July 15, 2024

Ag transportation costs ease, but issues linger

PEORIA, Ill. — The farm sector shouldn’t see quite as many transportation-related challenges this year compared to 2022, according to industry experts at the Grain and Feed Association of Illinois’ 130th annual convention in Peoria.

Barge freight rates eased in recent months from historic highs last fall, and trucking rates were down about 8% as of Feb. 21 compared to last year.

“One thing that’s improved year over year is transportation,” Eric Wuthrich, manager of Farmers Grain Co. in Roseville, told FarmWeek after being elected GFAI president at the event.

“Last year, it seemed freight was awfully hard to come by,” he said. “It seems to have improved somewhat, especially for trucking.”

And that’s particularly important for facilities such as Farmers Grain that don’t sit on a river or rail line and therefore rely on trucks to move all products.

“One of the main challenges now is interest rates,” said Wuthrich, who has spent 15 years in the grain industry and the past seven serving on the GFAI board.

“We buy a lot of grain for December and January. There’s a big difference between borrowing $20 million at 3% interest or borrowing $20 million at 7%.”

Higher interest rates not only cut into grain handling margins, but could also slow expansion or upgrade projects at elevators and other facilities.

“Capital will play into a lot of decisions (in the grain industry), including expansion and capital projects,” the GFAI president said.

Jake Brodbeck, vice president of ARTCo barge line, a subsidiary of Archer Daniels Midland, believes shipping rates in the trucking industry possibly eased in recent months due to slightly lower fuel prices and an easing of the driver shortage.

The situation is similar in the barge industry, although labor shortages mostly occurred at individual ports, but not as much for long-haul crews for that mode of transportation.

“I think barge freight will remain firm the next couple years,” Brodbeck said. “But I don’t think it will be a repeat of the fourth quarter 2022, unless we get another crazy weather event. We had a perfect storm last year of low water, harvest demand and a shrinking fleet size.”

Drought-induced low water levels on the Mississippi River last harvest caused barge operators to reduce payloads by 25% to 50% and idle much of the fleet.

But barge transportation is still one of the most efficient for grain and other ag products. A barge can move a ton of cargo more than 800 miles on just a single gallon of fuel, Brodbeck noted.

“The most important thing to keep in mind is the incredible advantage we have because of the waterway system,” which contains about 25,000 navigable miles in the United States, he said.

A challenge for the transportation sector moving ahead is the high cost of building new barges and train cars. The cost of building new train cars increased about 20% in recent years.

Meanwhile, the high cost of steel not only remains prohibitive to build new barges, but it’s also an incentive to scrap them. A scrapped barge currently is worth nearly $100,000 compared to just $30,000 in previous years.

“Interest rates are high and the cost of capital is strong,” Ken Eriksen, senior vice president of Agri Supply Chain, IHS Market Agribusiness, told the RFD Radio Network at the convention. “People are unwilling at these levels to invest in something, especially when you look at the cost of steel.

“While it peaked and has come back down, there’s still a lot of (steel) inventory priced high that companies are going to have to work through.”

The current U.S. barge fleet consists of about 12,000 covered hoppers, 5,000 open hoppers and about 4,000 tanks.

A barge typically has a lifespan of about 30 years and the average age of the current fleet is about 20 years, meaning more are close to retirement, Brodbeck said.

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association.