Jim Everson, Soy Canada’s executive director, says agriculture and resource sector shippers are concerned CN and CP may not have the capacity to deal with larger volumes.

All the resource-based industries are expecting to increase production in the future, Everson told the Senate agriculture committee.

“To do so, we need to be able to take that to market, and in Canada our way of doing that is by rail,” Everson said. “It’s critical in the future that the rail infrastructure be sufficient to carry ever‑increasing volumes of grain to market.”

It’s also necessary to develop measures so the railways are under the same type of financial penalties as shippers for failing to meet delivery commitments, he added.

“The government has to play a role because it really isn’t a market‑driven sector,” Everson said. “It has to play a role in ensuring that there is reciprocal performance accountability.”

Everson and Phil de Kemp, the Canadian Barley Council’s executive director, were questioned by the committee on the rail issue. Ontario Senator Lynn Beyak said she hears the same concerns about railway capacity while serving on other Senate committees. She said there are good ideas in the Emerson report on the review of national transportation policy, but doesn’t see any urgency in acting on the problems.

De Kemp said the grain transport backlog during the winter of 2013 and 2014 combined with the Emerson report has put the rail capacity issue in the spotlight.

“The urgency is there,” de Kemp said. “Sure, we have got through this hump right now, as far as the backlog issue on grain, but it could happen again. It is not just if you get an increase in production.”

De Kemp said shippers are dealing with oligopolies that have a lot of power over how shipping flows, something that’s troubling for the export shippers.

“Everything depends on railways to ports for all our exports,” he noted. “That’s why I say that it really is in our national economic security interest, and it is not just for grain.”

De Kemp added the railways have been “whittling down” infrastructure and said one railway in particular — which he stopped short of naming — was widely viewed as a major source of concern by shippers.

“I think everyone knows what I’m referring to,” he said. “If the airlines operated the way the railways did, passengers encountering flight delays caused by weather and other problems would still be sitting in an airport for three months, because they only had so many planes to take everybody.”

He noted the number of Prairie grain elevators has been whittled down from about 3,000 to 300, almost all with 100-car loading spots.

“The efficiency is there,” de Kemp said. “They can turn these things around in 24 hours.”

All those efficiency gains by the grain industry are being squandered by the railways, he said. Shippers can wind up waiting days for full cars to be picked up or find their delivery of empty cars for loading delayed just as long.

De Kemp added the grain industry understands the issues well, and will continue to lobby for changes to address them. He added that other sectors are impressed with the way the grain industry players have pulled together.

“We know where the efficiencies are. We know where the efficiencies aren’t,” de Kemp said. “The grain industry, collectively, has got its act together, all of us, sitting at the table. We know where we need to go. If you get cold weather, you need that power capacity. We have the data right now.”

He said getting it right is important, and he’s puzzled as to why the railways can seem to deliver freight in a very timely manner for other industries.

“They seem to be able to do that for the automotive industry, as far as just‑in‑time deliveries for auto parts,” he said. “We just hope that they could do the same for us.”

He also noted replacing the fleet of grain hopper cars built by the federal government in the 1980s will be a huge issue as the cars reach the end of their useful lifespan.

“To order a new hopper car right now, it is about a three‑year wait,” de Kemp said.

De Kemp also said shippers are able to get better freight rates through the 160-kilometre interswitching limit, instituted by the former government in 2014, and recently extended by the Liberals for another year.

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However, there is a problem — that pipeline relies on a 40-year-old fleet of railway cars. A supply chain, like any chain, is only as strong as its weakest link, in this case an aging fleet of Government of Canada hopper cars.

Commencing in the early 1970s, the federal government purchased roughly 13,500 covered hopper rail cars for grain service, and assigned the cars to CN and CPR. At the time, CN was still a money-losing Crown corporation, and export grain rates were frozen at the same level established in 1927 under the Crowsnest Pass Agreement. The railways claimed that their earnings from grain traffic did not justify the investment in modern rail cars, and so the government purchased the rail cars instead of allowing the railways to raise their rates to farmers.

Today, about 8,000 of these cars remain in service, and they are an average of 37 years old. In theory, a rail car can last up to 50 years, but this rarely occurs in practice. Just like an automobile, the repairs required to maintain a rail car increase over time, until it is no longer economic to fix. Most rail cars are usually scrapped well before their 50th year, and hopper rail cars typically last between 35 and 45 years. As these types of rail cars age, they become increasingly prone to defects, such as jammed top hatches and leaking outlet gates.

The recent review of the Canada Transportation Act (CTA) also concluded that the existing grain car fleet is nearing the end of its useful life and must be expanded and renewed. The report suggested the federal government can play an important role in the development of a “strategic plan on how best this can be achieved and under what timelines.”

Modern cars larger

More importantly, the Government of Canada rail cars are smaller and longer than the rail car type that is typically used by competing producers in the United States. At 4,550 cubic feet, the Canadian government rail cars have 13 per cent less carrying capacity than the 5,200-cubic-foot rail cars used south of the border. And the Canadian rail cars are longer than the contemporary design. This limits the number of rail cars that can be carried by a unit train, and stresses track capacity at port.

Replacing the aging Government of Canada fleet with modern grain rail cars would result in an immediate improvement in the productivity of the Canadian export grain-handling system. In fact, CP has estimated that a more modern fleet of rail cars could increase the capacity of their grain unit trains by over 23 per cent, adding 3.8 million tonnes of additional capacity. If this same approach is extrapolated over the entire fleet of remaining government hopper cars, the increase in system capacity would be over 5.6 million tonnes.

Doing nothing is not an option. So, should the federal government make an investment?

On the surface, a federal investment in grain rail cars would seem to be consistent with the new government’s desire to invest in infrastructure to improve the competitiveness of the Canadian economy, and enhance exports. However, the financial performance of Canada’s railways has improved dramatically since the early 1970s, and a “corporate handout” of this scale is unlikely to be politically popular.

A second option is that the railways themselves should replace the government rail cars. For their part, CP has taken a firm position that it will not be making large investments in grain cars as long as its pricing freedom is constrained by the maximum revenue entitlement (MRE) formula. Plus, the federal government promised the shipping community that grain would be given priority policy attention and hinted that a “full review” of the grain transportation system would follow.

These promises have thrown the cold water of uncertainty onto the grain transportation market, just as the railways are tightening their belts due to the precipitous decline in the commodity markets.

A third option is worth considering. A private-public partnership with one or more private sector partners would permit the government and the railways to facilitate the renewal of the Canadian grain fleet without an undue burden on the public purse, and without needing to wait for resolution of the review of the CTA and any proposed alterations. Suitable partners exist with rail car expertise and capital to invest, but before this model can proceed, the government must first recognize that there is a problem and commit to address it.

Canada’s grain producers deserve a better, more modern supply chain and it is possible to achieve just that through a creative effort between the government and the private sector.

Bruce Burrows is a 30-year veteran of the Canadian transportation and infrastructure sector and an Ottawa-based consultant and lobbyist who has worked in the past for railways.

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“To use a cliché in building the church for Easter Sunday, there’s a reality that it’s a seasonal business and we’re responsive on a seasonal basis to the business,” Steve Whitney, CP Rail’s vice-president of marketing and sales, agribusiness and market development said April 16 at the Canada Grains Council’s 43rd annual meeting in Winnipeg.

“We move more grain at certain times of the year than we do at other times of the year. But we have to be realistic in terms of the overall capabilities of the supply chain to respond to a peak that might be two months.”

Whitney was responding to a question from Cherilyn Nagel, past president of the Western Canadian Wheat Growers Association. Nagel, who farms 10,000 acres with her husband at Mossbank, Sask., said she would prefer to deliver their entire crop off the combine rather than delivering throughout the crop year.

“We’re kind of looking for real good service right off the combine,” Nagel said, asking if CP Rail will add more cars to accommodate it.

“No,” said Whitney, sparking laughter around the room.

“I hear what you’re saying,” he said “We intend to deliver real good service and we are delivering real good service.”

CP Rail has 12,000 grain hopper cars, he added.

“Going out and getting another hopper so I can make that one or two extra trips in one month of the year just isn’t a viable business investment.

“I’m not saying I have to have a hopper car every day, every week, 12 months of the year, but I can’t build to take the entire crop when it comes off the combine.

“We have to make money.”

Agriculture Minister Gerry Ritz said earlier this year when the wheat board’s sale monopoly ends, farmers can deliver all their wheat off the combine.

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In a letter to potential “class” members, Regina lawyer Tony Merchant said the certification hearing in Alberta Court of Queen’s Bench is expected to run over eight days, through to Feb. 10.

Merchant said $675 million, plus interest and further amounts accumulating each year, are “what we believe we can establish are ongoing wrongful charges,” which he said makes the case a “billion-dollar farm issue.”

The claim is filed in the name of Edmonton-area farmer Tom Jackson, a former commissioner with the Alberta Pulse Growers Commission and one-time director candidate for the Canadian Wheat Board, as the suit’s representative plaintiff.

In his brief filed Dec. 30 ahead of the certification hearing, Merchant’s suit alleges that between Aug. 1, 1995 and July 31, 2007, Canadian National and Canadian Pacific railways (CN, CP) “did charge unfair and unreasonable shipping rates” based on “unreasonable” hopper car maintenance costs.

The claim stems from a February 2008 ruling by the Canadian Transportation Agency (CTA) that has since substantially lowered the maximum annual revenue CN and CP are allowed to keep for moving Prairie grain.

The CTA ruling, upheld in November 2008 by the Federal Court of Appeal, found that the railways’ costs for maintenance of grain hopper cars, previously “embedded” in both railways’ federally capped grain freight revenue at $4,379 per car, were in fact $1,371 per car.

Merchant’s claim alleges the railways set tariffs and shipping rates under the maximum rate scales and maximum revenue entitlement allowed to them for handling Prairie grain under the Canada Transportation Act “without regard” to their actual hopper car maintenance costs.

Merchant’s brief estimated the amount allegedly overcharged from 1994 to 2007 at about $1.66 per tonne, for a total of $577 million.

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I feel I have a legitimate right because my share of the cars is still going merrily back and forth, adding load by load to the totality of the revenues collected on behalf of those farmers still actively farming.

Don’t take me wrong. I had the use of my share for roughly a dozen years and am particularly glad that they are still of use to someone else. But maybe there might be a better or fairer approach to the situation as regards to the “lakers.”

First off, let’s make it a fairly equitable business deal where nobody gets to hold the short straw. So one way to do that would be to still use the farmers’ revenue money to buy the vessels as has been proposed – in effect, having the farmers, in this case, be the bankers. What a reversal.

Then, as projected, the grain-hauling tariffs would, supposedly, cover the cost in eight years. Now I think that with the hopper cars that anything earned, as far as I can determine, just went into general revenues and was divided up amongst every producer. But what I am suggesting is that anything taken from an individual producer be recorded, and repaid until he or she is fully compensated.

So you wouldn’t sit at a railway crossing watching a row of hopper cars go by and wonder which one you had a piece of, because you would have been paid out. I’m sure there are more wrinkles that can be thought of but I think this might be a start to an equitable, fair, positive arrangement, that you and your readers might take and run with.

Malcolm Macdonald

Brandon, Man.

Please forward letters to Manitoba Co-operator, 1666 Dublin Ave., Winnipeg, R3H 0H1 or Fax: 204-954-1422 or email: news@fbcpublishing.com (subject: To the editor)

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In a decision announced Feb. 11, the CTA said CN did the best it could in meeting the company’s need for cars in restricted plant facilities in North Battleford.

The pulse crop shipper accused CN of erratic and unreliable delivery of hopper cars that it said constituted “a breach of CN’s level-of-service obligations to WGT.” The poor performance and inadequate communication from the railway about empty car deliveries “makes it difficult for it to plan processing time, to plan incoming grower shipments and to confirm forward sales or purchase contracts.”

WGT’s siding has a maximum capacity of four hoppers to serve two plants. There’s a complicated mix of products and a wide variety of loading times. During the 2007-08 crop year, the company shipped four cars per week but that figure climbed to 16 in the next crop year.

The company is expanding its processing capacity at the plant and considered upgrading its siding until it became frustrated with the rail service.CN

said the shipments from WGT go to trans-loading facilities on the West Coast where the crops are loaded in con-t ainers. They “don’t require the staging or accumulation of product for direct loading into a bulk vessel.”

In its conclusion, the CTA said the company received 86 per cent of the cars it ordered during 2008-09. It also said “that almost one-third of the cars received were not released within the week of placement and that the average dwell time for hopper cars on WGT’s property “exceeded the allowable free time for loading by over 200 per cent during most of the (time it examined)… In this case, WGT has significantly increased its demand for rail cars and there has not been a decrease in CN’s service. In fact, CN offers yard service that provides considerable flexibility.”

WGT generally could not load and release the cars delivered to it, the CTA added.

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