Although railroads ship the majority of U.S. ethanol, it’s a fairly insignificant amount when compared with the total commodities moved by rail. For instance, ethanol shipments made up less than 1 percent of the 32 million carloads of freight moved by rail in 2006. However, despite its insignificance when compared with other commodities, ethanol represents a growth opportunity for the country’s railroads. White anticipates ethanol transportation via railway will continue to grow, and infrastructure needs to be expanded to accommodate that growth.
New legislation has been introduced that, if passed, could help to speed that expansion. The Freight Rail Infrastructure Capacity Expansion Act would provide a 25 percent tax credit for investments made to increase rail capacity. White says the AAR-backed proposal was introduced in both the U.S. House and Senate last year but is still in the committee process. So far, he says, the bill has received bipartisan support and he’s confident that with increased support it will be passed into law. The incentive could make a real difference for railroads because they would have more money to invest in improving other areas. “It may in fact lead to an increase in the capacity of the rail network,” White says. “The network has, in certain corridors, been operating at close to capacity for a few years. So there is definitely some need to increase capacity, especially when we look toward the future where the Department of Transportation is predicting the demand for rail freight service will almost double by 2015.”
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The proposed incentive would apply to railroads, and any business that wants to invest in railroad expansion. “For example, if an ethanol producer or a refinery made an investment in rail terminal facilities so that they could make use of unit trains—that would be an eligible type of investment,” White says.
The Perfect Couple: Railroads and Terminals
Railroads are willing to work with facilities from the start so that everything goes smoothly, according to White. As it becomes more popular for terminal operators to team up with railroads, producers can expect to see better options and increased reliability from the transportation sector.
One of the busiest terminals in the Midwest was born out of a partnership among Manly Terminal LLC, the Iowa Northern Railway Co. and Hawkeye Energy Holdings LLC. Manly Terminal opened for business in December in the heart of Iowa’s ethanol producing region. Company President Lee Kiewit says the terminal was built in response to a need for flexibility and reliability when transporting ethanol. He knew area producers were suffering because cars weren’t returning on time, and there was a lack of destination and off-site storage options. Kiewit and his partners decided to build a terminal that offered all of those things and in addition direct truck-to-rail and rail-to-truck transloads. The 164-mile Iowa Northern short line runs diagonally from the terminal down to Cedar Rapids, Iowa, and offers several Class 1 railroad connections along the way. Because of the short line’s route, Manly customers have more flexibility in choosing where and when to ship their commodities, Kiewit says. The partnership between railroad and terminal allows him to offer a permanent daily schedule so producers don’t have to come up with their own schedule.
Lincoln Oil Co., a Greenville, S.C.-based petroleum marketing business, began splash blending in 2005. In July 2007, the company started offering ethanol on a wholesale basis. After a frustrating summer spent trying to ship blended fuel, President Jim Farish read about the impact of mandated splash blending on the shipping industry and decided to build a terminal. He teamed up with a local short-line railroad, Greenville & Western Railway, to design and construct a terminal capable of off-loading 96 cars in 18 hours. Farish will invest up to $15 million to build the facility, which includes 13,500 feet of rail, and says he’s banking on mandatory blending increases to make his terminal successful. By partnering with a local short line, Farish’s customers will be able to connect with larger Class 1 railroads to more efficiently transport their goods. He expects his terminal in Belton, S.C., will be operational by the end of the year.
The Train of the Future
Kiewit, Farish and White all consider unit trains a vital element in increasing the efficiency of the railroad infrastructure. Units usually consist of 85 to 95 cars loaded with the same product. Unit trains have been utilized by railroads for years to haul coal and grains. The recent increase in demand and production of ethanol has made shipping by unit trains more efficient than single-car trains. According to the USDA, the industry “rule of thumb” is that the ethanol railcar utilization rate for a unit train is 30 turns per year, compared with 12 turns per year for a single-car shipment.
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