The head of Canada’s grain transportation monitor didn’t mince words during a recent conversation following a spate of protests that have disrupted rail service on the national level.
“I’m really glad I don’t work for a railway this week,” Mark Hemmes of Quorum Corp. said by telephone Feb. 19 from his Edmonton office. “This has to be absolutely frustrating for them.”
Frustrating because despite a late harvest making for a late start to the shipping season and a short but bitter strike at CN, grain shipments were holding up surprisingly well, Hemmes said.
“CN did a remarkable job, and it actually moved some grain during the strike, then came back and made hay. CP was going phenomenally too.”
But despite their efforts, now the numbers are growing grim. Hemmes had just completed a little back-of-the-envelope figuring to try to quantify the situation, and the picture that he sketched wasn’t a welcome one. That morning 54 grain ships were waiting at the ports of Prince Rupert and Vancouver.
“Which is one less than the worst week we had in 2013-14,” Hemmes said.
That crop year saw a shipping backlog that University of Saskatchewan agricultural economist Richard Gray has estimated cost Prairie grain producers between $5 billion and $6.7 billion.
This shipping year the trouble started in late January, when rock and earth slides affected both CN and CP in British Columbia, causing a backlog to begin to ramp up. And that was kicked into high gear when an internal First Nations political fight spilled over into national protests. A blockade went up in Vancouver in early February, interfering with grain placement at the port. The CN main line between Prince George and Prince Rupert was closed for four days beginning Feb. 10, having an immediate impact on grain shipping to that port.
The morning Hemmes spoke to the Co-operator a short-lived blockade on the west side of Edmonton had again ground shipments to a halt on that part of CN’s network. That blockade was cleared just hours later by counter-protesters. In Eastern Canada, CN shut down its entire rail network and laid off hundreds. VIA Rail has suspended service indefinitely across the country and announced approximately 1,000 employees were getting laid off.
Taken together, it’s spelled trouble for the Canadian economy as a whole, and Western Canada’s once-promising shipping season. Hemmes said a backlog of 905,000 tonnes of grain had built up as of Feb. 19, with 750,000 tonnes accruing in the previous four weeks due to the line outages and blockades. That’s going to add up to real economic damage, Hemmes said.
“How do you make up for 750,000 tonnes, especially since everyone will be on the railways, saying, ‘I want my capacity back’? Eventually, a part of that is lost sales. We’re talking hundreds of millions here.”
Shippers agree costs are already mounting fast.
Wade Sobkowich, executive director of the Western Grain Elevator Association, said his members, who handle about 90 per cent of Canadian grain, did a three-day snapshot of costs related to rail blockades from Feb. 10 to 12.
He said his members reported direct losses — contract penalties, demurrage paid on ships and lost capacity — of $10 million. And he quickly added those direct costs are just the tip of the iceberg.
The real costs will come as contract delivery windows are missed, he said. Grain companies typically make sales six to nine months in advance, with a 20- to 30-day window for executing delivery.
“In many cases they were already on the tail end of that because of the late harvest, the CN strike and landslides and rock slides,” Sobkowich said. “That means disruption from the blockades is going to be just enough to push you out of that window.”
Then even more damage will come later in the form of lost reputation in the competitive world of the international grain trade. Missed deliveries will translate into dissatisfied customers who may be reluctant to buy Canadian in the future, Sobkowich said.
“The bigger concern is we look like a banana republic. Next time they’ll say ‘Canada’s not a reliable supplier’ and go somewhere else.”
Also hard to quantify is the economic impact this season on grain growers, especially as the winter wears on. Grain from Canada typically has its highest value from harvest until the end of March, at which time South American crops begin to come off, softening prices.
With so much uncertainty, grain companies are going to be hesitant to make future sales, Sobkowich said.
“They might be able to sell more, but they’re not going to. They’re going to say ‘I don’t think I can execute.’ So that means selling outside of the peak price period, and therefore offering a lesser price to farmers. It has a cascading effect.”
Hemmes said getting things back to normal will be no small task. In fact, it could be months before anything approaching normalcy resumes, even if the protests were to end immediately. It could also take longer than farmers are used to because typically when there’s a shipping problem like in 2013-14, it only affects grain.
“This time around, we’re in uncharted territory,” Hemmes said. “Everyone is hurting — containers, coal, potash, the chemical industry… everyone.”
It means railways are going to be performing triage on the goods moving through their networks, and grain won’t likely be at the top of the list.
“They’ll move things critical to human life first — things like chlorine for water treatment and propane for heat — and then they’ll work their way down,” Hemmes said. “Everyone is going to hurt from this. It’s not a happy situation.”
Barry Prentice, head of the University of Manitoba’s Transport Institute, agreed the recovery period would be long and protracted because of the nature of how rail traffic is slotted. He said the analogy he frequently draws is that it’s like a broadcasting schedule for a television network. There are only so many slots and if the station goes off the air, those slots are lost forever.
“There’s no fast way to do this, because it is a very big, complex system, and it’s not endless capacity,” Prentice said.
Once the critical traffic is past, it will be damage control amongst the railways’ customer base. Prentice suspects in light of this, high-value container shipments will take the highest priority, with grain coming well down the list. Here he again found the television schedule analogy helpful in explaining it.
“There’s only so much valuable prime time on that schedule, and they’re the ones paying for it,” he said.
For Hemmes, it all comes down to the numbers, and back to those 54 ships awaiting cargoes at West Coast ports. Each will require between 46,000 and 48,000 tonnes to fill, he said.
“If you think about a grain train at around 11,000 tonnes, that’s a lot of trains to fill those boats. We’re into this for a while before it’s cleared away. The government can’t legislate this one.”
Grain also counts on a carefully balanced cycle of full cars heading to the coast and empty cars coming back to country elevators to facilitate fluid movement of grain. That movement has been upset, and with higher-priority cargo displacing the empties, that won’t be restored quickly. For the grain industry it’s a waiting game, Hemmes said.
“All the available cars are loaded, they’re now waiting for empties to come back from ports. It will take a few weeks for that cycle to get back into order. Then they’ll focus on moving faster, and that will work its way through. We’re looking at several weeks, if not months before we’re back into a regular cycle.”