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Washington Puts More on Line As Rail Gamble Pays Off by Jeff D. Opdyke The Wall Street Journal 6/17(?)/99

Four years ago, when the Washington Transportation Department bought 29 lime-green grain cars and sent them onto the rails in eastern Washigton, their future was far from certain. Politicians questioned the wisdom of the state getting into the rail business. Even the department wasn't sure the experiment would work.

But today the Grain Train is succesful, and it's about to get bigger. The department and the Port of Walla Walla are buying another three dozen grain cars, called hoppers, and plan to start a second Grain Train in south-central Washinton. The train has become a "very innovative" economic-development tool, says Jim Kuntz, the port's executive director.

The Grain Train program began in 1995 as a demonstration project to alleviated the chronic shortage of hoppers in Washington that happens at every harvest. At that peak time, hoppers tend to congregate in the Midwest because the large, mainline railroads that own them prefer longer hauls, which are more profitable than the short hauls between eastern Washington and the coast.

During the 1997 harvest, for example, Columbia Basin Railroad Inc., A Yakima short-line, couldn't get any grain cars for three months. Demand was so great that its president, Brig Temple, says he could have moved about 390 hoppers of wheat, enough grain to make more than 90 million one-pound loaves of bread.

For most Washington farmers and grain elevators, the lack of hoppers means they must rely on trucks and barges to move their wheat -- a more expensive option. A 1996 Washington State University study of the Grain Trains first year said that rail rates, on average, were about 6.6 cents a bushel lower than the truck/barge mode. That works out to about $231 hopper -- not a huge amount, but meaningful when wheat prices are weak and every advantage we can get counts," says Ray Shindler, a wheat industry lobbyist in Olympia.

State transportation officials figured a fleet of hoppers assigned to Washington's wheat industry could offer a number of benefits, ensuring hopper availability for shippers and the preservation of some lightly used rail lines. The hoppers also would help reduce highway truck traffic, saving road maintenance dollars. The 1996 study estimated that the state avoided $188,727 that year in highway upkeep because of the Grain Train.

To launch the first train, the state used $750,000 in federal funds (money from a one-time energy industry settlement with the government that was disbursed to the states) to buy the 29 hoppers, each capable of ferrying 100 tons of grain. (One hopper, which holds 3,500 bushels, is equal to about 3.8 truckloads.)

The state owns the hoppers, the Port of Walla Walla manages them and shortlines operate and maintain them. Wheat shippers, who have pledged to use the cars before others, pay a tarriff rate of between $700 and $1,000 a hopper, part of which goes to the short-line operator. The short-lines ferry the loaded hoppers to mainline railroads that take them to Portland and other destinations. For each hopper, the mainlines pay the state between 20 cents and 70 cents an hour and between six and eight cents a mile. The project "is bringing back a focus on rails as a viable alternative for grain shippers," says Columbia's Mr. Temple.

Not everyone thinks the Grain Train should be rolling. Early on, some lawmakers said that the transportation department should have used the federal funds for something else, and the critcism continues. What the state is doing is subsidizing railroads, and I don't think the state should be in that business," says former state Sen. Eugene Prince, who is now chairman of the state Liquor Control Board. "If the cars are so lucrative, why don't the railroads own them?"

Cost is a main reason. Short-lines simply don't have the cash flow needed to finance such expensive purchases, says Steve Kahler, general superintendent at Blue Mountain Railroad, Co., a Walla Walla railroad that operates the current 29 hoppers. "We couldn't afford it."

Half of the $900,000 price tag for the new rolling stock is coming largely out of earnings from the first Grain Train. In its first four years, it has amassed about $550,000 in profit. Last year, it generated net income of about $10,000 a month. The Port of Walla Walla is kicking in the rest with hopes that the second train will generate enough money to allow it to expand rail service in Walla Walla County (which is bordered by the last stretch of the Lower Snake River).

Blue Mountain Railroad will get the new cars, and the transportation department expects to transfer the current fleet to Columbia Basin Railroad, which runs along 85 miles of track in the Moses Lake area. Transport officials are still negotiating with three grain co-ops that will ship their wheat on the Grain Train.

Columbia Basin Railroad, already heavily into wheat shipments, expects that access to the hoppers will allow it to expand its grain business "by about 50% annually," says Columbia's Mr. Temple. He says Columbia currently has enough business to "keep those cars busy year round." That would translate into 468 carloads of wheat a year.

Last year, the Grain Train hauled a relatively puny 316 carloads. Whitman County, the nation's largest wheat-growing county, generated 12,0000 carloads, says Ray Allred, a freight rail planner in the state transportation department.

Nevertheless, those 316 carloads weren't insignificant to the wheat shippers and tiny Blue Mountain Railroad. "That's something like 10% of our annual carloads," says Blue Mountain's Mr. Kahler. For a short-line, he adds, "every carload you get means something."