In recent years the country’s two major railways have all but dislocated their metaphorical shoulders patting themselves on the back.
They’re rightly very proud of record grain movement year after year, and have pointed to major investments in infrastructure, equipment and personnel as key to that success.
And to be clear, both CN and CP have put their shareholders’ money where their mouths are. CN alone is spending $3 billion ($95 million of that in Manitoba) to ‘enhance fluidity in their network.’
Read Also
Farming still has digital walls to scale
Canadian farms still face the same obstacles to adopting digital agriculture technology, despite the years industry and policy makers have had to break them down.
Meantime the Western Grain Elevator Association, representing Canada’s grain merchants, has played the role of perpetual doomsayer. Even as shipping record after shipping record piled up, it has maintained it’s not time to declare victory over the historic challenges of getting your crop to market.
One could hardly blame its membership. After all, it is less than a decade since the Great Grain Crisis of 2013-14.
That nightmare shipping season is said to have cost western Canadian farmers as much as $5 billion.
Core to the WGEA’s cautionary argument has been that the system has never really been tested in the same way since.
Crops have been larger, but winters have been milder. A commodities bust limited shipments of coal, wood, and ore. And most recently the pandemic cratered container shipments from Asia at a crucial time.
Crucial because the grain transportation system was just beginning to show signs of stress. Protesters had blockaded rail lines, and natural disasters in British Columbia had closed lines for several days.
But in the wake of the pandemic recession, grain shippers were able to make up lost time and then some, setting yet another grain shipping record, for the fifth year in a row.
One might look at that situation and think all is well, and the railways would certainly encourage that line of thinking.
But the WGEA is right in saying the system has never really been truly tested in the same way since that 2013-14 meltdown. In that period it has always got more, not less, resources to do its job.
But now, that’s changing. CN, smarting from a doomed takeover attempt of a U.S. railway and pressured by a London-based hedge fund that is a major shareholder, just announced that more than 1,000 employees are getting pink slips.
It is also suddenly getting out of the freight forwarding business, where it manages the shipment of goods across multiple modes of transportation.
In an agricultural context, that means containerized grain. That’s not to say that containers of grain won’t be shipped on CN, but rather that the process will now be managed by someone else. The unexpected announcement has thrown some pulse shippers into turmoil as they scramble to find an alternative.
And while that situation is a disaster for individual companies, it’s still relatively small volumes. Where the real potential for harm resides is if things go off the rails for bulk grain shipments.
Once again, the WGEA is sounding the alarm, with Wade Sobkowich, the group’s executive director, noting a “… marginal drop in CN service over the last week or so.”
He insists the group’s members aren’t hitting the panic button yet, but are rather flagging it as an issue that warrants close attention, especially in light of events at the railway.
If the company “reorients” itself and readjusts to the changes, things could work out, he said. But he also noted that investors like the U.K. hedge fund look at key metrics like operating ratio — operating expense to net sales — which aren’t always shipper friendly.
Essentially the old math of the transportation sector is asserting itself, and for grain growers, that’s never a good thing. They’re captive shippers to the two major railways who know the grain must ship over their networks to reach West Coast and Lakehead port positions.
For a farmer, the best way for the crop to ship is front loaded in the crop year, when demand and prices tend to be at their highest, before Southern Hemisphere crops come off.
For a railway, it’s best to bring the crop out in 12 equal monthly increments, to keep those key ratios at their brightest and shiniest, thus appeasing shareholders and preventing a purge of the executive suites.
The role of government in this dynamic is as regulator. Much like the grain system itself, the latest amendments to the regulatory framework haven’t really seen a true test.
The Transportation Modernization Act (Bill C-49) only came into effect in May of 2018, containing many improvements to how shippers can expect more timely resolutions for shipping issues.
If things begin to fall apart this winter, the entire grain sector may want to have their local member of Parliament and the federal transport minister on speed dial.
