July 3, 2022
Fargo, US 70 F

Railway Supply Chain Issues Impacting Agriculture

Railways are a vital piece of the supply chain and are usually a cost-effective and reliable way to get agricultural goods to their destination. However, supply chain issues have led to an increase in unfilled rail car orders and the costs of railway shipping, according to American Farm Bureau Federation Economist Danny Munch.

“Unfilled orders refer to the number of rail cars a buyer like a grain elevator ordered but did not receive. When a service contract between a shipper and a railway is not filled, shippers might look elsewhere to purchase railcar access. That often occurs in the secondary rail car market where shippers bid against other shippers for their contracts. Because there are so many unfilled orders, the demand in the secondary market has jumped up quite a bit.”

Munch says its part of the overall issue of supply chain disruptions. “Many of the issues we’ve been hearing about in trucking and ocean freight also contribute to these rail service disruptions. There’s a significant shortage in rail crew labor, which is expected to be the largest contributor. During COVID-19, railways also sold off a lot of rail cars and other assets during that time of heavy uncertainty. So, now they’re facing railcar inventory shortages, and then more broadly, you’re seeing lockdowns across ports in China in response to their COVID issues tying up a huge portion of containers that could be used intermodally in our own domestic rail networks.”

Munch says unfilled and delayed orders means a disruption of the delivery of agricultural products. “For example, milling operations reliant on the delivery of grain from elevators are forced to halt their operations, putting the flow of feed to livestock operations at risk. Beyond creative solutions to immediately get rid of some congestion issues, long-term investments in on farm storage and on operation storage to improve grain storage could help hedge against transportation disruptions. But, in any case, improvements are needed soon to prevent further disruptions to the farm economy.”

Learn more at fb.org/market-intel.

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