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Railroad may Open Markets by Staff Walla Walla Union-Bulletin, April 8, 2006

Railex will carry produce to the East Coast in five days -
comparable to the time of a long-haul truck, but less expensive.

Thank goodness for a good reputation.

Washington hasn't become the nation's 12th largest agriculture producer - no. 1 for apples, no. 2 for potatoes and renowned for its spectrum of specialty crops - because of accessibility.

No one knows that better than onion grower Jody Easterday. She's loaded rail cars full of her family's yellow, red and white onions destined for the East Coast only to see them stranded for days in an overburdened railroad system. She also ships by truck, but more and more she's lucky to get one, and the costs are mounting.

She juggles an intricate system of sub-par transportation options that includes a diminishing supply of long-haul trucks and a less expensive rail system that, at the very least, takes twice the time.

That's why the building going up on the west side of Walla Walla County holds so much hope. It represents a more than $34 million private/public investment aimed to streamline the transportation of Northwest produce to the East Coast.

Projected to open off Dodd Road late this year, the 200,000-square-foot Railex facility is billed as the answer to the growing transportation concerns of Northwest farmers and shippers. Through a partnership with Union Pacific Railroad and CSX Corp., Railex will offer a train dedicated to get produce to the East Coast in five days - comparable to the time of a long-haul truck, but less expensive.

"We just have never had this vehicle to allow us to market with this kind of tool," Easterday said during an interview in her company's Pasco onion warehouse. "It's an extremely viable option."

No one knows how much potential there could be for Washington produce in those markets. Despite numerous attempts to improve transportation, nothing this big has been tried, and the ideas that have been tried have typically not endured, ag experts say.

Rumor has it some growers are so impressed with the concept - and Railex's financial investment - that the company could already fill the 55 refrigerated cars scheduled to run on a five-day trip each week.

Easterday is definitely on board. Her company packs more than 3 million bags of onions each year. About 30 percent of those are exported into Japan, Korea and other Asian markets. The rest are bound for Canada and the United States. But getting them to the East Coast is the real trick.

"It really seems like the last five or six years, it's really tightened down," Easterday said. "It's on the back of all of our minds - how much more of this can we handle and how much will this stifle our market?"

The transportation difficulties are multiple. Rising costs of diesel fuel have been tacked onto the price of trucking. But that's only the beginning.

In January 2004, the U.S. Department of Transportation revised its hours-of-service regulations. Under the rules, interstate commercial truck drivers can't drive more than 11 hours or drive after 14 hours since starting a duty shift until they have a 10-hour break.

The regulation was intended to make roads safer by reducing collisions caused by driver fatigue. But it also increased customer costs because it added travel time, and in some cases increased labor. Many drivers switched to more profitable short-haul routes, which triggered a shortage of long-haul operators.

Meanwhile, conventional rail service takes an average of 11 to 28 days to reach the East Coast, growers and agriculture specialists say. And that's if you can get a rail car. While shipping demands continue to balloon, railroad companies are reaching maximum capacity, said Eric Hurlburt, Washington State Department of Agriculture's domestic marketing and economic development specialist.

"Part of it is a reflection of the fact that there is just so much freight being moved these days, especially in and out of Asia," Hurlburt said.

In that sense, a project like Railex will reach far beyond the jobs and estimated $200,000 property tax contribution the company will bring to Walla Walla County.

"One of the fundamental issues here that affects all of agriculture is simply we are in the wrong place," Hurlburt said. "It's cheaper to get a container from Seattle to Tokyo than it is from Seattle to Chicago."

Andy Pollack, chief executive officer of New York-based AMPCO Distribution Services Management, has had to deal with such frustrations as a shipper and receiver of produce. To bypass the struggles, his company has set up at least five distribution centers along the eastern seaboard from Pennsylvania to Florida.

Each one is served by a direct rail line. While researching the plight of Washington's fresh shippers, Pollack got the idea to create a direct line from Washington to New York.

His company started a subsidiary called Railex and in 2005 it formed a partnership with Union Pacific/CSX and the Port of Walla Walla.

"Every receiver wants their product to come as swiftly as humanly possible," said Railex General Manager Paul Esposito. "You're going to have not only a guaranteed car going out of Washington state, but a transit time equivalent to the trucking industry."

The Wallula warehouse under construction near Tyson Fresh Meats will serve as the origination point for the train. The destination will be a second 200,000-square-foot warehouse under construction in Schenectady, N.Y., Esposito said.

Trucks, expected to drive produce in from a 300-mile radius of Walla Walla, will pull into the refrigerated warehouse and unload the produce there.

The produce will be shipped on 55 64-foot refrigerated railcars that will make only one stop for a staff change in Chicago.

Each railcar will be enhanced with insulation, energy efficient cooling systems and GPS monitoring to ensure temperature control of highly perishable products.

"We're never breaking the cold chain," Esposito said.

Once in New York, Railex offers truck delivery to get the produce to market, making itself a liaison to the grower.

Esposito said Railex is looking at commodities to ship back to the Northwest on the returning trains.

That Railex ended up in Walla Walla County is fortuitous. Company officials had originally scouted land in the Tri-Cities, Esposito said. As part of their visit, they decided to follow the Union Pacific rail line in their vehicle. It led them across the Snake River and into Walla Walla County, where they spotted a Port of Walla Walla sign.

"They had no idea there was even a Port district in Walla Walla County," said Port Executive Director Jim Kuntz. "Because of that sign, they called, and the rest is history."

Actually, Kuntz added, it was a little more complicated than that.

The Port owned more than 180 acres near Tyson Fresh Meats that was rail-served and had been strategically developed for heavy industrial use.

As part of the project, the Port agreed to build an industrial access road to the 23.4-acre Railex site. The road, known as Rainier Road, will be expanded and called Railex Road.

Additionally, the Port will pay for a public water system, which will be used by Railex and other industrial developments on the property anticipated once Railex is operational.

Kuntz said the Port will recover its site infrastructure cost in part by charging Railex a load and unload fee. For every rail car loaded and unloaded at the site, the Port will receive $30.

"We believe that over a period of time the Port will be able to recover its costs," Kuntz said.

Nevertheless, getting the project started took support from the state and federal government, along with major investment.

Sen. Patty Murray, D-Wash., was instrumental in landing a $1.5 million federal transportation appropriation for the project. Kuntz said local legislators, Sen. Mike Hewitt, R-Walla Walla, and Reps. Bill Grant, D-Walla Walla, and Maureen Walsh, R-College Place, secured $3.5 million needed for the work.

Additionally, the Port received $900,000 in state grants; $400,000 from the county; and contributed more than $1.7 million from its capital fund and other sources.

Railex paid the Port $352,425 for its parcel. Estimated construction value of the warehouse, according to permitting records with Walla Walla County, is $12,864,514. The company is in the process of building a duplicate plant in New York.

Union Pacific officials aren't releasing the price of 110 refrigerated railcars.

Port of Walla Walla officials say Railex will create about 103 full-time family-wage jobs in its first year with an annual payroll of more than $3.3 million.

Within three years, they say Railex could have 196 full-time jobs and more than $5.8 million in payroll.

As for growers, Ken Casavant, an agricultural economist and professor at Washington State University, said the Railex project is as promising as any transportation solution he's ever seen.

"It offers the best of all worlds because it allows the efficiencies of short-haul assembly combined with the efficiencies of long-haul movement," he said.

Nevertheless, critical to its success will be the rate structure, which has not yet been determined by Railex, and a possible nervousness from growers who have seen other transportation programs flail. One example, started in 2001, was a rail program that sent fresh fruit and produce from Wenatchee to eastern states on the back of existing Amtrak passenger trains.

Most recently the state Department of Transportation is negotiating with a prospective contractor to establish a pool of refrigerated railcars that would provide growers with transportation. That project is expected to begin in July.

All things considered, Casavant believes Railex "has a good future."

"Transportation is a facilitating function," he said."If you've got a bad product, the best transportation in the world isn't going to help."

That isn't the case for Washington. With premium produce, the state has been able to break into markets and build a reputation despite its transportation struggles.

"We're already there," Casavant said. "The problem is we want to get there cheaper and more reliably with better service and a better product."