Palouse River & Coulee City Short-Line Freight System

The Palouse River and Coulee City (PCC) rail line is a 300-mile short-line freight system located in eastern Washington State (see Figure 34). The PCC, the state’s second largest rail system, connects three separate railroads located in Spokane, Lincoln, Grant, and Whitman counties. These tracks include:

  1. The PV Hooper branch, which runs from Thorton to Winona, and from Hooper to Winona to Colfax;
  2. The P&L branch, which runs from Marshall through Pullman to the northern Idaho border, and from Palouse directly to Washington’s eastern Idaho border; and
  3. The CW branch, which runs from Coulee City to Cheney.

Figure 34

While the system primarily transports grain from farmers in eastern Washington, it also carries fertilizer, raw materials used in bio-diesel manufacturing, lumber and liquid propane (Washington State Department of Transportation 2008).

Citing lack of profitability and increased maintenance costs, the PCC’s owner, Watco Companies Inc. (Watco), deferred maintenance of the system for years and considered ceasing operations completely. In 2007, under Chapter 518, Section 713, the Washington State Legislature completed the purchase of all three rail lines from Watco to save the PCC tracks from abandonment. The Washington State Department of Transportation (WSDOT) was tasked with overseeing rehabilitation of the lines and related infrastructure. The total expenditure, including purchase of all three lines, operating rights, rehabilitation projects and funding allocated to establish an intergovernmental agency to manage the PCC, totaled $27.7 million (Washington State Department of Transportation 2014).

In 2008, Grant County, Lincoln County, Spokane County and the Port of Whitman County signed an agreement to form the PCC Rail Authority. Today, WSDOT is responsible for overseeing the facilities and regulatory portions of the operating leases. These duties include identifying areas along each branch where rehabilitation is required, and working with local government agencies and businesses to determine and prioritize needs. WSDOT also selects operators for the CW and P&L branches of the PCC, and monitors their compliance with negotiated leases. The PCC Rail Authority manages the business and economic development portions of the rail system’s operating leases (Washington State Department of Transportation 2008). Rehabilitation projects completed in 2010 and 2011 included drainage improvements to protect the track from standing and running water, repair of bridges, tracks, ties and ballast, and new fencing. Prior to state ownership, portions of the PPC system were operated at a speed lower than regulations allow had the tracks been properly maintained. These rehabilitation projects prevented further deterioration, raised operating speeds, and made the rail operations more efficient and cost competitive with other services (Washington State Department of Transportation 2014).

Project Policies, Programs and Motivations

The State Legislature’s decision to purchase and rehabilitate the PCC was motivated by three major factors:

  1. Concerns expressed by grain shippers and other PCC system users regarding the potential increase in shipping rates by other carriers resulting from reduced competition;
  2. The importance of preserving the PCC infrastructure to support emerging biofuel production industries; and
  3. To reduce the potential for diversion of freight traffic from rail to surface streets.

On learning that the PCC would cease operations, the grain shippers and other system users recommended that the State purchase the lines to preserve rail access to growers in eastern Washington, and to ensure that the PCC remained a shipping option. Without the PCC as a transportation alternative, shippers were concerned that rates for existing truck-to-barge services and the Ritzville Grain Shuttle would increase (Washington State Department of Transportation 2009).

WSDOT recommended that the State purchase the PCC to preserve the region’s rail and road infrastructure. WSDOT recognized that if the PCC was abandoned, the cost to acquire and rehabilitate the system in the future would be higher. WSDOT also indicated that the PCC rail lines could play an important part in future development of the biodiesel industry in the state. A market study commissioned by WSDOT in 2006 found that private investors were exploring the possibility of locating a crushing plant on the CW line and other lines in eastern Washington. Crushing is the process whereby canola and other crops are transformed into oil, and later blended with diesel fuel to create a bio-diesel fuel mix (Casavant and Jessup 2006). WSDOT also projected that closure of the PCC system would result in diversion of rail traffic to surface streets. This would result in increased wear and tear on the roads, maintenance costs, and congestion.  Freight transportation to and from the region would also be less reliable, since trucks are subject to seasonal road closures and roadway load restrictions (Washington State Department of Transportation 2009).

Lessons learned

The motivations for this project or policy encompass a variety of goals for which mode shift represents an overall proxy. These goals include increased rate competition, preservation of infrastructure, reductions in road wear, and positive contributions to economic development. Three distinct areas of lessons learned include:

  • How and why did mode shift occur?
  • How did public policy influence this outcome?
  • How can this policy or program be transferred or adapted to other situations or locations?

The initial motivation for this project was not to cause mode shift, but rather to prevent it. WSDOT’s purchase of the PCC, spurred by the potential abandonment of the rail system by its owners, prevented a modal shift from rail to a combination of mostly truck and barge. As one farmer noted, “If we didn’t have the rail, we would have to rely on trucking to the river… and that increases use of Highway 26 plus we are at the mercy of river closures (Washington State Department of Transportation 2013).”

Public policy, in the form of WSDOT’s involvement in the project, was the primary driver in preventing the modal shift. In addition, the additional resources available from the public sector allowed investment in rehabilitation and maintenance of the PCC.  As a result, the PCC has been able to increase traffic every year, removing over twice as many trucks from roadways in comparison to 2007, the first year the state assumed full ownership of the system (Herman 2014).  Figure 35 presents railcar shipments versus trucks removed from roadways for the PCC for the years 2007 to 2013.

Figure 35

Planners, policymakers and members of the shipper and carrier industry can use the PCC project as a guide for leveraging state and local resources to support the preservation or rehabilitation of freight infrastructure. The Washington State Legislature, guided by recommendations from the WSDOT and concerns raised by a coalition of famers and grain cooperatives adopted legislation to purchase, rehabilitate and improve the deteriorating PCC. This policy and the resulting projects are a success because they addressed the needs of shippers and carriers as well as the State’s goals. The PCC project helps reduce the impact of truck traffic on state and county roads and creates a reliable and competitively priced shipping option.  The project also supports the State’s economic development and environmental goals.

Policymakers, however, should also be cognizant that “the success of short line railroads throughout the nation has varied (Casavant and Jessup 2003).” In some cases, this has been due to the lack of managerial expertise and marketing knowledge. In other cases, especially for short line railroads dependent on bulk agricultural movements, public entities have discovered that revenues were too low to sustain operations (Casavant and Jessup 2003). In the case of the PCC, public benefit has resulted from a combination of reduced road wear and economic development. The ability of the PCC to provide benefits greater than costs varies from year to year depending on the economy and the quality of the crops (Herman 2014).

In assessing short line railroad investments, decision makers should be cognizant of the entire supply chain from origin to destination. Access to different modes is a key consideration; if the short line is captive to a single mainline railroad its financial viability may be at their mercy. In addition, diversity of commodities is a positive factor, as it lowers risk. For the PCC, for example, an expected market for bio-fuel production has not materialized (Herman 2014).

Epilogue – Recent Developments

The PCC rail system has experienced fluctuations in rail traffic since the research team conducted the original case study. Washington State Department of Transportation (WSDOT) staff, in an interview with the research team, provided the most recent data on PCC carloads per year.[1]Figure 36 provides the annual carload data that the WSDOT staff transmitted. In the original case study, the data showed increases in carloads every year through 2012. However, in subsequent years carloads declined before recovering in 2017. According to WSDOT personnel, crop yields were the primary factor leading to the lower volume years. In particular, 2015 was a year with a low harvest.

Figure 36

The WSDOT and PCC Rail Authority worked in partnership to develop a 2015 to 2025 Strategic Plan for the PCC Rail System.[2] The purpose was to outline the vision and goals for the system and define the projects required to fulfill those goals. The Strategic Plan identified and prioritized $58 million in infrastructure projects. The three major purposes of these projects included:

  1. Advance priority projects to increase the capability of handling 286,000-pound rail cars;
  2. Rehabilitate track located in moderate and sharp curves to allow for increased speeds; and
  3. Identify and replace defective rail through integrity testing.

The plan also identified a number of operational strategies to enhance efficiencies. These included improving the terms of future operating leases, pursuing minimum railcar orders, ensuring access to major river terminals and major railroads, and considering rail service needs throughout the system in a strategic manner. The Plan notes that the PCC has the capacity to handle additional mode shift freight from in-state roadways. However, to remain competitive and meet WSDOT goals of diversion of freight, strategic investments are required along with operational changes and policy improvements.

In the Washington State Freight Plan WSDOT reiterated their commitment to the PCC. The report states that WSDOT will continue to support the short-line rail system in Washington. In addition, WSDOT will continue to manage the programs that support short-line rail freight, such as the Freight Rail Investment Bank (FRIB) program, the Freight Rail Assistance Program (FRAP), and the Grain Train program. WSDOT will also continue to manage and make improvements to the state-owned PCC rail system. The Washington State Legislature passed new funding for preservation of the PCC in the 2017 to 2019 biennium. The new funding level of $6,696,000 is a significant increase from previous biennia. The Legislature plans to sustain this funding for the next five biennia as well. WSDOT will use this funding to preserve the infrastructure of the PCC rail system.

The state currently leases the rail lines to private operators. While these operators do not pay for the leases, they are responsible for the maintenance of the lines.

A major positive development was the investment and other actions taken by the shippers. In particular, WSDOT personnel mentioned that five of the grain co-ops had banded together to consolidate shipments so that they could fill 110-car unit trains and receive the most favorable shipping rates. Their volumes are allowing them to reserve unit train reservations in advance. In at least one occasion, they resold their unit train rights, made a profit and moved their grain by truck and rail. In addition, the co-ops invested $30 million in new grain elevator facilities.

A potential development could make the preservation of the PCC system an even more important decision. In 2016, a federal judge in Oregon ordered the Bonneville Power Administration and other federal agencies to produce a new salmon-recovery plan that would consider breaching the four dams on the lower Snake River. The plan was due in 2018. Washington’s wheat industry relies on barges to ship wheat down the Snake and Columbia rivers to ports in Portland and Vancouver and beyond. Breaching the dams would end barge navigation up the Snake River and force millions of tons of commercial cargo, valued at more than $3 billion, onto road and rail infrastructure.

Epilogue – Lessons Learned

The PCC experience is extremely relevant for policymakers, especially those considering how to deal with the abandonment of branch lines or short-line railroads. One important item to note is that these lines had been successful in the past and already represent a significant amount of in-place infrastructure and investment. Reviving a service that had been economically viable in the past can mean that subsidies, more favorable business conditions, and/or better management can bring these investments back to life. Government subsidies designed to provide positive public externalities such as reduced road congestion, reduced road wear, decreased emissions, and economic development, can bring that former service back by closing the “economic gap.”

The research team also noted the dip in carloads in 2015 and discussed this issue with WSDOT staff. There was agreement that projects that rely on single or few markets or commodities, such as grain, will be subject to fluctuations and uncertainties. In general, the greater the diversity in cargo, the lesser risk the project will face. This is especially relevant to commodities such as grain, which are subject to both growing conditions and trade relations. The recent tariffs have yet to affect the short-term market, but have created anxiety in the marketplace over longer-term outcomes.

While the state has, and will continue to have to invest in the line, private shippers have also invested and the state and shippers have benefited through lower shipping rates (brought about by unit trains and other factors) and economic development. Thus, a major positive outcome of the preservation of the short line option is that it provides shippers with options and has allowed shippers to benefit from modal competition.

In the case of the PCC, a number of smaller grain cooperative operators merged into a single coop and built new grain elevator facilities. They then had sufficient quantity to contract a unit train and to negotiate the most favored shipping rates. In addition, the commodity can be stored at the grain terminal allowing the owners to play the commodity market and improve their profitability. The lesson learned is that transportation options and the right facilities can make huge differences in transportation costs and economic vitality.

Overall, public ownership of a railroad has challenges. Maintenance costs are high and capital upgrades are expensive. However, an agreed upon strategic plan can galvanize the support of the various stakeholders and be a catalyst for success. With everyone on the same page, decision makers may be more likely to move forward on the action steps presented in the plan. Here, public investment spurred private-sector commitment, maintained transportation options, and provided shippers with alternatives that allowed them to minimize transportation costs, adding to regional economic development.

[1] Telephone interview with Bob Westby (Manager, Palouse River and Coulee City Rail System, WADOT) and Jason Beloso (Strategic Planning Manager: Rail, Freight and Ports Division, WADOT) on September 17, 2018.

[2] Palouse River and Coulee City Rail System: 2015 to 2015 Strategic Plan. Washington State Department of Transportation, Freight Systems Division, May 2015.

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