Intermodal Special - South Dakota

By: | at 08:00 PM | Channel(s): Intermodal News  

By Gene Linn, AJOT
Containers of wheat bound for Asia? That seemingly off-the-wall notion actually has enough promise to deserve serious consideration, according to a feasibility study being conducted by Horizon Services Group for the government of South Dakota.
The state asked HSG, a wholly owned subsidiary of US domestic ocean carrier Horizon Lines, to find a way to develop railroad container traffic to improve the state’s business environment. “One of the single factors hindering agricultural and commercial development growth in South Dakota is the limited ability to move product in and out of the state,” Gov. Mike Rounds said in a news release.
Each year South Dakota ships hundreds of thousands of railroad hopper cars filled with wheat, soybeans and other agricultural products, much of it to voracious markets in Japan, China and South Korea. Common wisdom is that this breakbulk shipping is obviously the most efficient, and therefore cheapest, way to transport farm commodities. But HSG has concluded that it is not necessarily so.
“One big thing we found was that potentially the container rate was lower than the breakbulk rate,” Duncan Wright, HSG director of business strategy, told the AJOT. “In certain locations in South Dakota, such as Aberdeen and Sioux Falls, the container rate is 20% to 30% lower than breakbulk. This was a huge surprise to us. But, for example, in Sioux Falls the container rate is as low as $30 to $40 a ton, and breakbulk fluctuates as high as $75 to $80 a ton.”
Although HSG’s finding is surprising, the reason behind it is obvious. Ocean carriers move hundreds of thousands of containers every year from Asia to the US, filled with shoes, electronics and other consumer goods. Then the carriers must pick up the cost of returning most of the containers empty to Asia because there are not enough exports leaving the US. The shipping lines may be willing to accept lower rates rather than get nothing. “Obviously, today in the US there’s an immense problem relocating containers from the US back to Asia,” said Wright.
“That opens a huge opportunity to work with ocean carriers,” he said. “That’s the big story. We have talked with the top 10 ocean carriers, up as high as chairmen and CEOs. Many are interested.”
Heavy burden on highway systems
Wright, however, is quick to acknowledge there are enormous challenges to switching South Dakota agricultural commodities to containers. The first is that there is already a great deal of infrastructure in place for bulk grain shipments. Secondly, positioning empty containers in South Dakota will be difficult and requires a great deal of work with the railroads. Finally, the railroads do not want to spend a lot of money changing infrastructure.
Wright also cautioned that both container and breakbulk rates fluctuate. “This (rate information) is a snapshot,” he said.
“But I think that ultimately this (containerization) will have legs because there’s such a big demand from ocean carriers, and the carriers have a lot of clout with the railroads,” Wright said.
That clout comes from the hundreds of millions of dollars a year the ocean shipping lines pay to railroads.
The state of South Dakota is also pushing hard for development of container facilities. “This is an issue for both commercial and agricultural products, “Jon Farris, state Ag Development Specialist, said in a news release. “There is a heavy burden on our highway systems because of inbound long-haul traffic that might be transferred to rail. By establishing an intermodal facility on the Burlington Northern Santa Fe Railroad, the Dakota Minnesota & Eastern railroad or at a location accessible to both railroads, we hope to decrease highway congestion while increasing growth opportunity for the agricultural economy in our state and its distant markets, as well as environmental impact.”
The state noted that shipping in containers helps preserve the identity and integrity of products with special properties or with added value. Wright said that high-protein wheat, fo

American Journal of Transportation