“We have a first-class system. I don’t think there’s anybody who beats us. When you talk to buyers around the world they say, ‘You’ve got all of this and you still screw it up.’”
– MARK HEMMES
From the farmer’s point of view, reforms made eight years ago to Western Canada’s grain transportation system have been “a dismal failure” because the railways overcharge and service is poor to boot, according to Keystone Agricultural Producers (KAP) vice-president Robert McLean.
“The market-based, modern, competitive system, with benefits flowing back to the farmer as envisioned by Mr. Estey is no closer today than it was in 1998,” McLean told the Fields on Wheels conference in Winnipeg Nov. 19.
“We (farmers) have been generally disappointed in the results of the 2000 reforms.”
McLean said in an interview later that if former Supreme Court Justice Willard Estey, whose recommendations led to the reforms, were alive, “he’d be shaking his head” in dismay.
Estey, who died in 2002, recommended grain transportation be deregulated, but on the condition that the system be market driven.
He also recommended the Canadian Wheat Board (CWB) drop its role in transportation and instead tender companies to move grain to port. He also wanted “open access” to the rail system so any approved company could use existing tracks to compete with Canadian National (CN) and Canadian Pacific (CPR).
Neither recommendation was enacted, though the CWB does tender about 20 per cent of its movement.
Estey also recommended tying grain freight rates to the value of grain. That didn’t fly either. It was agreed instead, during consultations led by former senior civil servant Arthur Kroeger, that rail revenues earned from hauling grain would be capped, but adjusted for inflation, volume and the distance hauled.
One CPR official had predicted the cap would be meaningless because vigourous competition between CN and CPR would keep earnings from grain shipping far below the cap. But rail revenues generally are at, or even slightly over, the cap each year.
When the government set freight rates it was generally agreed a fair return to the railways was 120 per cent of variable costs. In 2007, McLean noted, the Canadian Transportation Agency (CTA) estimated rail returns were 160 per cent of variable costs. Farmers are paying one third, or $250 million a year, more than they should be, he said.
That, plus at least 14 “level-of-service” complaints filed by shippers with the Canadian Transportation Agency (CTA), demonstrates the railways are not competing, McLean said.
The railways do compete, Wayne Atamanchuk, CN’s assistant vice-president of bulk commodities, told the conference. Eighty-five per cent of CN’s grain origination is within 50 miles of an elevator on a CPR line, he said.
“For those of you who don’t believe it (that we compete), I’m living it right now,” Atamanchuk said. (See sidebar.)
But Keith Bruch, vice-president of operations at Paterson Grain, told the conference the railways aren’t accountable when they fail to perform – so that must come through regulation.
“Accountability drives behaviour,”
Bruch said in an interview. “That’s there everywhere else in the industry contractually except between railways and shippers and in my view that is a big opportunity… to establish accountability all around and then I think that will really drive performance and efficiency.”
Bruch and McLean agreed the performance benchmark the CTA set in September for CN when dealing with four specific grain companies isn’t good enough.CN must provide 80 per cent of the cars ordered – 90 per cent of them within three weeks of order date on a 12-week moving average – unless CN encounters circumstances beyond its control.
You can’t run a grain company when you only get 56 per cent of the cars you ordered, Bruch said.
Given increasing grain export competition from the former Soviet Union, Canada must strive to have an efficient grain transportation system, he said.
That system is the envy of the world, said Mark Hemmes, president of Quorum Corp., which has been monitoring grain transportation since 1999.
“We have a first-class system,” he told the conference. “I don’t think there’s anybody who beats us. When you talk to buyers around the world they say, ‘You’ve got all of this and you still screw it up.’”
Reforms have led to increased efficiency, Hemmes said. Car cycle times are better and grain moves through the pipeline faster.
The railways, while not guilt free, are not totally to blame, Hemmes said in an interview. Sometimes ships are late, the wrong grain might be in position or grain companies, fearing they wouldn’t get enough cars, might order more cars than they require. Bad weather is also a factor. And communications between players isn’t as good as it could be either, Hemmes said.
“It’s not a simple system and it doesn’t have simple answers to really complicated problems.”