Implicit Values of Multiple Car Grain Loading Facilities in Iowa and Nebraska

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A mathematical programming model of grain transportation is structured such that alternative types of rail shippers and rail rates are represented within an individual region. Shadow prices of solutions are used to assess values of multi-car grain loading facilities in Iowa and Nebraska by intrastate region and by facility size. Results indicate that, given 1980 facility and transport rate conditions, Iowa was overbuilt in 25and 50-car loading facilities, and that there were large incentives for facility expansion in Nebraska. Unit-train grain shipments to export ports began in 1965 when Interstate Commerce Commission approved a rate proposal by Southern Railway System for trainload shipments of 44 cars from Louisville, Kentucky to Charleston, South Carolina [26, p. 134].' This unit-train export-grain rate set a precedent which was followed during late 1960s and 1970s by railroad companies operating throughout Midwest, causing multiple-car and unit-train shipments to become predominant means of transporting midwestern corn and soybeans by rail to export ports. Unittrain rates were not used extensively in Great Plains and western states until early 1980s when most west-bound carriers offered unit-train rates to West Coast. Multiple-car and unit-train rail shipments result in decreased terminal and switching costs as cars are handled in multiple units rather than single-car shipments. Additionally, more efficient usage of rail-car capacity is guaranteed to railroads through consecutive train-load requirements. The decreased labor and overhead expenses per equipment unit are partially passed on to grain shippers in form of reduced rates which are inversely related to shipment size. However, to take advantage of these rates, shipper must provide adequate rail siding, storage, other plant facilities, and grain to load multi-car units in required time period. In past decade, multi-car loading facilities of various sizes have been built throughout Midwest. Indeed, given recent increase in merger activity among grain cooperatives with multiple-car load-out facilities in Iowa [13, p. 15], it appears as if industry is now overbuilt in some areas. In contrast, multi-car shipping industry is relatively young in western states of Nebraska, Dakotas, Montana, Colorado, Kansas, Idaho, and Washington. There are two general objectives of this paper. The first objective is to show how multicar constraint equations can be used in linear programs to model more than one rate per transport mode per origin-destination pair; i.e., for a particular destination, there may be numerous rail rates available from a point or region because of different shipment size provisions. Past national models of crop sector have failed to constrain these various shipment size and rate opportunities for a single originating region within one linear programming model [2, 6, 9, 11, 16, 17, 19, 23, 24, 27, 29]. The second objective is to estimate implicit values of multiple-car shipping facilities in Iowa and Nebraska based on shadow prices of multi-car constraints. A national linear programming model is used to project transport flows and costs for grain originating from regions throughout U.S. [3, 14]; however, focus of this paper is on results of national model for only Nebraska and Iowa because these states are representative of mature and new multi-car grainshipping industries. Conclusions will be drawn concerning relative need for additional Authors are Assistant Professor of Agricultural Economics, University of Illinois; Assistant Professor of Agricultural Business and Economics, Southern Illinois University; and a Charles F. Curtiss Distinguished Professor in Agriculture and Professor of Economics, Iowa State University, respectively. Financial support for this research was provided by U.S. Department of Transportation under Contract DTRS-57-80-C--00133. The authors gratefully acknowledge helpful comments of three anonymous reviewers. 'The first unit-train tariff was published in 1963 by Soo Line Railroad. The tariff applied to wheat shipments from Twin Cities to Buffalo and, although it was not an export-grain tariff, it represented the first of its kind in American railway transportation of grain. [26, p. 131]. This content downloaded from 157.55.39.246 on Tue, 27 Sep 2016 05:55:45 UTC All use subject to http://about.jstor.org/terms MULTIPLE CAR GRAIN LOADING FACILITIES, Hauser, Beaulieu, and Baumel 81 multi-car facilities by intrastate region. Although model was developed to answer allocational questions, shadow prices have locational implications. (Some good reviews of different types of locational models can be found elsewhere [8, 12, 22, 25]). Other analyses have examined locational and efficiency aspects of grain handling and transportation systems given costs and benefits realized on a state or sub-state basis; e.g. [1, 5, 15, 18, 20, 21, 34]. This analysis offers facility evaluations in context of total U.S. transportation costs.