Rail purchase taps efficiencies
Short line allows grower to sidestep area's jammed roads, rising fuel costs
By MATEUSZ PERKOWSKI
Larry Venell never aspired to become a railroad magnate.
Though he's still far from a tycoon, the wheat and grass seed grower recently broke into the railroad business with the purchase of a 5-mile line between his farm and Corvallis, Ore.
Venell bought the railroad from Union Pacific for an undisclosed sum and plans to begin shipping in August after completing about $750,000 in repairs.
The railroad will broaden the market for livestock feed produced by his company and provide him with a new source of income from other shippers who will use the line.
"The opportunities are endless, if you want to do them," he said.
The decision to take over the railroad stemmed from a conflict between Venell and the Portland & Western Railroad, which leased the line from Union Pacific.
Venell invested more than $1 million in a loading bay adjacent to the railroad with the understanding Portland & Western would continue to operate on the line, he said.
In 2007, however, the railroad company decided to discontinue service on the line, citing the need for prohibitively expensive repairs. Venell filed a legal complaint against Portland & Western, alleging a breach of contract.
The lawsuit was withdrawn after the railroad company offered to sell the line to Venell. After three years of negotiations, the sale was completed this summer.
Venell expects to see numerous benefits from the railroad. For one, rail cars loaded with his wheat will have better access than trucks to the traffic-jammed Portland market.
"The problem is the congestion at the elevator," Venell said, noting that he plans to send the equivalent of 300 truckloads of wheat to buyers in Portland next month.
"Logistically, I wouldn't be able to do that because the line (of trucks) will be so long," he said.
By improving freight efficiency, Venell also expects to expand the customer base for his feed to other Western states.
With trucks, his company couldn't afford to ship feed beyond a radius of about 400 miles and still remain competitive on price.
Rail cars can handle three times more volume than trucks, substantially cutting the amount of fuel needed to ship the same amount of feed.
That cost reduction will allow Venell to ship to California, Nevada, Arizona, Utah and Colorado.
Venell anticipates other farmers will also want to use rail cars for incoming and outgoing shipments, such as local dairies that buy distiller's grains from Midwestern ethanol plants.
Such "reloads" of material will also be a boon to the Rick Franklin Corp., a diversified company that owns the 67-mile Albany & Eastern Railroad and is repairing Venell's line.
The Albany & Eastern is primarily dependent on shipments of timber and grass seed -- sectors that have been hard hit by the recession, said Rick Franklin, the firm's proprietor.
Since Franklin took over the line in 2007, the number of rail cars traveling along the Albany & Eastern has fallen by about two-thirds, he said.
Venell's line will be operated by the Albany & Eastern, helping the Rick Franklin Corp. diversify its portfolio of freight customers. The company also recently completed a $3 million reloading facility in Lebanon, Ore., that will serve the same purpose.
"That's the bright spot in our future, is the reloads," Franklin said.
Looking beyond the recession, Rick Franklin Corp. is optimistic about the long-term prospects of rail -- particularly as widespread traffic and environmental regulations bear down on the trucking industry, said Jason Vaughn, the firm's sales director.
With rail traffic currently sluggish, the company has invested about $8 million on repairs to the Albany & Eastern, partially funded through grants from the state of Oregon.
The improvements will allow the speed of rail cars to be increased from 10 to 25 mph.
"We're spending the money to rehab the infrastructure so that when conditions improve, our efficiency will also improve," Vaughn said.