Thirty years of reforms to Western Canada’s grain-handling and transportation system (GHTS) have seen rail profits increase while farmers pay more to ship grain and get poorer service, Keystone Agricultural Producers (KAP) has told the Canada Transportation Act Review panel.
KAP blames a lack of competition between the two main rail firms, Canadian National Railway (CN) and Canadian Pacific Railway (CP).
The Canada Transportation Act is linked to every form of federally regulated transportation, so the review, which began last year and concludes with a report to the government Dec. 24, doesn’t focus only on grain shipping.
Ottawa must implement regulations that simulate a competitive market, KAP said.
KAP thus made 13 recommendations (see further down), including retaining the maximum revenue entitlement the railways can earn shipping grain; determining the railways’ grain-shipping costs; defining railway service obligations; including penalties in service agreements for when railways fail to meet their obligations; and giving the Canadian Transportation Agency (CTA) more power and resources to investigate rail complaints.
“Lack of meaningful competition is the root cause of Canada’s GHTS challenges, including poor service and a lack of incentive to invest in capacity, infrastructure and labour,” the organization said.
“Railways have no reason to invest in capacity because they very rarely compete for business,” and farmers are mostly captive to one of the railways, KAP added.
“While rail deregulation has been successful in that CN and CP are financially viable and have achieved gains in productivity, Prairie farmers, and the Canadian economy as a whole, have not seen similar benefits.”
The maximum grain revenue entitlement (MGRE) in place since 2000 must remain, Reg Dyck, chair of KAP’s transportation committee and a Starbuck farmer, said in an interview Sept. 23.
It protects against railways charging what the market will bear, provides stable costs and mitigates the freight disadvantage Canadian farmers have relative to international competitors, all “while guaranteeing a healthy profit for railways,” KAP said.
Before that, the maximum rates were set in legislation. The railways may now charge what they want as long as total revenue doesn’t exceed the entitlement set annually by the CTA.
The MGRE is adjusted for grain volume and distance hauled. This allows the railways to discount rates to encourage efficient shipping, while guaranteeing, at least in 2000, a 27 per cent contribution to fixed railway costs.
However, KAP said, it suspects the railways are making bigger profits because over the last 15 years the CTA has adjusted the MGRE to cover higher rail-operating costs — but the system is more efficient with longer trains and fewer and faster-loading elevators.
As part of his 1998 reforms, retired Supreme Court Justice Willard Estey recommended farmers share in some of those savings, but Dyck said he doesn’t believe they have. That’s why KAP wants the CTA to review railways’ costs.
“The efficiency gains (by the railways) have been huge over the years and they’ve downloaded a lot of costs to producers, by making producers haul great distances, with bigger trucks, and all the high-throughputs that are out there are really paid for by producers,” Dyck said.
Meanwhile, farmers have suffered from poor rail service. A huge grain backlog during the 2013-14 crop year, by some estimates, cost farmers $3 billion, KAP said.
Some contend paying the railways more will see improved service, but “I’m very skeptical of that and I don’t think it will happen,” Dyck said.
The Western Grain Elevator Association agrees. Executive director Wade Sobkowich has said even when grain companies pay full commercial rates to Eastern Canada or the U.S., rail service is still poor.
Agriculture Minister Gerry Ritz, who often used to suggest paying more might improve service, also now acknowledges railway market power.
Prime Minister Stephen Harper told the Saskatchewan Association of Rural Municipalities’ annual meeting March 12 the railways can’t be allowed to use their market power to dominate the system.
KAP’s submission also recommends more rail monitoring; raising the penalty the railways pay when they exceed the MGRE to 15 per cent of the overage, from five; and making it easier for short line railways to extend service on nearby CN or CP lines.
Many of its recommendations are similar to other organizations’ recommendations, KAP general manager James Battershill said in an interview.
“There is pretty strong consensus, which is rare, so we hope that carries a lot of weight when this inevitably gets to government and it has to make decisions on whether to act or not.”
- That the Canada Transportation Agency be mandated to independently investigate rail freight service problems and initiate meaningful action to improve railway performance.
- That the Canada Transportation Agency be provided with the operational resources necessary to fulfil an expanded mandate.
- That level-of-service provisions be strengthened and specific definitions, obligations and requirements be set out in regulation.
- That service-level agreements be required to include provisions for penalties to be paid by the railway company for failure to deliver to the agreed-upon service levels.
- Arbitration options be offered for dispute resolution between shippers and railways.
- Monitoring of railway’s performance be increased and this information be made publicly available.
- That future minimum volume requirements be allocated to specific shipping corridors.
- That the CTA Review support the continued application of the MGRE program when considering any legislative or regulatory changes.
- That the penalty on railways for exceeding the maximum revenue cap be increased threefold from five to 15 per cent, and that this money continue to be paid to the WGRF.
- That a costing review be performed with respect to the railways to take into account the efficiencies they have gained over time so that increases to the MGRE can be kept in check.
- Ensure that farmers have a reasonable ability to ship producer cars and receive adequate service from Class 1 railway companies, recognizing that this may require unique provisions not provided to larger shippers.
- Support short line railways to operate trains and solicit traffic in regions underserved by Class 1 carriers.
- That chickpeas and soybeans be added to the list of Schedule 2 grains under the CTA.