Record crop? Meet plugged elevator. Shippers say it’s a match made in purgatory for farmers and exporters trying to get this year’s harvest to market — and the railways are to blame.
“We’re not getting enough rail capacity to move the crop right now,” Wade Sobkowich, executive director of the Western Grain Elevator Association said Oct. 25.
“We’re getting maybe half of what people have put in for orders.” Sobkowich said new legislation the federal government promised would help grain shippers deal with poor railway service is useless.
Primary elevators are at 92 per cent of capacity, while terminal elevators have lots of space, Sobkowich said.
Statistics Canada puts Western production of the six major grains and oilseeds (wheat, canola, barley, oats, flax and rye) at 58.98 million tonnes, almost nine per cent higher than the previous record of 54.34 million tonnes set in 2008. Some estimates put total production at almost 70 million tonnes.
Canadian Pacific and Canadian National Railways have been shipping 10,000 to 11,000 loaded cars a week to export terminals, which is historically high, but grain companies have been ordering up to 12,000 cars a week, Sobkowich said. To meet the current weekly demand, plus clean up the backlog the railways need to spot 20,000 to 22,000 cars a week, he said.
According to Sobkowich, the railways have the capacity to ship 12,000 cars week, while still servicing their other customers.
With a strike or lockout looming at CN and potentially disruptive winter weather around the corner, grain shipments could be further delayed, resulting in lower grain prices at the elevator and reduced cash flow for farmers.
“We don’t think the infrastructure is the constraint right now,” Sobkowich said. “They have cars that are parked. They have the ability to put locomotives and crews in place if they choose to but… the railways see the grain is there and know it’s going to move eventually. So why would they increase their costs to move it (quicker)? They’ll move it when they get to it.”
Churches aren’t built to hold the Easter Sunday crowd and the railways aren’t built to move an entire crop all at once, Steve Whitney, CP Rail’s vice-president of marketing and sales, agribusiness & market development, said at a conference in Winnipeg last week.
But the railways can and should invest in surge capacity, Sobkowich said. Farmers and grain companies do. That’s the nature of agriculture. For markets to function properly there needs to be competition or regulation, said one grain industry official, who asked not to be named for fear of railway retribution.
“We have neither,” he said.
The railways are guaranteed by law a return on investment for grain shipping, but in return the total amount they can collect from grain shippers is capped. There are adjustments for the volume and distance hauled.
Eliminating the revenue cap would just allow the railways to charge more for the same service, Sobkowich said.
The Fair Rail Freight Service Act, which became law earlier this year, fails to give railway customers an effective and inexpensive way to address poor railway service, Sobkowich said. Grain shippers aren’t bothering to negotiate service agreements with the railways because they won’t include penalties for poor service, he said.
“I’ll have to spend hundreds of thousands of dollars with a lawyer to take it through that process,” a grain company grain official said. “By the time I do that the year is over. The agreement only goes for one year. So it’s a completely ineffectual piece of legislation.”
In the past, the now defunct Canadian Wheat Board took complaints about poor rail service to the Canadian Transportation Agency (CTA), a quasi-judicial body, for redress. Sometimes grain companies joined in. But such challenges were infrequent because of the high cost, Sobkowich said. Even if the CTA ruled in favour of the shipper, the shipper would then have to launch a lawsuit to collect damages.
The WGEA, which is not a grain shipper, won’t be going to the CTA with complaints. But that’s an option for its member-companies, he said. Meanwhile, elevator companies and farmers will be looking at all options to get more grain moving, including shipments to and through the United States. But the U.S. is also bogged down with massive crop, including record corn production.
Meanwhile, CP and CN say they are working hard to move Western Canada’s grain to market.
“Going into the fall, our railway recognized the strong demand, so as part of our grain planning process we have been working closely with customers to have programs and services in place to react to their shipping needs,” CP spokesman Ed Greenberg said in an email.
Moving a big crop requires all partners in the pipeline to work efficiently, CN spokesman Mark Hallman said in an email.
“It’s not simply a question about rail capacity,” he wrote. “Prompt car loading in the Prairies, steady railway movements from the country to port, and efficient car unloading at port terminals will be critical to solid hopper car fleet velocity so that the cars can be brought back to the countryside to meet new orders in a timely way.”
CN is confident a strike or lockout can be avoided, Hallman wrote Oct. 25.
With files from Reuters