New UP facility will bring together bulk agriculture grain, empty containers.
By Chris Dupin
Union Pacific Railroad will give agriculture exporters another way to tap the plentiful supply of empty containers in Southern California with a facility slated to open late this summer in Yermo, Calif.
The new facility will be able to transload entire unit trains of products, such as distiller’s dried grains with solubles (DDGS), grain, and soybeans, into containers, then move them to container terminals in the ports of Los Angeles and Long Beach for loading on ships for export, said Paul Hammes, UP’s vice president and general manager for agricultural products.
Capacity at the Yermo facility, which is located about 160 miles from the two ports, will be auctioned off to a single customer on a weekly basis.
With the facility, the railroad is trying to address the fast growth in containerized agriculture products, particularly DDGS, a byproduct of the ethanol industry, Hammes said at the Agriculture Transportation Coalition’s annual meeting in June.
While agriculture exports grew about 15 percent from 2006 to 2010, when they totaled 122.3 million metric tons, Hammes said containerized agriculture exports have increased much faster, about 75 percent in the same period. Overall, containerized agricultural exports now account for about 10 percent of all agriculture exports, up from 7 percent in 2006, according to the U.S. Department of Agriculture.
For grain specifically, the USDA said in 2010 containers were used to transport 5 percent of U.S. waterborne grain exports and 7 percent of U.S. grain exports to Asia.
Ninety-four percent of containerized grain exports were headed to Asia last year. In March, for example, the leading destinations for U.S. containerized grain exports were:
• Taiwan, 27 percent.
• Indonesia, 17 percent.
• Vietnam, 9 percent.
• Philippines, 6 percent.
• Thailand, Japan and Malaysia each with about 5 percent.
• China, 3 percent.
DDGS, which can be used for cattle, swine and poultry feed, are a particularly fast-growing export commodity. “The renewable fuels standard mandates increased ethanol production through 2015, and customers will need export solutions to supply new co-products markets,” Hammes said.
“Demand from Asia is driving DDGS, grain and grain products export growth to the West Coast,” he said. With the Yermo facility, “we are offering those markets a source of empty marine containers, freight delivery and throughput capacity.”
USDA said DDGS exports grew from 1.25 million metric tons in 2006 to about 9 million metric tons in 2010. In the first four months of 2011, 2.6 million tons were exported, about the same as in the first four months of 2010.
Some DDGS moves in bulk ships or by rail to Mexico and Canada, but container movements have also grown rapidly and now account for 24 percent of all containerized agriculture exports.
Kevin Yoon, an executive vice president at Marinex Grains in Brea, Calif., said that while the vast majority of DDGS moves in containers, more is beginning to move in handy-size or Panamax bulks ships, often as parcels mixed in among other grains.
UP expects the new facility to be attractive to customers who want to export more DDGS or grain, but cannot obtain empty containers in the Midwest.
There are many facilities for transloading bulk grain and commodities such as DDGS, soybeans, and pulses from rail cars or trucks into containers. Some are in ports, such as the Los Angeles Harbor Grain Terminal, Seattle Bulk Rail & Seattle Transload or Tacoma Transload. Some are closer to growers, such as North Dakota Port Services in Minot, or the Arcadia Co-op in Arcadia, Wis. And some are closer to major urban areas where distribution centers are clustered, such as Midwest Bulk Transload in Joliet, Ill., and CN’s Moyers Intermodal Terminal in Harvey, Ill., just outside of Chicago.
But, “unfortunately the containers are going where the people are and the products are being grown and produced where the people are not,” Hammes said. UP has surplus containers in locations such as El Paso, Dallas and Memphis, but moving them to areas where DDGS, grain, or other products might be loaded would be expensive and “deteriorate the productivity of those containers so it has not happened so much.
“We have plenty of containers, but they are just not located in the right place,” he said. Ports, particularly Los Angeles and Long Beach, have many containers for exports, both as empty boxes are returned to the port, and in part because of the large number of import containers whose contents are stripped and reloaded into domestic containers or trucks.
“It’s hard to get a firm number on that, but our intermodal people have estimated that there are 1.9 million to 2 million 40-foot containers. It’s a very large supply when you put it into perspective that we are loading just over 500,000 containers a year in agricultural products,” he said.
To take advantage of that large number of empty containers in Southern California, UP’s new facility will be able to take the contents of a unit train of 80 covered hopper cars and transload it into nearly 300 40-foot containers. The containers can then be moved by rail directly to the terminals used by a single or several ocean carriers. The company is developing a list of ocean carriers to participate in its Yermo project.
Thomas L. Lange, a UP spokesman, said the railroad will auction the transload throughput capacity on a weekly basis.
The Yermo service would be available for cargo coming from roughly 100 unit train facilities in the Midwest that originate on the UP and ship grain, soybean meal and DDGS. There are about 15 unit-train origins or interchange points for DDGS on the UP throughout Iowa, Nebraska and Minnesota, Lange said.
The company’s Union Pacific Distribution Services subsidiary will publish an all-in tariff rate for each commodity from each approved origin, he said. The hopper cars can originate from any one UP unit-train origin or interchange location, or from any approved two-origin sweep unit train pair.
The auction bids are a premium to that tariff. The highest bid wins the auction for the week being offered.
“The most unique aspect of this facility versus other grain containerization facilities on the West Coast is the ability to accept unit trains of hopper cars and marine containers at the same time,” Lange said. “It allows for a great deal of flexibility in managing operations and logistics.”
From Yermo, the containers will be railed directly to terminals in the ports of Los Angeles and Long Beach.
“I think this is a concept that will likely find its way into other locations,” Hammes said.
“We have looked at containers a lot, what we should be hauling in them, what are the backhauls and so forth. In the end, I think it is probably more efficient for railroads to move heavy bulk commodities in hopper cars and boxcars, as opposed to containers. So what we are now going to do is move as much of that cargo as we can in the most efficient way, get it closer to the port and put it in the container there as opposed to moving more containers out of the Midwest, which are not quite as efficient.
“We lose the ability to double-stack all the trains when we load with heavy bulk commodities. When you get up to 56,000-57,000 pounds in a container, you can no longer double-stack every car. You lose a lot of your efficiency that way, and at some point I think the market is going to incorporate that into some of those westbound rates. Whereas on the bulk, if you are moving it in a hopper car, the weight is not an issue — it is only an issue on that short segment from Yermo to the port,” he said.
Lange said that “while we don’t disclose revenue for specific Union Pacific products or services, we can say this program is really about adding new capacity for growing demand than it is about competition with any current service offerings.”
He said the market has responded very favorably to the prospect of dedicated transload capacity and improved access to a supply of marine containers at unit train economics.
“Yermo was developed based on market demand from DDGS shippers who want additional export options. We don’t see this impacting intermodal shipments of DDGS from Chicago and other Midwest locations,” he said.
UP “will consider further expansion and new locations based on market demand and customer response,” he added.