I think it’s fair to say David Emerson’s transportation system review was a bit of a let-down for the grain sector.
There were a few bright spots in the report. It suggests an infrastructure program to fund capital investments in short-line railways. Producer car shippers should have the same protection as other shippers, the report recommends. It calls for an expansion of the Canadian Transportation Agency’s data-collecting ability. Mediation and arbitration related to service level agreements should also be more accessible to shippers, the report states.
Yet at times the reports’ authors seem to contradict themselves.
“Regulation tends to stifle both technological and service innovations, thus keeping rates higher than necessary,” the report’s authors state as rationalization for eventually axing the Maximum Revenue Entitlement, on page 161.
Yet, in the very next paragraph, the report starts into level of service obligations, and how grain shippers’ needs can be better met under current legislation.
The recommendation to sunset the 160 km interswitching limit also seems strange, combined with the recommendation to phase out the revenue cap. The report outlines a host of concerns from the national railways. American railways might snag Canadian traffic, while Canadian railways can’t reciprocate. The regulated interswitching rates “are contrary to market-based pricing.” And very few shippers have used the extended interswitching limits so far, the report says.
Assuming that third concern is true, wouldn’t it deflate the other two concerns? If it’s rarely being used, that means Canadian railways aren’t really losing business to the U.S. rail lines, or suffering from reduced rates. So why do we need to sunset that clause?
I’m frankly a little sceptical of the claim that shippers aren’t using the expanded interswitching limits. Wade Sobkowich, executive director of the Western Grain Elevator Association, has said at least three grain companies use interswitching regularly. They may stick with the primary carrier, but leveraging interswitching gives them better service or shipping rates, he told Allan Dawson of the Manitoba Co-operator.
If the interswitching rate is unfair to the railways, that can be adjusted. But interswitching is one of the few levers shippers can pull, so why remove it?
In a previous issue, we ran a story based on comments from Dr. James Nolan, a transportation policy specialist with the University of Saskatchewan. Nolan would like to see open access for grain shippers, to create a little competition.
It still comes down to power
The grain handling and transportation system is incredibly complex. I’m sure that all kinds of things go wrong that aren’t the fault of CN or CP. Crop yields are climbing, but they vary year to year. Yield forecasts could certainly be improved. Most grain is stored on-farm, meaning everyone has to be on the ball when it’s time to start shipping. This puts a lot of pressure on the railways to perform. Or it would, if they had any competition.
Power is at the heart of the issue, and the review does allude to this at times. For example, it recommends giving the Canadian Transportation Agency “enhanced soft power” to resolve disputes around service. It notes that shippers see service failures as an abuse of market power. It holds up the federal government’s order-in-council mandating minimum grain volumes as an example of hard power (and criticizes that action as having unintended consequences).
Emerson and his crew seem to see soft power as the best solution to the grain transportation issues. They’re not entirely off base. For example, giving the Canadian Transportation Agency more access to data should better equip it to resolve service disputes. And if those disputes can be resolved through mediation instead of arbitration, all the better.
But soft power alone doesn’t cut it. Soft power is really about convincing someone to help you or work with you. That doesn’t work if the other party doesn’t think it’s in their interest to do so, and has no incentive to work through it in good faith. What’s needed is so-called “smart power,” which is the ability to use either hard or soft power effectively, depending on the situation.
The bottom line is that grain shippers need more levers to pull. That doesn’t mean they’ll have to use those levers all the time, but having them will help them negotiate better service and rates.
Nothing has been decided yet, of course. Now is the time for farm groups to get federal politicians on side, so they can eventually gain a little leverage in their dealings with the railways. Or at least not lose the few levers they have now.