Chairman Rockefeller, Ranking Member Thune, and Members of the Senate Commerce, Science and Transportation Committee, on behalf of the membership of the Renewable Fuels Association (RFA), I would like to commend you for holding such an important and timely hearing on the crisis of congestion that is currently plaguing our nation’s rail system.

The RFA is the leading trade association for America’s ethanol industry. Its mission is to advance the development, production, and use of fuel ethanol by strengthening America’s ethanol industry and raising awareness about the benefits of renewable fuels. Founded in 1981, RFA’s 300-plus producer and associate members are working to help America become cleaner, safer, energy independent and economically secure.

The recent crisis of congestion that has seemingly overtaken the rail industry has become a huge and costly problem for shippers of all commodities, including the U.S. ethanol industry. This crisis is one that is causing significant harm to the economic health and well-being of our nation’s

economy, as well as driving up costs for a wide array of commodities that rely on the rail for transportation.

As many of you are aware, ethanol has become a critically important component of the U.S. motor fuel market. Today, 96% of all gasoline sold in the United States is blended with at least 10% ethanol. This ethanol is blended with our motor fuel supply as an octane enhancer to improve vehicle performance, as well as an oxygenate to reduce carbon emissions and other dangerous particulates. Given the consistent price competitiveness of U.S. ethanol over petroleum based gasoline, the blending of ethanol in gasoline has also become a valuable economic benefit for American motorists. With crude oil prices hovering around $90 per barrel, the blending of ethanol as an additive in gasoline has resulted in savings to the American consumer of $0.50 to $1.50 per gallon. (Energy Economist Philip K. Verleger, Commentary, Renewable Fuels Legislation Cuts Crude Price, pkverlegerllc.com).

However, since late last year, congestion and delay on the rails have significantly hampered the industry’s ability to reach their customers using this cost-effective option. Due to an uncharacteristic winter season caused by a strong Polar Vortex effect, during the winter and spring months, rail shipments of all commodities began experiencing significant delays across the country. For ethanol, the congestion led to a dramatic delay in ethanol shipments to fuel terminals and caused shutdowns of operations at ethanol plants because they could not continue to store product while awaiting rail carriers to move their product.

Prior to the difficult winter season our nation experienced, average dwell times for shipments hovered around 22 hours, but as a result of the Polar Vortex, these dwell times increased dramatically to 27.1 hours. While there has been some improvement during the recent summer months, dwell times continue to remain above pre-Vortex levels. Today, despite the warm weather, average dwell times continue to exceed pre-Vortex levels by 14%. Moreover, average train speeds declined as a result of the winter season, but have continued to decline over the warmer months. Today, average train speeds are now 10% below pre-Vortex levels.

While we understand and appreciate that we experienced an unusually powerful winter season, it seems unreasonable to conclude that winter weather alone was the cause of such a significant congestion crisis on the

rails. Winter comes every year, and rail operators, especially those in northern parts of the country, have had a long history of, and experience in, adequately preparing themselves for extreme cold, snow and icy conditions. In fact, in many northern regions of the country, the extreme snow and icy conditions experienced earlier this year were the norm rather than the exception.

Furthermore, the fact that the congestion on the rails has continued well after the end of the past winter season leads one to believe that it has more to do with rail capacity, rail operations and ongoing rail demand, than simply a tough winter. Given the persistence of the congestion through the summer, it is not enough to simply claim that the past winter season continues to plague the rail system. The question remains, “Why did the rail industry have so much difficulty in responding to the winter season this year, and why is the rail industry continuing to suffer from congestion and delays long after its end?

What the data tells us that is different about this year, as opposed to the countless other winter seasons, is the recent dramatic and explosive growth in railcar shipments of Bakken and Canadian crude oil. While rail shipments of ethanol have stabilized over the last 4 years, crude oil shipments have grown dramatically in the last two years, growing from less than 70,000 carloads in 2011, to more than 420,000 carloads in 2013; a staggering increase of 600%. The growth in crude oil shipments has reshuffled the existing fleet of railcars and locomotives, pressured lease rates, changed normal rail traffic patterns, and generally exerted significant stress on the rail system. And with this congestion crisis, it is becoming more and more apparent that surging crude oil shipments are coming at the expense of other goods and commodities.

The U.S. ethanol industry has long relied on the railroads for delivering its product to market, as well as receiving necessary inputs for processing its fuel and other co-products. In fact, trains have historically served as an economical and efficient “virtual pipeline” for ethanol, safely moving our product from plants concentrated in the Midwest to population centers on both coasts. Therefore, we believe that it is critical for our nation’s rail operators to work quickly to resolve this situation.

With the impending harvest season, it is expected that rail demand from other agriculture based commodities will begin to spike again, and any

lingering congestion issues must be mitigated before this occurs. Moreover, in addressing this situation, rail operators must respond in a way that treats the vast array of other goods and commodities competing with crude oil on the rails fairly and equitably.

To address this situation and ensure that all commodities are being treated fairly, we believe that greater transparency is needed to help regulators oversee and monitor how logistics and contracting decisions are being made by rail operators. It is critical that regulators have the ability to oversee what new shipping contracts are being negotiated while the rail operators continue to try to catch up with current customers. When you find yourself in a hole, the prudent thing is usually to stop digging. The Surface Transportation Board must carefully scrutinize new contracts and assure they will not exacerbate an already intolerable situation. Access to current and accurate data concerning how individual commodities are being moved is necessary to determine whether existing rail customers are being displaced by the demand from crude oil rail shipments, and if so, what steps are needed to fairly and adequately relieve some, if not all, of the pressure on overall rail services from the growing demand from the Bakken region.

Once again, I thank you for the opportunity to voice our industry’s concerns on this important issue.

September 10, 2014

United States Senate
Committee on Commerce, Science, and Transportation

Hearing on

“Freight Rail Service: Improving the Performance of America’s Rail System”

Testimony for the Record of

Bob M. Dinneen
President & CEO, Renewable Fuels Association

norable Todd Hunter
Chairman, House Committee on Calendars
Room GW.5
P.O. Box 2910
Austin, Texas 78768
Re: House Bill 3835