If you’re looking for a silver lining in the massive COVID storm cloud, look no further than grain movement out of Western Canada.
COVID-19 has killed almost 9,000 Canadians, sickened thousands more and devastated Canada’s economy — and helped Canada move what’s expected to be a record amount of grain when the crop year ends July 31.
That’s an unexpected outcome to what was shaping up to be a terrible year for grain shipping.
“When we were in week 28 (Feb. 9-15) this crop year was shaping up to be probably one of the worst movements that we had in 10 years,” Canada’s grain monitor Mark Hemmes, president of Quorum Corporation, said in an interview July 23.
“We could’ve come out of this crop year with a 20-million-tonne carry forward. And then COVID hit. COVID was a blessing to grain as much as it was a curse to every other aspect of our life… because it freed up (rail) capacity that was needed to get us caught up.
“I haven’t done the calculation yet, but I think we moved more grain between the 1st of March and what will be the end of this crop than we have ever moved in any year.”
CN and CP Rail both say they’ve set monthly grain shipping records recently.
Why it matters: The sudden appearance of shipping capacity due to the COVID slowdown doesn’t mean the grain sector’s transportation woes are over, shippers say. Railways say they’re making investments to improve capacity.
Last crop year Canada’s grain handling and transportation system moved a record 57.21 million tonnes, Hemmes said. As of the end of June, with a month left in the 2019-20 crop year, 56.03 million tonnes had moved. That’s 3.97 million tonnes, or 5.6 per cent, more than the same period last crop year.
“We’ll move a record volume of grain this crop year unless something blows up, and I don’t think it will,” Hemmes said.
Earlier in the crop year a combination of rail washouts, a strike at CN Rail, and rail blockades set by protesters caused a grain shipping backlog.
“It would be a step too far to say we were thankful for COVID-19, because we’re not, but it had the effect of freeing up shipping capacity for the grain sector…” Wade Sobkowich, executive director of the Western Grain Elevator Association representing Canada’s major grain companies, said in an interview July 23.
While grain companies got better prices than usual in spring and summer because customers were anxious to build supplies during the pandemic, they still weren’t as good as October to February, Sobkowich said.
“We didn’t set any records based on what we moved in the fall,” he said.
“We appreciate the service. And that’s what we expect from the railways — to gear up to meet demand for grain shippers.
“Generally speaking companies feel they could sell more earlier in the year if they had the (rail) capacity.”
The railways say they are investing to boost capacity (see sidebar). They’ve also said it’s imprudent to overbuild.
Grain shippers contend if the railways were not duopolies, market forces would compel them to provide more surge capacity.
Despite record grain movement last year grain companies carried over 9.5 million tonnes of grain, Hemmes said, “and at least half of it almost guaranteed could’ve had sales attached to it.”
There’s a direct correlation between grain movement and how many other commodities the railways must move, Hemmes said.
A huge grain backlog occurred in 2013-14 resulting in the federal government taking unprecedented measures, including ordering the railways to meet grain shipping targets under threat of fines.
The railways blamed record cold weather, but the Canadian economy was hot, Hemmes said.
“We were selling every resource we could possibly sell — coal, potash, sulphur, all the minerals, plus there was a lot of grain to move,” he said. “They just didn’t have the capacity to handle a commodity super cycle.”
It’s a pattern that’s been seen before. When the Canadian economy slowed in 2008-09, grain movement surged, Hemmes said.
COVID did make more space for grain, Sean Finn, CN’s executive vice-president of corporate services and chief legal officer, said in an interview July 15. However, CN also used reduced traffic to step up track maintenance, he said.
The whole supply chain deserves credit for its record performance, he said.
“It’s a team sport. It’s not just the railways. We’re all in this together.”
Better communication within the supply chain has helped, Finn said.
The government-mandated annual grain plan the railways are obliged to file under the Transportation Modernization Act (Bill C-49), which became law in May 2018, helps, he added.
“That has created a transparency with all the stakeholders so they know what’s going on and not surprised,” he said. “Do we have a bad week once in awhile? For sure. I don’t do it very often, but I’ve got to give (Transportation) Minister Marc Garneau (credit for) that policy initiative of having a grain plan and us adopting it…”
Rail grain plans help grain companies decide how much grain to sell, but railways aren’t penalized when they fail to deliver, Sobkowich said. Nevertheless grain companies face financial penalties when they fail to get grain to buyers on time, he said.
“It’s not our fault we didn’t get the rail cars, but we’re still accountable to our customers and the same standard should apply to the railways as it relates to their customers,” he said.
The Transportation Modernization Act provides for service agreements between railways and grain companies, and penalties for when railways fail to provide contracted services.
“From what I hear from my members, they are moving in the right direction year over year, but they’re still a ways away from being balanced in terms of getting financial accountability,” Sobkowich said. “There is an ability to go to arbitration, but so far as I am aware, none of the companies have taken the significant step…”
Western Canada appears headed for another bumper crop barring bad weather from here on. If so, the grain pipeline will be put to the test again in 2020-21.
“This is unofficial and anecdotal, but I hear from my members it’s looking really good and it’s going to be a sizable crop,” Sobkowich said. “It just depends, like every year, how the rest of the growing season goes and how harvest goes… but it’s looking like another big one.”
The railways, including CN, say they are ready.
“The message has been ‘prepare accordingly,’ which is what we are doing,” Finn said. “We’re making sure the locomotives will be there. We’re looking at the car supply. We’re looking at our track investments.”