Higher fuel prices aren’t just affecting what farmers pay to plant and harvest a crop. They’re also driving up transportation costs throughout the supply chain, including rail freight fuel surcharges that can ultimately impact farmers’ bottom lines. Mike Steenhoek, Executive Director of the Soy Transportation Coalition, explains.
“That obviously has a significant impact on farmer profitability with the diesel that they have to purchase for their own on-farm usage, but also for their trucks that they use for transporting their soybeans and grain to, to market. But another way high fuel costs really insert itself into the industry and the broader economy is in the area of fuel surcharges. And one of the things that we witnessed, so a lot of transportation providers, railroads included, when fuel costs go up, they will institute a fuel surcharge. We see that also with Uber and Lyft and taxis and other transportation providers, but it certainly occurs within the rail industry.”
He says those fuel surcharges have climbed dramatically over the past year.
“Looking at some data from the U.S. Department of Agriculture, what we’re seeing is from this point this year to the same point last year, you know, we’ve seen fuel surcharges increase from say $160 a rail car now upwards of $600 per rail car. So you’re seeing easily 100%, 200%, even north of 300% increases in fuel surcharges.”
Steenhoek explains that farmers often end up carrying much of that burden.
“When you have an increase in transportation costs, fuel surcharges in this case, the question is always, will those costs get passed on to the customer, whether it’s a domestic customer or an international export move? Will it get absorbed by the grain handler or the shipper or will those costs get passed on to the farmer, the farmers that feed into the system? And what is widely acknowledged within the industry and what we’ve seen substantiated with research that we’ve conducted over the years is that those costs are disproportionately passed on to farmers in the form of a lower price or a more negative basis. And so that’s just one more leak in the profitability bucket that farmers are experiencing right now.”