US Rail Fuel Surcharges Hit Record Highs Amid Iran War Fears

The US rail fuel surcharge on grain shipments has reached record highs, squeezing farmers during the harvest season. According to data from the US Department of Agriculture, the average fuel surcharge rate on grain shipments climbed to 48 cents a mile per rail car in the second week of September, up 153% compared with the weighted average a year earlier.

The timing is particularly challenging for farmers, as corn and soybean harvests are just beginning. As the US war on Iran pushes crude oil and refined product prices sharply higher, diesel fuel surcharges are becoming a bigger part of grain shipping costs just as transportation demand increases.

Whenever railroads pass excess costs on to shippers, such as grain elevators that buy from farmers and ship grain by rail, growers typically see a weaker basis, meaning they receive a lower price when they sell crops. Gary Millershaski, a wheat and sorghum farmer in Kansas and chairman of US Wheat Associates, said the basis at his local grain elevator was around 70 cents per bushel below Chicago Board of Trade K.C. hard wheat futures.

Railroad analysts expect surcharges to remain elevated for the rest of the year. The merger between Union Pacific and Norfolk Southern is also a concern for farmers, as it could increase market power and lead to higher transportation costs.