Key facts
- US rail fuel surcharges on grain shipments have more than doubled in the past year.
- The average fuel surcharge rate on grain shipments reached 48 cents a mile per rail car in early September.
- This represents a 153% increase compared to the previous year.
- Surcharges now account for 11% of total rail transportation costs for corn and soybeans, up from 5% a year ago.
- Brent crude oil futures rose above $104 a barrel last week, and diesel fuel prices are above $6 a gallon.
- Railroads collected $2.93 billion in fuel surcharges in the second quarter, a 90% increase year-over-year.
Railroad fuel surcharges on U.S. grain shipments have more than doubled over the past year, significantly increasing transportation costs for farmers during the crucial harvest season. The average fuel surcharge rate climbed to 48 cents a mile per rail car in the second week of September, a 153% increase from a year earlier, according to U.S. Department of Agriculture data.
These higher surcharges now account for 11% of total rail transportation costs for shipping corn and soybeans, up from 5% a year ago. The increase is particularly challenging as farmers are also grappling with higher production costs and the escalating conflict involving Iran has pushed crude oil and diesel fuel prices sharply higher. Diesel fuel prices are currently above $6 a gallon, while Brent crude futures surpassed $104 a barrel last week.
Farmers typically receive lower prices for their crops when railroads pass on excess costs. Gary Millershaski, a Kansas farmer, noted that the basis at his local grain elevator was around 70 cents per bushel below Chicago Board of Trade futures, compared to a normal 40 cents below. "When you think about an industry where your profit margin is only a couple cents per bushel, that makes a difference," said Frayne Olson, a crop economics expert at North Dakota State University.
Railroads, including BNSF, CSX, Norfolk Southern, Canadian National, Canadian Pacific Kansas City, and Union Pacific, levy these surcharges on top of long-haul freight tariffs. A Canadian Pacific spokesperson stated that surcharges are designed to help railroads manage fluctuating fuel prices and reduce their exposure to them. They are pegged to the U.S. On-Highway Diesel Fuel Index and triggered when fuel costs exceed a strike price generally between $2.30 and $3.25 per gallon.
In the second quarter, railroads collected $2.93 billion in fuel surcharges, an increase of over 90% from the previous year, according to the Surface Transportation Board. A Canadian National spokesperson said these surcharges ensure rates reflect current operating costs. Railroad analysts anticipate elevated surcharge levels for the remainder of the year.
Major shippers like Archer-Daniels-Midland have not reported negative impacts, as they can pass on some costs. However, grain elevators, owned by companies such as ADM and Cargill, factor these surcharges into cash prices, potentially lowering the prices farmers receive. Farm groups are also concerned that a potential merger between Union Pacific and Norfolk Southern could further increase market power and negatively impact grain prices.