Today’s Wall Street Journal reports (paid subscription or free metered view) what many commodity shippers spanning the Western portions of the United States are already experiencing first-hand, an erosion of rail service levels that are beginning to noticeably impact industry and services supply chains. The surge in bulk tank car shipments from the Bakken region of North Dakota, coupled with the severe winter conditions that have been experienced throughout this region have led to what is reported to be a major snarl in rail traffic that is now cascading itself among various supply chains. Once more, this situation may extend itself much further into 2014, which is not good news for supply chains that are often anchored in just-in-time inbound materials flows.
The WSJ indicates that many of the problems stem from pileups at the BNSF Railway, which has been one of other railroads heavily burdened by surging demand for crude oil transport. The problem is a classic capacity-constrained network, as winter conditions have taken a toll on equipment and schedules.
The ripple effect extends to other bulk agricultural and commodity shipment needs across the U.S. Midwest and Great Plains regions, where rail car deliveries are reported to be running two to three weeks late. Specific notations are made for shipments of bulk sugar to various consumer product goods companies, coal shipment to various utilities and grain and other agricultural products to ports or food processors. Impacted suppliers cited in the article are American Crystal Sugar Co., a supplier to General Mills, Kraft Foods and Kellogg, potato producer Black Gold Farms and fertilizer producer Mosiac Co. Hershey, on behalf of the Sweetener Users Association, has written a letter to regulators stressing the need for an urgent fix. These backlogs have the potential to cost shippers hundreds of millions of dollars in unplanned costs and the longer this service situation continues, the more upstream companies within supply chains will be impacted. The BNSF itself is reported to be scrambling to secure additional locomotives and train crews while shippers are turning to the more expensive option of shipping by truck.
As our U.S. reader community is already aware, there has been an ongoing capacity shortage among U.S. trucking companies, thus the problem cascades itself even more as trucking resources continue to fill-in for rail. Commodity procurement and logistics teams will obviously continue to deal with this situation, including coming up with alternative scenarios to keep material flows moving to upstream customer expectations. Those residing upstream should be exercising their own scenario planning options to manage through this ongoing operational disruption.