Grain Shipments:

Agriculture Can Reduce Costs by Increased Use of Negotiated Rail Rates

RCED-87-42: Published: Jan 21, 1987. Publicly Released: Jan 27, 1987.

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In response to a congressional request, GAO reviewed the methods that the Department of Agriculture's (USDA) Agricultural Stabilization and Conservation Service (ASCS) used to ship government grain by rail, focusing on: (1) the extent to which USDA negotiated rate and service concessions with railroads, in comparison with private grain shippers and other government agencies; (2) savings that resulted from negotiations; (3) constraints that kept USDA from negotiating more often; and (4) methods private shippers and government agencies used to increase their negotiating effectiveness.

GAO found that: (1) ASCS negotiated rate and service concessions for 10 percent of its 1985 rail grain shipments; (2) ASCS negotiated larger shipments more often because they provided railroads with greater incentive to negotiate; (3) the private sector negotiated rates for 57 percent of its shipments in mid-1985; (4) of the seven shipments GAO reviewed, ASCS saved an average of 29 percent over published tariff rates, while private-sector shippers saved 17 percent; (5) although ASCS experienced negotiating constraints that included the inability to predict shipment volumes, lack of personnel, lack of bargaining leverage, lack of adequate notice of grain shipments, and lack of data on other shippers' contract rates, it could deal with those constraints through management actions; (6) in response to deregulation, private shippers strengthened their transportation planning systems to improve negotiating leverage, automated their development of traffic pattern information, rail rates, and carrier costs, and developed negotiating and marketing expertise; (7) ASCS negotiated shipments on a shipment-by-shipment basis, and did not automate transportation management functions, provide formal training to its transportation specialists, or use outside expertise to supplement staff skills; and (8) ASCS did not have a written policy to specify when its transportation specialists should negotiate or a system for tracking negotiations and monitoring its transportation specialists' performance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Rail transportation policy has been developed and has been effective since January 22, 1988. The policy adopted by USDA was in line with the recommendation and is now being used to guide USDA rail negotiations.

    Recommendation: To increase the negotiating effectiveness of ASCS and to take better advantage of potential cost savings and service benefits, the Secretary, USDA, should direct the Administrator, ASCS, to develop a written policy setting forth ASCS goals and strategy for managing rail shipments in the current deregulated environment. The policy should: (1) include a plan for maximizing ASCS negotiating leverage, incorporating factors such as using business in competitive areas to achieve rate concessions in low-volume, noncompetitive areas, selecting grain elevators with storage and loading facilities suited to larger, multiple-car loading, and concentrating shipments among railroads to achieve optimum rates and service; and (2) incorporate criteria prescribing when negotiations should be pursued and providing guidance on how they should be conducted. Management should establish periodic performance goals, based on the policy.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: USDA has begun documenting and tracking the results of its rail rate negotiations. The new system will enable the manager to monitor the effectiveness of its efforts in this area and make improvements as necessary.

    Recommendation: To help implement the new rail negotiation policy, the Secretary, USDA, should also require that the Administrator, ASCS, develop and enhance an automated management information system to provide information needed by transportation specialists to effectively negotiate rail rates. The system should include data on the ASCS traffic base, including the number of rail shipments, shipment origins and destinations, volume and cost of rail shipments, and number of negotiated and nonnegotiated shipments. This information should also be used to evaluate negotiating performance and monitor performance goals.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: The first round of training was completed by September 1987.

    Recommendation: To help implement the new rail negotiation policy, the Secretary, USDA, should require that the Administrator, ASCS, develop and enhance ASCS negotiating expertise. Existing expertise should be enhanced by: (1) establishing a training program for ASCS transportation specialists to augment negotiating skills; and (2) determining what additional business-related expertise is needed and obtaining it through use of consultants and collaboration with private sector shippers.

    Agency Affected: Department of Agriculture


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