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Region's Transportation Heads Toward Traffic Jam by Elaine Shein Capital Press, February 8, 2008

Higher costs ahead as shippers face bottlenecks

PORTLAND - Costs are going up, the transportation infrastructure in overloaded, and anyone shipping agricultural goods is vulnerable if something isn't done soon, warned Daniel Block at the Agri-Business Council of Oregon annual meeting last week.

"We're seeing transportation costs starting to creep back up again," said Block, the principal consultant for D.W. Block Associates, an agribusiness strategy and management consulting firm based in Portland.

Block gave an overview of various transportation modes. He encouraged the agriculture community to work together.

Oregon Department of Agriculture Director Katy Coba agreed and said the governor has identified it as one of the top four issues to deal with. She said it's critical to move products to market, especially since more than 80 percent of the state's agricultural products is shipped out of state.

She added that during the last 20 years there has been "huge disinvestments" in transportation, and "it's starting to catch up with us. ... We need to turn around and make significant reinvestments in infrastructure or we're going to have to live with the mess that we built for ourselves."

Block outlined the challenges that face transportation. He said Oregon's freight tonnage will increase by 80 percent by 2030, but that growth can't be accommodated by the current transportation system.

If the system isn't improved, there will be a potential loss of $1.7 billion by 2025 in value-added, generated with a loss of 16,000 ongoing jobs.

Block showed the steep increase in the number of miles traveled by vehicles from 1980 to 2005, while the number of lane miles stayed relatively level: "It's going to get a little crowded."

Railroads have also seen an increase in freight ton-miles per mile of track during that same time, especially on Class 1 railroads, while railways have been ripping up track.

Trucks now haul 40 percent of Class 1 rail tonnage, challenging the truckers, who face more congested highways.

With that congestion comes more problems: decreasing "windows" for deliveries, costs of additional drivers and trucks, shifting production schedules, loss of productivity due to missed deliveries, limited and unreliable inter-modal operations, increased inventories and insufficient and limited capacity for east-west shipping options.

For the trucking industry - which has 28,000 trucking companies in Oregon alone - higher petroleum prices mean increased fuel costs, price volatility making it hard to plan and price business, and smaller companies have been hurt as it's more difficult to forward contract.

Taxes have also not been favorable for trucking. Oregon has a weight-mile tax, one of a few states that have one, said Block. If the fuel tax increases as planned in 2009, then the weight-mile tax will also increase.

While there is an ample supply of trucks now, Block said trucking will continue to become more expensive because of these taxes, possible environmental taxes and expenses, fuel charges, the cost of congestion and the cost of mandated low-emission engines.

Ocean shipping presents its own set of challenges. Costs rose because of a ship shortage; Portland's port is unique because it exports more than it imports, and demand exceeds supply for dry containers to ship east. Bulk ag shipping rates have gone up three times in 12 months, Block said.

On the positive side, more ships are being built and the Columbia River channel is being deepened.

While expensive, air freight is an important option for agricultural commodities that are time sensitive, especially high-value products. Unfortunately, congested highways can affect the products getting on and off the planes.

Block said rail deregulation has led to fewer Class 1 rail lines "that call the shots" and 20 short lines in Oregon. The shipping is at capacity, and "if it isn't jammed, it will be."

The Class 1 rail lines also want long unit trains, which limits involvement for some ag commodities, and give first priority for those who can help ensure quick turnarounds.

Railways can also be expensive to maintain, and weather can cause long delays and expensive clean-ups and repairs, as proven this winter.

Barges still remain a viable transportation option in Oregon. Trans-modal containers can go through the river ports, and the barge companies want more business, Block said.

Block suggested people develop transportation strategies: differentiate and ship high-value products; develop relationships with shipping companies and "don't jump on every cheap rate." He also recommended that shippers work together and provide leadership on funding new infrastructure.

Funds could come from sources such as the lottery, gas tax increases, tolls, bonds or privatization, he said.