Ottawa has ordered the railways to move at least 526,250 tonnes of grain a week and there’s a smaller crop so there should be no worries about getting this year’s crop to market, right?
“Yes, we’re nervous about it,” Wade Sobkowich, executive director of the Western Grain Elevator Association (WGEA), said in an interview Sept. 19.
“As we’ve seen, CN isn’t meeting the volumes and we suspect CP also isn’t meeting the volumes.”
Officials from CN and CP Rail say they are ready to move this year’s crop. But one grain company official, who asked not to be named, said his car orders are six weeks behind.
Another industry official estimated there was a 25,000-car shortfall, including 13,000 unfilled orders carried over from last crop year. But CN Rail said in a statement its shortfall is 4,000 at most “or the equivalent of only four or five days of movement.”
This year’s crop is expected to be slightly above the five-year average, well under last year’s record 76 million tonnes. But grain quality has been reduced by poor weather.
“That adds more shipping challenges,” Sobkowich said.
Grain companies are also worried changes to the car ordering system will mask car demand. Some believe it was the huge car shortfall last crop year that prompted the federal government to pass an order-in-council March 3 requiring the railways to each ship 500,000 tonnes a week or be fined up to $100,000 a day. That was followed by amendments to the Canadian Transportation Act allowing the government to continue setting grain-shipping thresholds for the railways.
Millers are worried
While the railways say grain-shipping orders have declined, Canadian millers say they are worse off than last year at this time.
“It’s looking really bad,” Gordon Harrison, president of the Canadian National Millers Association (CNMA) said.
“Mills in Eastern Canada are already reaching shortfalls in deliveries making it impossible to restore inventories going into the winter months with the close of navigation,” he said. “This was what was going on in November and early December last year, not in September. We see milling locations already in trouble 60 days ahead of last crop year.”
A lack of grain deliveries in 2013-14 forced some flour mills to close for a time. Some even trucked in wheat from Western Canada.
“The cost to the milling industry in Eastern Canada was very significant, extraordinary and unprecedented…,” Harrison said.
Published reports said the government is fining CN Rail for failing to ship the required 526,250 tonnes or about 5,500 cars a week, but as of press time Transport Canada had not confirmed that. But according to one reliable source the report is accurate.
In an email Sept. 17 CN Rail spokesman Mark Hallman said CN had not been informed by the government it was being fined.
“If the minister of transport decided to call for penalties against CN, such a step would be unfounded given that it’s the current balance of the grain supply chain that has not allowed us to meet the government’s order-in-council minimum grain volume requirement,” Hallman wrote.
“CN’s weekly demand has been less than 5,000 cars per week on average for the last several weeks.”
Port terminals were nearly full, Prince Rupert was closed for regular maintenance and terminals weren’t working weekend shifts to save money, he added.
CP Rail is having trouble getting grain companies to load and unload grain in a timely way, said CP spokesperson Breanne Feigel.
“The urgency isn’t the same for everyone so the system needs to look at that in a better way,” she said in an interview.
Elevators have grain, farmers are delivering more and port terminals are able to receive it, Sobkowich said.
“As long as we get to pick the locations that we’re shipping from, and the destinations we’re shipping to, there is enough demand for CN to meet its volume requirements,” he said.
Grain deliveries were very strong last week at more than 900,000 tonnes, said Mark Hemmes, president of Quorum Corporation, the firm hired by the federal government to monitor the western grain transportation system.
“There’s a good healthy stock in the country elevator network,” he said Sept. 19. “The ports are very fluid right now contrary to some statement I heard.”
Very little grain is going to the United States, even though it’s a major market, Sobkowich said. Instead the railways, since the original government order, have focused on delivering to Vancouver, Prince Rupert and Thunder Bay for quicker car turnaround.
That’s why Canadian millers aren’t getting enough wheat, Harrison said. And that’s why the CNMA doesn’t want the federal government to extend its order beyond Nov. 29.
“The thresholds are getting in the way of processors getting their grain in Canada and the U.S. and it’s a great disappointment,” Harrison said.
The railways claim their new car ordering system will make for a more efficient system, but Sobkowich said it will mask car demand.
“Before we were actually able to see what the actual demand was based on open orders, now that won’t be transparent because shippers will be precluded from even placing orders even though the demand still exists,” he said.
“What we need is a market-driven system driven by shipper demand, not driven by the supply of rail cars.”
The railways oppose the government order but Hemmes said it allows the railways to use the most efficient corridors.
“It puts them in a position where it’s going to increase their profitability,” he said. “They should be sending a thank-you note (to the government), but I doubt that’s ever going to happen.”