Industry frustration mounts over rail service
Layoffs underline problem that’s put reputation for trade reliability ‘at risk’
It was a bitter I-told-you-so for Saskatchewan’s mining industry last month when, after years of decrying inadequate rail service, 610 potash miners received notice of indefinite layoffs due to an inability to move product by rail.
“This is a direct result of railway challenges experienced so far this year,” Nutrien spokesman Richard Downey said in an email to news media.
Storage at Nutrien’s Vanscoy and Allan mines was full to capacity and potash can’t be stockpiled in the open air due to degradation issues.
Frustration across Saskatchewan’s commodity-based and very highly rail-dependent economy was multiplied by the knowledge that CP Rail workers were about to take a strike vote that could make the problem immeasurably worse for grain producers, miners and the oil industry. (A last-minute agreement between CP and its unions delayed any strike action by three weeks.)
In 2013, Saskatchewan farmers estimated losses at $6.5 billion due to an inability to ship record grain production and since then the provincial government, the Saskatchewan Chamber of Commerce, the Saskatchewan Mining Association and other prominent business groups have carried on a non-stop crusade for improved rail service.
“This isn’t a hundred-year-storm issue,” says Pam Schwann, president of the SMA. “The volume of potash that has been shipped from last year to this year is not really that different.”
Schwann says producers aren’t asking the railways to increase capacity to meet peak demand from all sectors at the same time. What they want is for railways to honour signed shipping agreements, she says.
She points out that potash prices have dropped from $873 per tonne in 2008 to around $230 per tonne in 2018 — and volume matters more as price declines. But, while demand and production have remained relatively constant in recent years, rail access has not.
“Our reputation as a reliable trading partner is really at risk,” she says.
She adds that Saskatchewan’s mining industry has invested some $25 billion in new production capacity in the past 10 years and railways know this. But rather than increasing rail capacity, she says, they’ve sold off some of their assets. “I think they’re just trying to run as lean as they can. I think there are some credibility issues as to why they can’t move the volumes.”
She adds that CN and CP have agreements with the mines to move their output and potash producers have also invested in 5,400 rail cars, plus a rail car maintenance facility, to help ensure rail access.
Saskatchewan is perhaps the ultimate commodity producer, as the latest Rail Access Report from the provincial chamber of commerce makes clear.
The province has a small population (about 1.12 million people) and a very large resource base. It’s a world-leading producer of potash, uranium and high-quality grains that all demand major rail space, along with growing volumes of oil pushed onto railways by political battles over pipeline construction.
Saskatchewan is also a very long way from low-cost, oceangoing transportation. Moreover, the province’s products, with the exception of uranium, have low value-to-weight ratios that make trucking too expensive.
Like all commodities, Saskatchewan’s products are subject to netback pricing that subtracts shipping costs from ‘netbacks’ received by producers.
“We’re commodity-based and landlocked. We’re the most tradereliant of any province in Canada and our access to transportation is challenged,” says Steve McLellan, chief executive officer of the Saskatchewan Chamber of Commerce.
McLellan says transport challenges include locomotive availability, railway manpower and scheduling of trains to achieve maximum freight movements. He says shipping crunches usually come in late winter as fall crops are moving to market and fertilizer demand increases for the spring seeding season. It’s also when mountain avalanches make the train route to the Pacific coast most unreliable.
The Mining Association of Canada and other industry groups denounced what they called Ottawa’s failure to sufficiently beef up Bill C-49, the Transportation Modernization Act, to include:
Power for the Canada Transportation
■ Agency to investigate rail issues on its own initiative; and
Requirements for CP Rail and
■
Canadian National Railway to provide greater data transparency in final offer arbitration between the railways and their shippers.
“The government has failed to modernize the Canada Transportation Act in a way that balances the interests of shippers and railways,” Mining Association of Canada president Pierre Gratton said in an April 30 press release.
Federal Transportation Minister Marc Garneau had earlier told an Edmonton business luncheon that C-49 is intended to be fair for investors in both railways and freight-reliant companies. He said C-49 would require railways to provide data on rates, services and performance and enable shippers to demand penalties for poor performance.
In response to questions, CP media relations manager Andy Cummings said: “CP continues to work closely with our potash customers, delivering record levels of potash exports in the first quarter. We expect strong demand to continue through the remainder of the year and look forward to delivering for our customers.”
The government has failed to modernize the Canada Transportation Act in a way that balances the interests of shippers and railways.
PIERRE GRATTON, president, Mining Association of Canada