Most of the provisions designed to improve rail service for grain in the Transportation Modernization Act (Bill C-49), which became law five months ago this week, have yet to take effect.
But that’s neither a surprise nor a disappointment to Wade Sobkowich, executive director of the Western Grain Elevator Association (WGEA), which pushed hard for the legislation.
Sobkowich predicted May 24, at an event celebrating C-49’s royal assent, it could take six months or longer for some provisions to come into play.
“The key for us is getting level-of-service agreements with reciprocal penalties hopefully in place for the next crop year (starting Aug. 1, 2019),” Sobkowich said more recently, in an interview Oct. 18. “The rest of it is reactive (to bad rail service). That (level of service) is the one that is proactive.”
In the meantime, WGEA members, which account for about 90 per cent of western Canadian grain shipments, have agreed to move grain this crop year through various grain-shipping programs offered by CN and CP Rail, he said.
However, negotiations are underway between individual grain companies and the railways on reaching agreements that spell out the level of service the railways will provide, as well as how quickly grain companies will load and unload cars. If either party breaches the service agreement they will be subject to financial penalties.
“It’s a slow process,” Sobkowich said. “The target is to have them ready for the 2019-20 crop year.
The WGEA and many farm groups complained for years legislation was required to make the railways financially accountable for poor service. They argued that, as geographic monopolies, the railways aren’t disciplined by competition. Shippers said level-of-service agreements, with reciprocal penalties, would be an effective proxy for rail competition.
Under C-49 the Canadian Transportation Agency (CTA), which oversees the railways, will better define ‘adequate and suitable’ service, but can’t until it arbitrates a service agreement, Sobkowich said. And that won’t happen until there are agreements to arbitrate.
Meanwhile, the CTA is consulting the industry about the rules around implementing long-haul interswitching, Sobkowich said.
The CTA has proposed when grain companies seek that option, which would allow a shipper on one rail line to get another railway to move their grain, it be initiated by a lawyer. Sobkowich said the WGEA told the CTA that’s too burdensome.
One C-49 provision that has had an immediate and positive effect is the change to the maximum revenue entitlement (MRE), Sobkowich said. As a result, both railways have ordered new, more efficient grain cars.
The new MRE increases the amount of revenue each railway is allowed to earn shipping grain, to reflect the cost of buying new cars.
Another C-49 improvement has been for the railways to share their grain-shipping targets with the industry and government at the start of the crop year and again in October.
“They (railways) seem to be indicating the 5,500 and 4,000 (cars per week to be delivered outside and during winter, respectively) are still what they are planning on targeting,” Sobkowich said. “Maybe that means they are going to meet those numbers, or dare I say, exceed them. That will probably end up being the very first manifestation of the passage of C-49.”
Even if some service remedies, such as long-haul interswitching, were available now shippers wouldn’t likely be using them because grain is moving relatively well, Sobkowich said.
“You apply for long-haul interswitching if you’re not getting decent service and service so far (this crop year) has been OK,” he said.
“For CN it has been very good. For CP it has been OK. Companies aren’t going to enact these types of provisions lightly. They are going to do it when they are in dire straits because it affects their relationship with the railway and they’re just not there now.”
As of week 10 of the current crop year CN supplied 94 per cent of the grain cars ordered for that week, the Ag Transportation Coalition said in its weekly report. The previous week CN delivered on time 93 per cent of the cars grain companies ordered.
In week 10 CP Rail delivered 82 per cent of ordered cars on time, down from 84 per cent the week before, the report said.
What’s changed for grains?
Level-of-service agreements: Shippers can now enter yearly contracts with the railways that detail the level of service expected from railways. Shippers and the railways can negotiate ‘reciprocal penalties’ for failure to perform.
Long-haul interswitching: If shippers aren’t happy with their service from the railway that serves their facility, they can apply for service from a railway that doesn’t. This injects competition into the system and the Canadian Transport Agency (CTA) has 30 days to respond to these requests.
CTA investigative powers: Under the new rules the regulatory body no longer needs a complaint from a shipper to look into service issues. It can now conduct an investigation when approved by the federal transport minister. This means an investigation could happen without disrupting shipper-railway relations.
Maximum revenue entitlement: This key feature of grain transportation, which limits, according to volume, how much railways can earn for hauling grain. It has, however, been modified. It now accounts for any investment a railway makes in grain handling, such as hopper cars. Earlier legislation split the benefit between the railways, making for a disincentive to investment.
Data reporting: CN and CP will now be required to file reports to the federal transport minister each year on how they intend to move the crop.