Western Canada’s major grain companies say car shortfalls are seriously hampering their ability to make sales.
In fact, they say they can handle twice as many rail cars during the first half of the crop year than what the railways intend to supply.
“We don’t expect the railways to gear up to provide 18,750 rail cars a week right off the bat, but it should be a number that they’re striving for,” Western Grain Elevator Association (WGEA) executive director Wade Sobkowich said in an interview Aug. 22. “If they supplied 20,000 rail cars by some miracle every week throughout the winter period then the (export) terminals would be the bottleneck. But they’re not supplying that.”
Last year CN Rail said it would deliver 4,000 cars a week to western elevators in the winter and 5,500 during the rest of the year.
“If CN does that this crop year we’d be happy,” Sobkowich said, noting it fell far short of that target for much of the 2017-18 crop year resulting in a grain shipping backlog.
But if grain companies knew the railways would reliably supply 18,750 cars weekly, most years they would sell to that target from October to the end of March, he added.
Grain companies want to sell as much grain as they can then because that’s when they normally earn the best returns, Sobkowich said.
Even in years when Western Canada produces a below-average crop, grain companies want to ship more grain from fall to spring than the railways can handle, he said.
Grain sector estimates put this year’s crop at close to 71 million tonnes, plus an above-average carry-over of 12.6 million tonnes.
In their recently released grain plans CN Rail says it will move 24 million to 26 million tonnes and CP will haul 25 million. Combined, that’s 49 million to 51 million tonnes — similar to last crop year.
The railways say they will each deliver 5,500 cars a week to western grain shippers in the fall, spring and summer and 4,000 each during the winter.
That’s a weekly total of 11,000 cars in the non-winter months and 8,000 in winter — the same as last crop year and far short of the 18,750 cars a week Canada’s grain export terminals can handle, Sobkowich said.
The railways respond that the grain companies aren’t acknowledging the reality of the situation.
“That’s not a realistic number… ” David Przednowek, CN Rail’s director of grain marketing said in an interview Aug. 24. “It’s one thing to build nameplate capacity and then make an assumption that capacity can run 100 per cent efficient seven days a week, 24 hours a day over the course of the year, and that there will actually be market demand for the utilization of that capacity.
“What CN has provided (is what it) can realistically handle on a sustained basis both outside of winter and during winter.”
Many things can disrupt grain trains, including bad weather, derailments and landslides, Przednowek said. But things can also disrupt grain moving into and out of country and terminal elevators too, he said.
“Everybody needs to acknowledge that there are realities and limitations in the supply chain,” Przednowek said.
CN’s grain plan refers to some of them, including vessels arriving late to load grain and rain delaying ship loading. But Sobkowich counters those points in an analysis of CN’s plan.
“In the past three years the stock levels at port terminals have only exceeded 80 per cent of the working capacity once (81 per cent),” he wrote. “There have been very, very few situations at port of inhibited rail car unloading due to lack of terminal space since 2014 resulting in minimal delays. However, the opposite occurs regularly — late rail car arrivals delay vessels.
“It’s like saying there are lots of people who want to go between Winnipeg and Toronto and the railways say part of the problem is you don’t have big enough airports. It’s not that. We need more flights.”
The WGEA has long argued grain shippers are captive to the railways, therefore the railways don’t need to invest in extra capacity to meet grain shippers’ full season demand, knowing they will eventually move grain later.
“We need the rail freight market to behave as though it were a competitive market,” Sobkowich said.
Some argue if the railways were free they could earn as much as the market would bear from hauling grain, higher freight rates would ration the demand for rail service and provide the capital to expand rail capacity.
“If we were in a competitive marketplace for sure let the competitors charge what they will for the service,” Sobkowich said. “If they’re charging too much then they won’t get the business, but it doesn’t work like that because we’re not a competitive marketplace.”
Grain companies and farmers hope the Transportation Modernization Act, which became law earlier this year will help in that regard, but the industry doubts it will be a panacea.
Railway executives have often said you don’t build a church just to accommodate the extra faithful on Easter Sunday. And likewise, it’s uneconomic to build rail capacity to move most of the crop in half a year.
“I understand why somebody would want to push the envelope of the supply chain and do more with the type of grain handling and trading margins that are available in the fall and winter and early spring in relation to what might be available in the market later in the spring and summer and early fall,” said Przednowek. “There are limitations.”
One is ensuring other traffic, including products that move year round, also need to get to market, he added.
If 18,750 cars a week isn’t the right number, what is?
“I don’t know,” Przednowek said. “It’s not 19,000.”
The railways want to maximize assets to maximize revenues, Sobkowich said. But so do grain companies, by moving as much grain as terminals can handle when margins are the highest, he added.
Sobkowich also questions why the railways have committed to delivering the same number of cars as last crop year, despite millions of dollars of investments in new cars, locomotives and employees.
CN’s weekly car plan is based just on its own car fleet, Przednowek said. There will be perhaps an additional 500 to 600 ‘private cars’ coming from grain shippers. While private cars are part of CN’s fleet, private car suppliers get access to the same number of cars they provide, adding to total capacity.
Western Canada used to produce around 50 million tonnes of crops annually, now it’s closer to 70 million — a 40 per cent increase.
“CN’s fall rail program hasn’t remained static either,” Przednowek said. “If you look over the same period of time from 2005 to last year the size of CN’s fall rail program has gone up by 40 per cent as well. The notion that the size of the crop moving on CN… has just remained static… and all the grain needs to be pushed into the spring and summer and fall is false.”
In addition to adding capacity, CN has created new car allocation programs, including car auctions and private cars, giving shippers more flexibility and assurance of supply, Przednowek said.