain ships out of state east or west, and if it makes the trip by train, it almost always does so in a railcar pulled by the Burlington Northern Sante Fe Railroad. That makes farmers, and others, captive to the BNSF-set freight rates, which at times have been much higher than rates in states where the railroad faced competition.
But the game appears to be changing. Congressional Democrats are attempting to rewrite laws that for decades have protected railroads from antitrust regulations. Previous legislation to rein in railroads never made it out of committee, but disgruntled railroad customers say the current political makeup of the Capitol is right for the antitrust bills to make it to the floors of the House and Senate for full consideration. In rail-dependent states such as Montana, Legislatures have set aside a few million dollars to sue rail companies for relief if necessary.
And with the political pressure on, farmers have been able secure a bargaining seat with BNSF for the first time ever.
BNSF has agreed to mediate shipping disputes with the Montana Farm Bureau Federation and Montana Grain Growers. A two-year contract setting the ground rules for price arbitration gives wheat and barley growers legal standing in rate cases, something they’ve never had.
The agreement is unique to Montana farmers, said Gus Melonas, spokesman for BNSF.
In addition to political pressure, high commodities prices played a part in making the agreement possible. For the past two years, shipping rates have been less of an issue for Montana farmers because grain profits were higher, which made shipping rates a smaller portion of the cost of doing business.
If prices stay high, it could be a while before someone exercises the contract. Farmers are just happy that the option of mediation and arbitration exists.
“This was totally unavailable before,” said Wright, a negotiator of the deal and vice president of the Montana Farm Bureau Federation. “Before, the grain elevators just passed the cost onto the farmer.”
Farmers always watched through the glass as grain elevators and railroads negotiated shipping rates. Elevators buy the wheat and barley, and then pay the railroad to ship it out. Because it’s the elevator’s name on the shipping contract, the farmer in the eyes of the law wasn’t considered part of the deal, even though the shipping cost actually came out the farmer’s grain payment.
At times, the pass-through cost of shipping took as much as half the farmer’s payment. Other years it took a third.
The joke among Montana farmers during the one-third days was that in one of three years, the farmer actually grew his crop for the railroad, said Terry Whiteside, a Billings attorney and outspoken advocate for railroad reform.
“We are the most rail-dominated state in the union; 95 percent of our products ship by rail,” Whiteside said. “We are an export state. All of our products are particularly bulk-oriented. We are the most captive of the captives.”
Whiteside and others are quick to point out that in the fourth quarter of last year, as the economy soured and amount of products being shipped cross-country was declining, the country’s four largest railroads actually reported higher profits. BNSF’s quarterly profits were up $124 million from the same time period in 2007. Its shipping volumes were down 7 percent.
“You can’t do that without monopoly prices,” said Bob Szabo, executive director of Consumers United for Rail Equity.
Szabo’s group represents farm groups, chemical companies and electric cooperatives that own coal-fired power plants.
Nationally, buyers of Montana and Wyoming coal are big critics of shipping costs. Dairyland Power, a Wisconsin-based CURE member, pays $75 million a year to ship $30 million worth of coal from Wyoming’s Powder River Basin. Dairyland’s customers pay that shipping cost through higher utility bills.
Szabo said the battle to regulate captive shipping prices is heating up. The Association of American Railroads bought two 30-second advertising spots in the Super Bowl to make the point that shipping by rail is fuel-efficient.
The rail customer’s lobby thinks this Congress could be successful in changing the ways railroads do business. There are bills in the works making it easier for customers to challenge railroad rates before the federal Surface and Transportation Board and to expose railroads to antitrust laws.
BNSF Spokesman Gus Melonas said the company will not talk about pending legislation.
Among the political players that rail customers say could pass bills that previously failed is Sen. John D. Rockefeller, D-W.Va., who hails from a coal state and chairs the Senate Commerce Committee.
In the past, there has always been one committee chairman who killed rail reform legislation, Szabo said. He doesn’t see anyone in Congress playing that role this session.
Rail reform advocates also see a potential ally in Sen. Max Baucus, D-Mont. As chairman of the Senate Finance Committee, Baucus will hear requests later this year to give railroads tax credits for infrastructure improvements. The senator is well-versed in the captive-shipping issues faced by businesses in his state.
In Montana, freight prices can make or break a business. And in years when wheat sold for $3 a bushel or less, the dollar-a-bushel cost of shipping grain on the BNSF left little money for the farm checking account.
In a statement issued Tuesday, Baucus said he’s glad to see the agreement between grain growers and BNSF, but he wants to see it in action. He’s listening to all parties involved about the pending congressional legislation.
“I’m still concerned about the captive-shipper situation and the impact it can have on grain growers, coal producers, elevator operators and others,” Baucus said. “At this point, I’m focused on hearing from all the stakeholders. The Grain Growers and Farm Bureau recently negotiated a unique agreement with the BNSF, and I want to see how that goes. But it’s still early in the legislative session, and I want to be able to evaluate what legislative options are currently available or will become available.”