The Canada Transportation Act (CTA) Review “is a critical moment in time,” Robynne Anderson told delegates at Saskatoon’s CropSphere in mid-January. Anderson was speaking for the Prairie Oat Growers Association (POGA).
It’s also a chance to create a more fair, equitable and transparent system, said Anderson, founder of Emerging Ag, an issues management and communications company. “And that will take a lot of political will because the CTA is a very large act.”
Last year’s logistics woes triggered the CTA Review. The review panel is looking at whether the transportation system is responding effectively to domestic and international market needs and conditions. It’s focusing specifically on grain transportation by rail, although some provisions may apply to other commodities. The review is now taking submissions from stakeholders, including farm groups. Some have submitted reports, while others are still finalizing their submissions.
Grainews pulled information from Anderson’s presentation and POGA’s recommendations. We also talked to Blair Rutter, executive director of the Western Canadian Wheat Growers Association (WCWGA). And finally, we went through a submission filed jointly by the Saskatchewan Wheat Development Commission, the Saskatchewan Barley Development Commission, the Saskatchewan Pulse Growers and the Agricultural Producers Association of Saskatchewan.
Following is each group’s position on five issues related to grain transportation.
POGA, WCWGA and the Saskatchewan coalition all agree on the need for more information on rail movement.
Anderson told delegates the playing field is not level. “If you’re in a situation where you’re looking at arbitration or you’re looking at service level agreements, railways have 100 per cent of the information. The handlers themselves have a portion of the information… And farmers are lucky if they get one-tenth of that information six months later.”
POGA wants better information on cars shipped into the U.S., Anderson told delegates. Right now cars are only tracked to the border rather than to delivery points in the U.S. POGA also wants to see information on movement by commodity.
Rutter said he’d like to see weekly reporting on how much grain was loaded, where it went, and market information that helps people plan. For example, if the railways are getting behind, people will know not to put sales on the books, he said. “That kind of information allows for better decision-making on the part of everyone.”
The Saskatchewan coalition wants information such as weekly port unloads, vessel lineups, outstanding orders of producer cars, car movement by corridor, forward sales by commodity, export price quotes by port and grade and more.
Service level agreements
In a 2009 survey of 262 shippers, 62 per cent of shippers reported financial consequences because of poor performance by Canadian National (CN) and Canadian Pacific (CP). POGA cited the report, conducted by Transport Canada, as evidence of the need for service level agreements. Shippers need to be able to seek arbitration and be on equal footing, POGA’s submission states.
The Saskatchewan coalition wants a dispute resolution process to “resolve rate and service issues quickly and efficiently.”
Rutter said it’s vital for shippers to be able to get service agreements with performance clauses, standards and penalties built in.
“That’s something we pushed for in the last go-around, and we’re pushing for now, is to make sure that penalty provisions are subject to arbitration,” he said.
Maximum revenue entitlement
All three groups want a review of the costs built in to the maximum revenue entitlement.
The revenue entitlement is a formula that determines how much CP and CN can earn hauling regulated grain. The formula takes into account cost inflation, average haul length, and how much grain each railway moves. It only applies to grain sent to West Coast ports, Thunder Bay, or Armstrong. Armstrong is north of Thunder Bay.
The Saskatchewan coalition notes there are fewer shipping points and more elevators that can handle unit trains.
Because of that efficiency, “we expect dramatically improved railway profitability from statutory grain movement and hence the rationale for lower producer rates,” the Saskatchewan coalition’s report states.
Rutter agreed the review should look into efficiencies the railways have gained. “Now as part of that review, I think what we should also do is compare the returns on grain to other commodities so that we know where we stack up,” he added.
Both the Saskatchewan coalition and POGA want to keep the revenue entitlement. The coalition notes eliminating the entitlement would allow railways to charge “monopoly rent” to move grain.
The WCWGA also wants the revenue entitlement to stay put, at least for now. In the long term, the WCWGA wants more processing facilities and livestock on the Prairies so grain farmers don’t rely on rail as much. In that scenario, rate regulations could be relaxed, Rutter explained.
But for the next decade or so, “some form of rate regulation will be required,” Rutter said.
Both WCWGA and POGA recommend creating a financial incentive for railways to move more grain when demand is greatest after harvest.
“They have a built-in incentive to have an equal amount of grain shipped every month. And all we’re saying is, let’s give them a greater incentive to add capacity during the peak shipping season,” said Rutter.
POGA recommends setting grain movement targets based on crop production forecasts and expected rail car demand and capacity. CN and CP would collect a bonus if they exceeded targets by 30 per cent. And if grain movement fell 10 per cent or more below targets, set car allocation models or arbitration would kick in, depending on the shortfall’s severity.
Mandatory movement levels would kick in only if grain movement plunged 30 per cent below the baseline. Anderson said it would be “an extraordinary measure in a scenario where we had extraordinary failure of the system.”
WCWGA proposes a threshold based on normal shipment levels during the peak shipping period for grain. This threshold might be based on historical averages, and might be raised as grain production or rail shipments increase. If railways move five per cent or more grain cars than the baseline, the revenue entitlement would be increased by increments.
WCWGA doesn’t recommend adding performance penalties to the revenue entitlement. Instead, performance issues should instead be dealt with through service level agreements, the group believes.
Producer car orders
Both POGA and the Saskatchewan coalition want provisions for producer cars.
Anderson said there was a huge increase in producer car requests for oats last year. “We know that producers were looking for any way that they could get their oats down to the United States. And producer cars are part of that mix.”
POGA recommends special treatment for producer car orders of 10 or more, to boost efficiency. The group’s report notes producer cars are vital for small shippers, such as oat growers.
The Saskatchewan coalition wants the CTA review panel to make sure producer cars and short line requirements are recognized in legislation. The group worries that main line railways and grain companies “will reduce their access to the infrastructure and remove this competitive tool for producers.”
The coalition suggests establishing an oversight or planning group to determine producer car demand and make sure short lines receive adequate service.
Rutter said the WCWGA board hasn’t yet discussed producer car access. He noted that 100-car shippers are rewarded with a rate break, while single-car shippers pay higher rates. All shippers, including producer cars, suffered during last year’s lengthy delays, he said.
“It is a good question — to what degree should they get access to cars on the same basis as other shippers?” he said.
Rail line abandonment
The WCWGA isn’t seeking changes to the rail line abandonment provisions, Rutter said. “There are provisions where the province and municipalities have an opportunity to acquire lines if the railways wish to abandon it.”
The Saskatchewan coalition would like to see the Canadian Transportation Agency investigate and rule on a railway’s operational interested in unused or under-serviced lines that other groups have shown interest in buying. If the agency rules the main line companies don’t have an operational interest, the line should be decommissioned and sold. Lines should be transferred before they deteriorate or shippers make other long-term plans, the coalition’s report states.
POGA believes rail line discontinuance requirements are too weak. The group notes that railways control traffic on lines and can create conditions needed to close them. The economic impact on nearby communities should be considered before lines are closed, POGA’s submission states.
The CTA Review Panel will review submissions and submit a report to the minister of transport by December 24, 2015. Transport Canada ultimately decides which recommendations to act on.
Rutter said he’s very optimistic. “I think we’re going to get to a better place. Will we get to where we need to be? Probably not. But it’s all about making progress and improving our system and getting greater competition. Getting better service, better capacity.”
For more information on the Prairie Oat Growers Association’s submission, visit poga.ca. The Saskatchewan coalition’s report can be found at saskwheatcommission.com. The Transport Canada report is online at the Transport Canada website.