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Iron Range explores an expansion of its rail network

Two BNSF locomotives sit in the railyard near Interstate 35 in Duluth recently. Steve Kuchera / skuchera@duluthnews.com1 / 2
Click on the image for a full view2 / 2

A group made up of major businesses and public entities is exploring what it can do to expand rail service on the Iron Range.

The Iron Range Regional Rail Initiative has been meeting quietly since as far back as 2013 as it looks for ways to lower the cost of using rail. The group's efforts currently include a roughly $6 million engineering study aimed at identifying ways to bring multiple rail services to all parts of the Iron Range.

The ongoing study is leading the group to explore the possibility of a "cross-Range connector" that would link communities across the Iron Range to additional rail services.

Currently, the Iron Range is victim to a phenomenon known as "captive rail," or "captive shipping." Rail lines that intertwine in the Twin Ports split on their way north into two distinct territories. The west Range is served by BNSF and the east-central Range by Canadian National Railway.

Sources included in this story say captive rail discourages new industry from moving to the Iron Range. Additionally, they say captive rail results in higher costs of goods and services, and increased wear and tear on roads and bridges for the way some businesses are compelled to choose trucking over rail.

"We've got businesses here that truck all their products over to Duluth, where there's four rail providers and they get very competitive rates," said Mark Zimmerman, president and chief executive officer of the Itasca Economic Development Corporation. "We're killing our roads and wouldn't have to if rail-to-rail would be competitive."

U.S. Sen. Amy Klobuchar addressed the situation earlier this month in Duluth during a packed-house panel discussion on the topic of transportation. The senator, who has attempted legislation in the past that would address the issue, told the crowd she often hears from business leaders and corporate rail customers who say railroads charge too much for the last leg of a journey leading into a town.

"There's not enough competition in the last few miles," she said, describing a situation that forces customers to pay what Klobuchar called "jacked-up rates." In a failed 2013 bid to legislate captive shipping, Klobuchar cited a Consumer Federation of America study that said rail rates were $3 billion higher for captive shippers than they would be if the market was competitive. Excess charges cost consumers as much as $100 per year per household, the study cited by Klobuchar said.

"Here's an example: let's say Minnesota Power could reduce its coal shipping costs by 30 percent," said Grand Rapids city administrator Tom Pagel. "What does that do? It reduces the cost to produce power, which then reduces rates which positively impacts the mines, residents of Duluth, a lot of people in Northeast Minnesota. It's huge."

Minnesota Power is among the entities represented on the Iron Range Regional Rail Initiative which also includes multiple paper mills, U.S. Steel and other mining companies, the cities of Grand Rapids and Cohasset, and Itasca County. Members recently solicited letters of support from mining companies and expect to receive those in May. The intent is to deliver the letters to the St. Louis County Board of Commissioners.

"We really need to engage St. Louis County for it to move anywhere," said Steve Giorgi, executive director of the Range Association of Municipalities and Schools. "We'd like to see St. Louis and Lake counties take some leadership and move this conversation into potentially a project."

To date, sources said, Minnesota Power has been the primary financier of the current engineering study expected to be complete this summer. One early outcome of the study, Pagel said, includes the identification of a prospective rail spur between Cohasset and Taconite on the western Range that would create customer leverage by tying into an existing line which features reciprocal trackage rights between BNSF and CN. Customers would gain the ability to negotiate rates with both railroads, rather than be dependent on only one.

A spur starting in Cohasset would serve Minnesota Power's largest generation plant, the coal-fueled Boswell Energy Center. Vice President of Strategy and Planning Julie Pierce said Minnesota Power's involvement in the study is par for the course for a company that is perpetually on the lookout for new efficiencies.

"We're always looking for ways we can competitively provide energy," she said. "For us, being involved in the coalition is studying, 'How can we enhance competitiveness on the Range both for us and for our customers — the taconite mines and others — to move their products?' "

Pierce also described the scope of the study.

"We've been referring to it as a full cross-Range connector that would tie together many of the regions on the Iron Range," she said, saying the notion "has been around for a while."

Sources cite the frigid winter of 2013-14 as being the impetus for this latest round of inquiry. That year rail lines were clogged with oil coming out of North Dakota, and rail service into the Iron Range was spotty at best. Taconite was stockpiled in places not designed to have large quantities, and coal shipments to power plants were on-again, off-again to the point that Minnesota Power had to buy off the grid to supplement its power production. That experience illustrated the point that, in a captive-rail scenario, "you're kind of at the mercy of the (rail) company from a timing and delivery perspective as well as a cost perspective," Pagel said.

The rail companies have little to say on the matter.

"They're a pretty difficult nut to crack," Giorgi said.

In 2014, when Minnesota Gov. Mark Dayton convened the titans of industry in Duluth to discuss the hardships being brought to bear by erratic rail service, nobody from the railroad industry came to a table filled with representatives from steel, energy, paper, government and more.

When asked to discuss captive rail, BNSF spokeswoman Amy McBeth produced an Association of American Railroads study that summarized "the cost effectiveness of America's freight railroads." The study said U.S. freight rail rates were 45 percent lower in 2015 than in 1981, adjusted for inflation.

McBeth also issued a statement to the News Tribune that said, "We have market-based rates and disputes are resolved at the U.S. Surface Transportation Board (STB)."

Appeals to the STB are costly — with a large fee to file a complaint and potentially millions of dollars in legal fees to follow.

"After all that, the STB's decisions almost invariably tilt toward the railroads," Klobuchar wrote in a 2007 news release about proposed captive-rail legislation.

Challenging rates is also risky for the customer that does it, for the potential it has to interfere with business relationships between the rail provider and customer. Because of the drawbacks to challenging rates, it's not been a route taken in the Northland.

CN did not respond to a News Tribune inquiry about captive rail.

"The railroad transportation world is very complex," Pierce said. "There are a ton of different contract strategies that vary between businesses. If you did have two (providers) there could be the opportunity to mix and match and hopefully come up with a better cost structure."

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