The Ethanol Line

Regional and short line railroads continue to upgrade their operations to move ethanol.
By Ryan C. Christiansen | March 05, 2009
Rail access is an essential requirement for large-scale ethanol plants. According to the Renewable Fuels Association, a 100 MMgy ethanol plant can expect to receive 60 percent of its corn by rail, or 17 railcars per day. The plant will ship 10 tank cars of ethanol per day and nine hopper cars per day of distillers dried grains with solubles (DDGS).

In the Corn Belt, ethanol plants are served by both Class I main line railroads and smaller Class II and Class III railroads. According to the Midwest Regional University Transportation Center, federal guidelines define Class II regional railroads as those that operate at least 350 miles of track and generate at least $40 million in gross revenue. A Class III short line railroad might be a local carrier that operates on less than 350 miles of track or might be a switching or terminal railroad that transfers cars between Class I connections and local shippers.

The existence of viable short line and regional railroads is due in large part to the Staggers Rail Act of 1980, which helped to rescue a nearly bankrupt railroad industry. According to the Federal Railroad Administration, the Staggers Act de-regulated the industry, allowing railroads to sell unprofitable lines to smaller railroads. The result is many more short line and regional railroads offering services, but also a set of Class I carriers that focus on optimizing their businesses to handle growing global trade volumes. For Class I carriers, optimization means shipping ethanol in 80- to 110-car unit trains instead of smaller train lengths.

More Horsepower
The demand for unit trains has led one Iowa-based railroad to upgrade its infrastructure and equipment. Iowa Interstate Railroad Ltd. (IAIS), based in Cedar Rapids, a subsidiary of Railroad Development Corp. of Pittsburgh, Pa., recently received a $31 million loan from the FRA's Railroad Rehabilitation and Improvement Financing program to help with the purchase of 12 new 4,400-horsepower General Electric ES44AC Evolution Series locomotives, which have allowed the railroad to increase train lengths, tonnage and operating speeds in its service to ethanol plants along its line. The new locomotives are 18 percent more fuel efficient than alternatives and comply with all of the latest U.S. EPA requirements. The railroad received the new locomotives in the fourth quarter of 2008.

The IAIS main line runs 552 miles from Council Bluffs, Iowa, to Blue Island, Ill., a suburb of Chicago. IAIS branch lines include 43 miles from Bureau Junction, Ill., to Peoria, Ill.; 14 miles from Altoona, Iowa, to Prairie City, Iowa; 11 miles from Rock Island, Ill., to Milan, Ill.; and six miles from Oakland, Iowa, to Hancock, Iowa. The railroad has connections with the entire Class I railroad system, giving ethanol producers the ability to ship and receive goods to or from anywhere in North America. The railroad provides intermodal facilities at Blue Island and Council Bluffs and also at West Liberty and Newton, Iowa. The IAIS offers access to the Mississippi River and Illinois River terminals for rail-to-barge or barge-to-rail service.

IAIS expects to move approximately 1 billion gallons of ethanol per year from ethanol plants along its line by the end of 2010. The ethanol plants that are currently producing along the IAIS line include the 37 MMgy Penford Products Corp. ethanol plant and the 420 MMgy Archer Daniels Midland Co. ethanol plant in Cedar Rapids; the 110 MMgy Hawkeye Renewables ethanol plant in Menlo, Iowa; the 100 MMgy ADM plant in Peoria; the 160 MMgy Aventine Renewable Energy Inc. plant in Pekin, Ill.; and the 100 MMgy Patriot Renewable Fuels LLC plant in Annawan, Ill. The ethanol plants under construction along the line include a 275 MMgy ADM expansion in Cedar Rapids and a new 110 MMgy Southwest Iowa Renewable Energy LLC ethanol plant in Council Bluffs. IAIS also serves Renewable Energy Group Inc.'s 30 MMgy Central Iowa Energy LLC biodiesel plant in Newton.

There are 3,969 miles of track in Iowa. According to the Iowa Department of Transportation Office of Systems Planning, Class I railroad service in Iowa has declined from nine carriers in 1985 to four. The number of Class III railroads has remained steady at 12 and the number of Class II railroads has increased from one to three. The Class II and III railroads account for 35 percent of track mileage in Iowa, but only 9 percent of ton-miles and 13 percent of freight revenues. The number of cars pulled per locomotive in Iowa increased from an average of 23 cars in 1985 to 32 cars today.

With 20 percent of its traffic hauling ethanol and DDGS from plants along its line, the IAIS is significantly invested in ethanol, according to Dennis Miller, president and chief executive officer for IAIS. "Iowa Interstate has seen a lot of growth in that area over the past three or four years," Miller says. "We have hauled ethanol here out of Cedar Rapids for over 20 years, but the past three or four saw some new plants being constructed on our line. What we have seen is, rather than these things moving in carload lots, we're moving more unit trains of ethanol to destination. Those are 80-car, 110-car units going to California, New York and New Jersey. It has been a pretty good traffic boost for us. And
you've got the DDGS on top of that."

Miller says IAIS hauls most of its unit trains to Chicago but occasionally, the railroad gives up its tank cars at Rock Island, Ill., to travel via the Burlington Northern Santa Fe Railway Co. to California. He says the increase in ethanol unit trains necessitated the purchase of new locomotives. "We had about 40 older locomotives in pretty good shape," he says, "but we had to put four or five of those locomotives on a train to haul it. We did an analysis about two years ago to try to figure out what we were going to need once all of the [new] ethanol business comes on line.

"If we wanted to continue [using older equipment], then we would probably end up with about 70 locomotives. That's a lot of fuel consumption, oils, lubricants and maintenance people and so we weighed that against purchasing brand new, fuel-efficient, EPA-compliant locomotives with higher horsepower and the latest and greatest technology. It benefits us to go with the newer locomotives, because we have fewer of them and pull more tonnage using less fuel. It was kind of a no-brainer at that point. It's kind of unusual for a railroad our size to do that, but it's paying off so far."

Before the ethanol boom, whatever corn wasn't used locally by food processors or feeding operations was trucked to the local grain elevator to be shipped by rail to distant national and international markets. But nowadays, more farmers are bypassing the elevators. While IAIS has experienced an increase in ethanol and DDGS traffic with the expansion of the ethanol industry, the railroad has experienced a decline in grain shipments. "A lot of farmers are trucking their grain directly to the ethanol plant," Miller says, "but the one has kind of offset the other."

The IAIS has daily service to Cedar Rapids over the Cedar Rapids & Iowa City Railway Co. (CIC), which operates 25 miles of track between Cedar Rapids and Iowa City, Iowa. The CIC has direct connections with IAIS and also the Iowa Northern Railway Co. which operates 163 miles of track from Cedar Rapids to the Manly Terminal ethanol terminal near Manly, Iowa. As the source carrier for the 420 MMgy ADM ethanol plant in Cedar Rapids, the CIC, too, has had to upgrade its infrastructure and equipment in anticipation of ADM's 275 MMgy expansion there. The expansion is expected to come on line in 2010.

"We've kind of revamped our locomotive fleet in the anticipation of pulling longer unit trains," says Jeff Woods, marketing manager for Alliant Energy Corp., the parent company for the CIC. "We're investing a lot of capital to facilitate the connection with Iowa Interstate. We're spending a lot of money on our main line, installing over the past two years a lot of continuous welded rail, which is a first for us. We're spending a few million dollars in our yards, extending leads and whatnot, and hope to increase our interchange track."

On the Receiving End
Short line and regional railroads that serve ethanol plants aren't the only ones upgrading their operations to accommodate ethanol. At the other end of the line, the Knoxville & Holston River Railroad (KXHR), which operates 20 miles of track in the Knoxville, Tenn., area, has set up a rail-to-truck transloading facility in Knoxville to accommodate the delivery of ethanol. The railroad has built a new siding on the line, which included installing 500 feet of track pans to catch possible spills, purchasing firefighting equipment and alcohol-resistant foam, and grounding the track to prevent fires in the event of static discharge or lightning strikes. "We've had to become much more cognizant of handling hazardous materials," says Peter Claussen, vice president of asset management for Gulf & Ohio Railways Inc., the parent company for KXHR.

Claussen said KXHR transloaded its first tank car of ethanol in November 2007. "We have done probably close to 500 since then," he says. "It has been a significant improvement in our business at a time when a lot of the other stuff is sort of tapering off."

Invested in Ethanol
The ethanol industry has affected the fortunes and expenditures of short line and regional railroads at both ends of the line.

"We've been rebuilding our railroad very heavily the past five years," Miller says of IAIS. "We've hired quite a few people in the past year or two, as well, trying to get them geared up and trained so that we're prepared to handle the volume. We've laid down a lot of new welded rail, a lot of new ties and ballast, and we've added probably four miles of new railroad, track sidings and places to store this stuff. We're basically adding capacity and getting prepared for 2010 when we expect another big influx of traffic. I guess the way we look at it is: there is a mandate out there for ethanol and the plants on our line are pretty solid. Hopefully, we can bank on that."

Ryan C. Christiansen is an Ethanol Producer Magazine staff writer. Reach him at rchristiansen@bbiinternational.com or (701) 373-8042.