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Sunday, 30 October 2016 15:55

Commerce derailed: Fight over 3.3 miles of railroad track hampers business in West Michigan

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The Grand Elk Railroad, whose trains are pictured here, has petitioned the federal Surface Transportation Board for a ruling in a case involving CSX and a disputed 3.3-mile section of track in Grand Rapids. As a result of the dispute, Grand Elk has not been able to service its customers north of Grand Rapids. The Grand Elk Railroad, whose trains are pictured here, has petitioned the federal Surface Transportation Board for a ruling in a case involving CSX and a disputed 3.3-mile section of track in Grand Rapids. As a result of the dispute, Grand Elk has not been able to service its customers north of Grand Rapids. Courtesy Photo

GRAND RAPIDS — When Brink Farms Inc. began construction on a rail yard off Turner Avenue in northwest Grand Rapids in 2014, the Hamilton-based bulk transportation firm hoped to alleviate capacity constraints and better serve customers shipping cargo south through the city. 

The company began operating in summer 2015 at the site, where it loaded and unloaded agricultural commodities and other products onto train cars or tractor trailers. The new location allowed Brink Farms to bypass the notoriously congested S-curve along U.S. 131 through downtown Grand Rapids, gaining operational efficiencies for the company and keeping prices competitive for its customers. 

However, the benefits of the rail yard proved to be short-lived. In August of this year, a little over a year into operating its new facility, Brink Farms received a cease-and-desist letter from track owner CSX Transportation Inc. restricting the company from using the infrastructure to ship or receive goods.

“We’re caught in the middle of corporate politics,” President Brian Brink told MiBiz. “It’s a bad deal.”

CSX owns the contested track — a 3.3-mile section stretching between Ann Street NW and Pleasant Street SW in Grand Rapids — but has shared use of the rail line with other carriers under a 2009 agreement with the predecessor to Kalamazoo-based Grand Elk Railroad Inc. 

A subsidiary of Kansas-based Watco Companies LLC, Grand Elk Railroad operates as a short-line carrier, which focuses on servicing companies such as Brink Farms over short distances of track. 

The cease-and-desist letter CSX sent to Brink stemmed from its decision to revoke a shared track usage agreement with Grand Elk Railroad, while also calling into question whether the agreement was ever valid in the first place.

“It’s corporate CSX,” Brink said. “We’ve never had any issues with local operations or anything like that.” 

In response to the cease and desist order, Grand Elk Railroad petitioned for a ruling from the bipartisan Surface Transportation Board (STB), according to documents filed with the federal entity. It remains unclear when the body will issue a decision on the matter. 

“We filed with the STB to reinstate the trackage rights, which we believe we still have,” said Tom Hayes, assistant general counsel for Watco Companies. “Our primary motivation for doing all of this is really for the customers we’ve developed over the last eight years.”

In an emailed statement noting that the company does not comment on ongoing litigation, a spokesperson for CSX told MiBiz that “we continue to work through the STB and court process to resolve the matter.”

BUSINESS IMPACTS 

For West Michigan businesses that contract with Grand Elk Railroad, the impasse has caused myriad issues, ranging from long delays in freight car shipments to additional transportation costs. 

The dispute resulted in Brink Farms ceasing to use its northern Kent County facility, in which it had invested $2 million in conjunction with the Michigan Department of Transportation (MDOT) and other stakeholders, Brink said.

“It was really a great location, but then we got a cease-and-desist letter from CSX saying that we had no rights to operate on that track,” Brink said. 

For its part, CSX has offered to service Brink Farms’ northern hub at an additional cost of approximately $1,000 per railcar, making it too cost prohibitive for the company’s customers, Brink said. Brink Farms can service 50 railcars in any given week.

Holland-based Louis Padnos Iron and Metal Co. also faced challenges as a result of the track dispute. The company has been forced to switch from rail to truck shipments at its 601 Letellier SW location, according to a letter sent to the Surface Transportation Board by Scott Wolters, senior logistics manager at Padnos.

In addition to Brink Farms, Padnos and MDOT, local firms including The Right Place Inc., King Milling Co., Universal Well Services Inc., Michigan Agri-Business Association and DRT LLC have sent letters to the federal body urging it to take action on the matter. They were supported with letters from the offices of U.S. Rep. Fred Upton, R-St. Joseph, U.S. Rep. Bill Huizenga, R-Holland, and State Sen. Tonya Schuitmaker, R-Lawton.  

“There’s been a substantial cost increase in the movement of freight deliveries inbound and outbound that companies haven’t budgeted for,” Rick Chapla, vice president of strategic initiatives at The Right Place, told MiBiz, noting the organization is not “taking sides” in the dispute. “The customer is ultimately going to pay for it.” 

For Jim Doyle, senior vice president of Lowell-based King Milling, the fight over track rights underscores the near monopoly that exists for railroad operators. In this case, one of only two options for railcars over this particular stretch of track was eliminated, resulting in increased costs. 

“It’s basically that you’ve gone from a competitive situation that keeps rates in check and now it’s a monopoly,” Doyle said, noting that King Milling has still been able to move product. “In time, we know that leads to deteriorating services and rising cost.”

A HISTORY OF COOPERATION 

While the disagreement at hand stems from 2009, the joint track usage agreement between CSX and Grand Elk Railroad dates back to the early 1980s, according to a letter filed by MDOT.

At the time, the Chesapeake & Ohio Railway Co. (C&O) and Consolidated Rail Corp. (Conrail) operated adjacent rail lines running through Grand Rapids’ west side. In a bid to reduce the number of tracks in the city and to allow construction of an extension to Seward Avenue, local officials struck a deal with C&O and Conrail to eliminate one of the tracks and consolidate service on the remaining line. 

Conrail agreed to abandon the majority of its track in exchange for joint access rights on the C&O line to service its customers and access its remaining track on either end of the consolidated line and other rail lines. 

In later years, CSX would acquire the track through Grand Rapids from C&O, at the same time Norfolk Southern Corp. purchased the assets of Conrail, including the shared usage agreement for the section of track in question.  

In 2009, Norfolk Southern leased those track rights to Grand Elk Railroad, which worked on the company’s behalf since that time. 

However, CSX maintains that agreement expired in 2014 and that it requested documentation from Grand Elk Railroad proving the short-rail company had the right to operate over the rail line. CSX alleges it did not receive proof of the track rights before issuing the cease-and-desist orders, according to federal filings. 

CSX also alleges that the 2009 lease of track rights by Norfolk Southern to Grand Elk Railroad was not completed properly, rendering the agreement null.  

Still, Grand Elk Railroad and other stakeholders, including MDOT, note that the two parties had collaborated on large projects through 2015 and have had a history of daily interaction. 

“The Grand Elk has been operating at this site and into the northern Grand Rapids area for years. On a daily basis CSX has authorized the Grand Elk on the Joint Track. It is not acceptable due to the business we are generating, that CSX can just turn off the faucet so to speak,” Brink wrote in a letter to the Surface Transportation Board. 

For its part, Grand Elk Railroad has asked the Surface Transportation Board to ratify the 2009 agreement and allow it to continue sharing the rail line. 

WEIGHING DOWN ECONOMIC DEVELOPMENT 

As the parties wait for the Surface Transportation Board to issue a ruling, the track usage dispute will continue to restrict the flow of business in West Michigan and hamper economic development, sources said.

Moreover, the dispute could tarnish economic developers’ efforts to promote railroads as an efficient logistical resource in the region, according to Chapla of The Right Place.

“This is why we continue to talk about the importance of rail,” Chapla said. “We have to have that option, but we need competitive prices and the reliability has to be there so that when a railroad says it’s going to deliver in a certain amount of time, they do.”  

Read 4237 times Last modified on Monday, 31 October 2016 12:20

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