TransporTaTion researchsummary

ISA’s objective in the transportation target area is to ensure soybeans and soybean

products reach their intended destination efficiently. The following checkoff-funded

studies explored potential constraints and opportunities in the transportation sector

that can inhibit or help achieve this goal while ensuring maximum profitability and global competitive positioning for Illinois

soybean producers.

illinois soybean associaTion

TransporTaTion research summary

Table oF conTenTs

3 illinois criTical bridge assessmenT and economic impacT relaTive To soybean and soybean producT movemenTs

3 commercial promoTion oF illinois soy conTainer shipping

4 QualiTy analysis oF conTainerized illinois soybean shipmenTs

5 opporTuniTy For illinois soybeans To beneFiT From meaT shipmenTs via reeFers

5 rouTing FlexibiliTy and ToTal landed cosT analysis

6 TransporT capaciTy For 600 million bushels oF soybean uTilizaTion

7 impacTs oF higher road WeighTs on illinois soybean value chain

8 illinois lock mainTenance assessmenT and Funding alTernaTives

9 headhaul-backhaul For illinois conTainers

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illinois criTical bridge assessmenT and economic impacT relaTive To soybean and soybean producT movemenTsprepared by inForma economics

Illinois produced approximately 466 million bushels of soybeans in 2010 – 11. However, the state’s crumbling road and bridge infrastructure hinders economic returns. Detours, delays and decreased weight limits have lead to increased fuel costs and excessive wear and tear on equipment. These impediments also cost farmers precious time at harvest season because it takes more loads or longer trips when bridge capacities are limited, or “posted.”

In 2010, 15.4 percent of the state’s bridges were defined as structurally deficient or obsolete. To quantify economic impacts and losses from poor infrastructure, researchers selected 12 deficient or obsolete bridges from 10 Illinois counties and evaluated each based on benefit to the area and costs incurred if alternate routes are needed. The study also determined indirect and induced impacts of a closure, which includes increased revenue spent on gasoline and diesel fuel rather than in the local community.

Based on these factors, researchers calculated the “annual net benefits” and “benefit cost ratios” of repairing and maintaining each bridge. The average benefit cost ratio was $10.24, with a range of $0.32 to $37.27. This ratio shows the average benefits of restoring one of the bridges is more than 10 times greater than the costs to repair it. This average can be interpreted as a return of $10.24 to the local economy for each $1 invested to build and maintain the bridges. The largest annual net benefit was recorded for a DeKalb County bridge, which would generate the community an estimated $1,088,037 annually if repaired. Another example is a Stockland, Ill., bridge that provides 70 percent of its benefits to agriculture and would provide a 20-to-1 benefit ratio if fixed. The researchers advise that securing needed funds starts at the local level with farmers, businesses and communities highlighting the value of the infrastructure to local transportation authorities and then to state officials and decision makers to allocate funding.

commercial promoTion oF illinois soy conTainer shippingprepared by prime Focus, llc and The beckeTT group

Exporting soybeans in shipping containers is an emerging, alternative transportation channel for Illinois soybeans to reach foreign markets. Currently, container shipments make up about eight percent of Illinois soybean exports. This is an efficient and effective method to move soybeans to markets in Asia and Europe that don’t require bulk shipments, increasing profitability for Illinois soybean farmers.

To learn more about opinions of containerized shipping, researchers surveyed 161 stakeholders including farmers, seed sellers and associations. The survey results organize these stakeholders by their degrees of influence and interest levels, which will help ISA to design messages for specific groups to help develop and foster container shipping.

Respondents answered 33 questions, and researchers concluded that respondents, who were mainly farmers, want to know more about using shipping containers to move soybeans. With a unique combination of high-quality soybeans and world-class logistics infrastructure, Illinois is positioned to capitalize on containerized exports. From the survey results, ISA can develop materials, resources and strategies that increase knowledge about container shipping and inform specific stakeholder groups effectively.

OF ILLINOIS SOYBEANSWERE EXPORTEDVIA CONTAINERS

8%

oF illinois bridges Were sTrucTurally deFicienT or obsoleTe in 2010

15.4PERCENT

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QualiTy analysis oF conTainerized illinois soybean shipmenTsprepared by inForma economics and illinois crop improvemenT associaTion

The majority of containerized U.S. soybeans, about 66%, originate in Illinois. Containerization of commodities is primarily used as a backhaul for the container unit or to maintain higher levels of quality. The Illinois Soybean Association, through checkoff funding, conducted a study to determine whether shipping methods (container versus bulk) affect soybean quality while in transit.

Eight shipments containing a mix of soybean samples (bagged product, cleaned and bagged product, and bulk soybeans) sent to Indonesia, Japan and Taiwan were the initial focus of this study.

Twenty quality variables including grade factors, physical characteristics and composition were tested at the origin and the destination. As of August 28, 2012, six shipments had arrived and two were en route, with initial findings from eleven samples across the six containers suggesting that soybeans maintain their quality when shipped by container. Thirteen additional observations will likely provide additional evidence to confirm the initial findings.

66%oF conTainerized beans originaTe in illinois

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opporTuniTy For illinois soybeans To beneFiT From meaT shipmenTs via reeFersprepared by inForma economics

Hogs remain the primary demand source for Illinois soybean meal. Stable demand from in-state livestock operations is important because it provides a nearby market that positively impacts soybean farmer incomes. Therefore, the Illinois Soybean Association is interested in ways to increase demand for Illinois-grown pork.

The Illinois pork exported [annually] by container is produced using 4.9 million bushels of soybeans. This checkoff-funded study examined opportunities to strengthen Illinois’ cold chain supply systemand to increase competitiveness. Researchers also explored the current advantages that Illinois producers maintain in the protein value chain and the potential positive impact of using various shipping routes for outbound shipments.

The study found that maintaining and improving existing supply chain channels will improve Illinois’ market presence. The researchers suggest ways to strengthen the cold chain supply system including gaining additional access to reefer containers for Illinois and neighboring states, investing in more blast freezers and using low-cost reefer unit trains that are dedicated to long-haul moves from Illinois to West Coast ports.

rouTing FlexibiliTy and ToTal landed cosT analysis prepared by charles mcsWain consulTing

End-user price and the total cost of delivery are significant factors in the price farmers receive for soybeans. This study examined the economic drivers and opportunities that influence transloads of bulk soybeans into containers for international soy product movement prices. Researchers compared specific lanes and mixes of transportation modes to find the best total delivery costs to Kobe, Japan, and Singapore. They evaluated volume commitments, capability for effective conveyance, impact of seasonality and other factors on provider pricing and throughput capacity.

Origin: Southern Illinois1. Barge to Dry Bulk at New Orleans2. Barge to Container at New Orleans3. Rail to Container at New York/New Jersey4. Truck to Container at Chicago

Origin: Northern Illinois 1. Barge to Dry Bulk at New Orleans2. Truck to Container at Chicago3. Rail to Container at New Jersey and Barge to Container at

New Orleans (tie)

Results show rail and ocean carriers who regularly move large volumes between two points with revenue loads in both directions offer better prices. Soy is seasonal, even with significant storage being added, and it is a one-way trip. Thus, the strategy for lowering total delivery cost must revolve around using the low-cost provider under a long-term agreement, either directly or in partnership with others, and spreading out the volumes to offset lower demand periods during the year.

bushels oF soybeans go To Feed pork ThaT geTs exporTed via conTainer

4.9MILLION

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TransporT capaciTy For 600 million bushels oF soybean uTilizaTionprepared by inForma economics

As part of ISA’s goals to maximize the profitability and global competitiveness of Illinois soybeans, ISA envisions utilization of 600 million bushels of the state’s soybeans by 2020. However, this goal is hindered by inadequate infrastructure and associated constraints of extra fuel costs, lower speeds, lighter loads, and wear and tear on equipment. These added costs reduce the farm gate price of soybeans and impact the supply chain’s ability to achieve the target of 600 million bushels.

In 2010 – 2011, 466 million bushels of Illinois soybeans were used. This checkoff-funded study analyzed the capability of the current transportation infrastructure system to handle an extra 140 million bushels. Researchers created a series of scenarios to identify key limiting factors of the extra volume and to determine where additional investments are needed most. The scenarios were based on projected market demands (domestic or international) plus protein demands (soybean meal versus whole beans).

From these scenarios, researchers concluded Illinois infrastructure is capable of handling the 600 million bushels of soybeans, but highlighted several areas of concern:

• Storagecapacitymustincreaseby270millionbushels.• Thegrowingoilandnaturalgasindustrycould

monopolize the additional railcars and hoppers needed to transport soy.

• Drivershortageshinderusageoftotalavailableequipment.• Thenumberofdeficientbridgesisincreasing,thetimeandmoney

required to rehabilitate a bridge is increasing, and the volume of agriculture goods is increasing.

• Duetofundingmethodsandcountydemographics, counties lack the resources to maintain infrastructure.

• Bargeavailabilityandinfrastructurearenotexpected to be constraints.

• Demandforcontainerizedshipmentscouldincrease from 28 to 63 million bushels, putting pressure on available containers.

addiTional bushels oF soybeans needed To meeT isa 2020 uTilizaTion goals(466 mm bushels in ‘10 – ‘11 headed To 600 mm bushels by 2020)

134MILLION

6

impacTs oF higher road WeighTs on illinois soybean value chainprepared by inForma economics

This checkoff-funded study examined current weight restrictions and potential impacts of increasing weight limits on roads important to soybean transportation.

Current situation:• Thefederalweightlimitfortheinterstatesystemis80,000pounds

gross vehicle weight (GVW). Illinois roads were designed for 73,280-pound vehicles—the 80,000-pound limit was designed for truck routes only.

• A1965lawchangedthebridgebuildingstandardtoaccommodateup to 97,000 pounds. Approximately one third of Illinois bridges were built before 1965, and therefore are not up to the standard.

• Amajorgoalofgovernmentistoimprovetransportationinfrastructurefor public safety and schools; the movement of agriculture products is not among the highest priorities.

Efforts to increase weight limits: • TheU.S.HouseTransportationCommitteehasdelayedatruckweight

reform measure for three years until further studies are complete. The most common proposed reforms would allow individual states to increase weight limits to 97,000 pounds GVW.

• Newelectionscouldchangethepoliticalwillasitconcernsincreasingtruck weights.

• Thegeneralpublicisinfavoroffewertractorsemi-trailers,lesstrafficcongestion and better air quality, but not heavier trucks. Connecting the two issues for the general population is a major challenge.

Opposition: • PoliticaloppositionisdrivenbyTeamstersUnion,AAA,NationalTroopers

Coalition,NationalSheriffsAssociation,NationalAssociationofPoliceOrganizations, Owner-Operator Independent Drivers Association, Association of American Railroads, Railway Supply Institute, and individuals and organizations that believe heavier truck weights are unsafe and will reduce the number of truck drivers employed.

Challenges:• Theunknownfuturecostofoverweightpermitsisamajorsource

of concern. The current fee for a special permit to transport farm implements is $12.50 quarterly and $50.00 annually.

• Thereisaneedtoreplace“patchwork”overweighttruckpermitswithan annual single statewide permit, ensuring the permit fees are spent on maintaining the overweight routes.

• Drivershortagesshoulddrivetheneedforgreatertruckcapacity.• Increasingroadweightswouldeffectivelyreducetheneedfordrivers

moving agricultural products by 20 percent, but would not solve the driver shortage problem.

Impacts on the Industry: • TransloadingfacilitiesinIllinoisallowagriculturalproductstoeasily

be trucked from farm to rail terminal or processing facility to rail terminal for container export.

• Asiandemandforcontainerizedcommoditiespotentiallyrepresentsa steady consumption stream of Illinois soybeans, but current road weights cannot accommodate this volume.

• Increasingroadweightswouldallowthesoybeanindustrytotakeadvantage of Asian demand and ultimately save $84 million per year.

• Illinois’meatindustryconsumesapproximately4.4milliontonsofgrain and soybean meal per year. Readily available supply of these feed commodities is the major advantage Illinois has over other states producing meat. Allowing heavier trucks would save $3 to $5 million in transportation and facility operating costs.

TransporTaTion + operaTing cosTs saved WiTh heavier Trucks

$3-5MILLION

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illinois lock mainTenance assessmenT and Funding alTernaTivesprepared by inForma economics and riverTrends, llc

Achieving ISA’s goal to increase the value of Illinois’ soybeans and soybean products depends on the efficiency and reliability of the 29 locks and dams that support barge movement of Illinois soybeans to market. This report, funded by the soybean checkoff, evaluated current financing for lock and dam maintenance and repairs needed to sustain a reliable navigation system for barges transporting Illinois soybeans.

According to researchers, insufficient budget resources currently force the Army Corps of Engineers to defer routine maintenance on locks and dams to future years. The reports state this deferment actually increases ultimate repair costs because more expensive emergency maintenance projects will arise as components age, further cutting into the budget for routine maintenance projects.

For example, to clear current deferred critical maintenance projects in the Rock Island and St. Louis districts would cost approximately $560 million, but lead to economic cost savings to the industry totaling $1.2 billion over the next 15 years. The savings on emergency costs and nonroutine closures would allow more critical routine maintenance to be accomplished.

ResearchersrecommendaPublic-PrivatePartnership(PPP)between the Corps and public officials to implement an additional planned project funding system using revenue bonds, fees or direct funding. This system would allow for major maintenance to be funded, supplemental to the Corps budget, and provides a more proactive rather than reactionary approach to maintenance funding.

29LOCKS + DAMS

supporT movemenT oF illinois soybeans

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headhaul-backhaul For illinois conTainersprepared by prime Focus, llc and The beckeTT group

Illinois producers have access to more transportation networks and carriers than any other North American producer. This gives Illinois soybean farmers a potential pricing advantage that growers from other states cannot enjoy. Being located at a point in the supply chain where containers are unloaded creates the opportunity to load the empty equipment with soy products and ship them back to the country of origin as backhaul.

Whether the mode of transportation is rail, waterway or truck, empty movements between market loading points reduce carrier profitability because even empty equipment incurs a repositioning cost that cannot usually be recovered with a fee. Whenever empty containers are available and when container ship operators are willing to cut prices to keep containers flowing, Illinois soybean producers will benefit from backhaul pricing.

This checkoff-funded study explored current barriers that may prevent soybean farmers from gaining access to containers and limit market access for their soybeans.

Three strategies were executed to identify what types of transportation issues and opportunities are present in Illinois, with a general conclusion that stakeholders in the soybean export supply chain may not have full knowledge of current trends, barriers to growth or future opportunities:

1. Estimate Illinois Equipment Supply—Researchers utilized and referenced several resources and software for finding equipment providers, evaluating availability of containers and obtaining pricing quotes, especially for containerized shipments.

2. Raise Export Awareness—Two roundtable forums and a symposium were organized to bring together industry partners, ISA members and staff. The symposium featured speakers and panelists representing all trade lanes of interest for Illinois. The event was supplemented with a field trip to a rail terminal to view container loading and gain a better understanding of the logistics of container movement in Illinois. Brochures were created as a part of the project to give an overview of each mode of transportation (barge, container, ocean liner, rail, transloader, truck) and are available at www.ilsoy.org.

3. Quantify Expressions of Interest—Researchers completed interviews with 61 ISA members and transportation service providers. They found farm location and on-farm storage availability dictate the mode farmers use to ship soybeans, and farmers want to know whether containerized shipping will increase margins. Consensus from interviews with carriers indicated that additional education and communications are needed regarding forecast volumes, trends in consumption, equipment preferences between 20’ and 40’ containers and distinctions regarding loading methods to supply equipment and transportation capacity to meet growing export demands.

7iF chicago Was a porT, iTs conTainer ThroughpuT Would make iT The World’s 7Th largesT

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