Western grain shippers are watching closely to ensure their rail service doesn’t decline as oil shipments increase.
“We would be concerned if either railway were to reduce grain capacity in favour of crude oil,” Wade Sobkowich, executive director of the Western Grain Elevator Association said in an interview Dec. 5. “Regardless of what the needs are of other sectors, what Alberta is doing, and who owns the rail cars, grain shippers need the service and capacity that we need.”
Why it matters: Grain shippers say they’re regularly shunted aside for other rail traffic and worry growing oil shipments could derail their marketing efforts this winter.
Crude oil shipments by rail are increasing because there aren’t enough pipelines. Last month the Alberta government announced it will buy up to 7,000 oil cars and about 80 locomotives to pull them to help get a glut of Alberta oil to market.
However, officials from both railways say grain movement will not suffer because of oil.
“Let me start off by making it clear that we will not be moving more crude oil at the expense of other commodities such as grain,” CN spokesman Jonathan Abecassis wrote in an email Dec. 5.
“Only once the Alberta government shares a detailed plan as it pertains to CN, will we be in a position to comment on the specifics and on the feasibility.”
“CP is committed to delivering for the entire supply chain — from grain to domestic and international intermodal, to other bulk commodities, merchandise and automotive,” CP spokeswoman Salem Woodrow wrote Dec. 6.
“CP continues to add people and locomotives and has invested record amounts in capital to meet the needs of our customers, across all lines of business, and the broader economy.”
Despite reassurances Sobkowich remains wary.
“We’ve seen in the past where the railways took resources away from grain and used for fracking sand,” Sobkowich said. “This situation would be no different.
“Regardless of what the needs are of other sectors, what Alberta is doing, and who owns the rail cars, grain shippers need the service and capacity that we need.”
He added it helps that the railways are now required to identify the weekly grain capacity that will be available for the year, so shippers can try to hold them accountable to meeting those numbers.
More oil is being shipped by rail, but the same is true of grain, Sobkowich said.
“We cannot accept the premise of a constant rationing of (rail) supply under a perpetual planning of 5,500 (outside of winter) and 4,000 cars (during winter) per week every year,” he added.
In August Sobkowich said most years western Canadian grain companies, if they knew the cars would be delivered on time, could use nearly twice as many during the busy fall and winter shipping period.
Under the Canada Transportation Act the railways are obliged to haul all the products shippers seek to move by rail. But the railways decide where and when to run its trains.
Shippers who believe the railways failed to meet their service requirements can seek redress through the Canadian Transportation Agency, but it’s time consuming and expensive.
So far this crop year rail service for grain has been generally good, but shippers aren’t taking anything for granted, Sobkowich said.
“While the volumes are getting moved, there are a number of challenges still with trains showing up late, ETAs changing last minute (and) variable transit times,” he said. “There is a degree of nervousness that the system will be susceptible going into winter with railways moving record traffic and big crude contracts continue to get added.”
The federal government is considering cost sharing the Alberta government car purchases, but hasn’t made a decision, Intergovernmental Affairs Minister Dominic LeBlanc told reporters last week.
He also said Ottawa wants to assess the impact Alberta’s plan would have on other rail traffic.
Based on the cost of building or leasing oil cars and locomotives, some observers say Alberta’s plan would cost more than $1 billion.
Alberta Premier Rachel Notley says the purchase would be recouped by charging oil companies to move their oil.
Both railways are talking to the Alberta government about its oil-shipping plan, rail officials said.
During the first three quarters of 2018 CN moved 46,000 oil cars across its whole network compared to 207,000 grain cars just from Western Canada, Jason Valliere, CN’s director of petroleum marketing said in CN’s Nov. 19 Grain Insight podcast.
“CN has been increasing crude (oil) by rail movement as additional network capacity comes online, but any additional movement will only come from that increased, overall capacity and not at the expense of other goods,” Valliere said.
CN has been expanding its handling capacity with a record $3.5 billion in capital spending this year, he added. As CN moves more products it allows the company to invest in even more capacity, Valliere said.
“The pie is getting bigger in terms of the overall traffic CN can move out of Western Canada… ” he said.
“Our CEO (JJ Ruest) has been very clear we will not move crude at the expense of other commodities, including grain.”
CP Rail has increased crude oil shipments throughout 2018 and has additional contracts to ship more oil in 2019, Woodrow wrote in an email.