A Canadian train wreck
Angry farm groups, apologetic railway executives and shippers looking for leverage are the voices of this year’s grain backlog. The crisis began in mid- February, when an extreme cold settled over the Canadian West. Deep colds force trains to run shorter and slower, with three times as many operators. Adding to the problem, Western grain producers harvested one of the biggest crops in the country’s history, creating a surge in demand for rail shipments.
Farmers are now “struggling to pay their bills because their grain isn’t moving,” Saskatchewan premier Scott Moe complained Friday. CN has fired its president and repeatedly apologized for the delays and is mobilizing more cars and new crews “so farmers and grain companies can get their product to market,” said Sean Finn, CN’s execut i ve vice- president, l ast week.
Mining, chemical and forest producers appear to be seeking to benefit from the farmers’ woes. Despite paying some of the world’s lowest shipping rates, they’re using the crisis to ask Ottawa to establish cost- based railway rates for their industries, which would turn the clock back to the 1950s when the government, not the market, set shipping rates. Bill C- 49, the Transportation Modernization Act currently making its way through the Senate, disallows market rates for grain, house-cleans some irritants and introduces a cumbersome new set of shipper protection, known as long-haul interswitching.
The focus, as the crisis begins to bite, should remain on Canadian farmers: They require a secure cash flow to repay loans and purchase seed and fertilizer for the new crop year. What they need from Ottawa, however, is not a repeat of the Harper government’s parochial response to a similar crisis in the winter of 2013–14.
Then, Ottawa brought in regulations mandating grain volume thresholds, with shipments to take effect once the weather improved. The regulation, prioritizing Canadian grain movement over all commodities, was not only unnecessary given the ample incentive to ship grain, it also caused widespread harm to other commodity producers; even farmers were harmed in unanticipated ways. Fertilizer shipments stalled, for example. And U. S. shipments were similarly not prioritized, so Canada’s oat industry, which ships the bulk of its product to the U. S., took a major hit, causing American millers to buy oats from Sweden instead.
While some claim that Canada’s international reputation is suffering from this winter’s logjams, an obscure law is causing far more problems. The so- called “maximum revenue entitlement (MRE),” introduced in 2000, regulates rates for grain. Incentives, penalties, rail car auctions and other tools that spur efficiencies in market systems are absent from the Canadian system, weakening the supply chain.
Its l ack of i nvestment spur has led to a Prairie stalemate: The government, grain companies and railways are each refusing to lease or buy the new grain cars the system requires to reduce traffic snarls. Each seems to be waiting f or “someone to make the first move,” says Allison Ammeter, former chair of the Alberta Pulse Growers. The current fleet is “duct- taped together and on ( its) last legs,” says Steven Pratte, policy director with the Canadian Canola Growers, a national producers group. The Western Producer, a trade journal, reports an eightfold jump in the number of government cars pulled from service for repairs. The institutional problems and bad press, which are all well known internationally, are causing the country real reputational damage.
The MRE, meanwhile, deters shipments from moving through U. S. ports, which could provide a competitive choice to farmers and relief to current capacity problems, especially since Thunder Bay, Ont.’s port — Canada’s second busiest — closes for five months every winter. Instead, the MRE controls farmers’ access to the market, all the while risking over- capitalizing Canada’s railways. CN and CP, with over 20,000 kilometres of U. S. track, engines and rolling stock, are North American operators. Each enjoys significant access to U. S. ports.
While Thunder Bay’s annual winter closure significantly reduces grain supplychain capacity, Vancouver’s port, the country’s busiest, is severely congested. The global trade bi- weekly, the Journal of Commerce, has questioned why Canadian grain doesn’t ship through U. S. ports, the route f avoured by Saskatchewan potash, for example. CN already has access to three U.S. ports; and it’s a major carrier into St. Louis, Mo., where 10 to 12 big trains are unloaded daily.
Shipping within Canada is challenging. Prairie export grain mostly moves west, an uphill route, beginning in Winnipeg. In Alberta and B.C., the path traverses a wall of mountains. Grades can reach 2.2 per cent. ( At that grade, the locomotive and four kilometres of cars trailing it, drop two feet for every 100 feet forward.) And in parts of B.C., the CN and CP single track clings to steep riverbanks, making adjacent track sidings impossible. Disruptions can cause delays lasting weeks, according to Oliver Wyman, a New Yorkbased global consultancy, in its recent review of the Canadian rail system.
Grain farmers need a lasting solution. The MRE was only supposed to last five years. Scrapping it could bring the stability railways need to spur investment, especially since Bill C- 49 is bound to create more slowdowns in the supply chain at a time when global purchasers have begun distancing themselves from North American grains.