NFU Response to CTA Questions on Western grain transportation

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Response to Canadian Transportation Agency’s Fact Finding Questions for Stakeholders
for advice to the Minister of Transport on the movement of Western grain by rail.
 
June 20, 2014

The Canadian Transportation Agency (CTA) has been tasked with providing preliminary, timely, confidential advice to the Minister of Transport on the question of the movement of Western grain by rail. To that end, the Agency is gathering specific information and taking into account a number of factors, including:

  • the anticipated rail transportation demand by corridor for western grain;
  • the capacity of both CN and CP, as well as the grain handling system, to transport grain by corridor; and
  • the common carrier obligations of CN and CP.

The CTA prepared questions for two distinct groups:the owners and operators of the grain handling undertakings; and, CN and CP. For each, key and supplemental questions were identified. The CTA also invited other stakeholders with an interest in the matter to provide information and comment on these questions and to address other that they feel are relevant.

The National Farmers Union (NFU) is a direct-membership voluntary organization made up of Canadian farm families who share common goals. NFU members believe that the problems facing farmers are common problems, and that farmers producing diverse products must work together to advance effective solutions. The NFU works toward the development of economic and social policies that will maintain the family farm as the primary food-producing unit in Canada. The NFU has been actively involved in grain transportation policy matters for more than four decades. The organization is pleased to provide responses to the questionnaire circulated to stakeholders.

First, some comment on the design of the questionnaire.

Farmers should have been considered a priority group for this consultation and not lumped into the “other stakeholder” category. We are the ones that produce the grain and depend on the transportation system to convert our year’s work into our annual income. The CTA’s mandate includes making sure that the transportation system is accessible to all persons – including farmers. The wealth we produce on our farms is foundation of the agricultural economy. Assuming commercial interests will look out for the interests of farmers is a mistake.

Canada’s export customers and domestic end-users should also have been explicitly included in this fact-finding process. To understand the transportation problems, CTA should learn how much end-use purchasers (not just grain traders) would be willing to pay for the grain, when they would like to receive the delivery and what quality grain would they like, for example. The railway system links the sellers and the buyers. Buyers’ decisions are an integral part of the transportation equation.

 

PART 1: QUESTIONS TO THE OWNERS AND OPERATORS OF GRAIN HANDLING UNDERTAKINGS

Key questions

1. Do you see a continued need for the Government of Canada (Government) to set minimum volume requirements for the movement of western grain by rail? Why?

Yes. Grain is a captive shipper and without regulatory requirements to ship grain the railroads will move non-captive commodities first. Non-captive commodities are those that can be shipped by truck or air freight instead.

Grain transportation has always been regulated because the unregulated behaviour of railway oligopolies is contrary to the public interest.

Farmers are not recognized as shippers under Bill C-30, yet it is farmers who pay the price of transportation problems. Railways continue to charge freight rates, and grain companies transfer the costs of storage plus demurrage -- and then some – to farmers in the form of wide basis (the difference between the published futures price and the price paid to the farmer at the country elevator).

 A central authority, in conjunction with the Canadian Grain Commission, is needed to balance the power between the thousands of individual farmers who rely on the grain transportation system versus the railway duopoly and the multinational grain companies that dominate the grain trade in Western Canada. It is important to recognize that the large grain companies also do business in other countries such as Australia, USA, Argentina, Ukraine, etc. and can obtain supplies elsewhere when Canadian grain is not moving.

The single desk Canadian Wheat Board (CWB) provided an effective counterweight to the railway duopoly because it controlled the flow of wheat, durum and barley through the grain transportation system; the CWB’s orderly marketing of wheat provided the framework in which canola, peas, flax and other non-Board grains could also be moved efficiently. The abrupt end to the CWB resulted in a gap – or, we should say, a chasm – in the grain transportation logistics system. The federal government made a unilateral decision to end the CWB’s authority; thus it must take responsibility for creating an alternative central logistics agency, albeit, without the marketing authority of the CWB, such an agency will only be able to manage part of the problem.

The need for market intelligence for the smooth running of the grain transportation system, as evidenced by questions 9 to 12, indicates that the loss of the CWB’s role in marketing Canada’s wheat, durum and barley for export and domestic human consumption has had extremely damaging consequences for farmers, rural communities, export customers, domestic food processors, western farm-related businesses and the Canadian economy as a whole.

Without a central authority regulating grain movement, railroads and grain companies will behave in a self-interested manner – indeed they have a common incentive to underperform and thereby obtain a greater share of the wealth produced on prairie farms by charging excessive rates to farmers. To date, rail companies have borne the brunt of negative public opinion while grain companies have quietly gained unprecedented profits by exploiting the system failure.

2. Are the current levels established by Order in Council (OIC) a good starting point for the establishment of possible minimum levels going forward? If yes or no, why?

The current minimum levels are not adequate, as can be seen by the disproportionate difference between prairie grain prices and grain prices at port. If grain was moving efficiently prairie grain prices would be at minimum the port values less total handling and transportation costs. Today the gap between country elevator prices and tidewater prices is wider, indicating that railroad companies and/or grain companies are capitalizing on the system’s inefficiency.

Grain companies are free to use their power to collect excessive rent from farmers in the form of wide basis, beyond the costs they incur for elevation, storage and demurrage, which translates into excessive price discounts at the country elevators (See Figure 1). 

Source: Policy Options to Reduce Basis Levels, by Richard Gray, University of Saskatchewan www.grainsummit2014.caRailways are taking advantage of all the room they have under the revenue cap by charging high rates and minimizing their costs by providing limited service in the least expensive corridors, thus maximizing their margins.

In addition to minimum volume, there must also be measures to ensure that transport is equitable across the whole grain-growing area and that transportation logistics are coordinated from country elevator to port of export, including vessels.

3. The Government has ordered CN and CP to each move 500,000 metric tonnes (MT) of grain per week until August 3, 2014. Based on Stats Canada's Seeding Intentions Survey, Agriculture and Agri-Food Canada (AAFC) is currently forecasting 2014-2015 grain production of about 60 million metric tonnes (MMT) of Schedule II grains in western Canada, as compared to 76 MMT in the 2013-2014 crop year. Estimates of the carry-out at the end of this crop year might be in the range of 18-20 MMT. Total grain supply available for the 2014-2015 crop year is estimated to be 78-80 MMT. Does this grain supply forecast seem reasonable for the Agency to develop a base scenario for rail transportation demand, recognizing that some of the grain supply will not require rail transportation (local feed, processing and seed) and some will be left as carry-out for the next crop year?

The Statistics Canada Seeding Intentions Survey is not capable of doing the job required. We know this from 2013-14 crop year when the Survey’s predictions proved so wrong.

The CTA needs a single forecasting organization that it can hold accountable for forward volume forecasts. The CTA, or an agency established under its authority, could provide that service through mandatory collection of forward grain contracts. The logistics coordination authority needs to have a valid interface with the marketing system, as was the situation under the single desk CWB. The Agency must step into the role of monitoring the grain trade’s sales volumes and prices, which in turn the CTA can use to set the precise levels of service required for each corridor in order to ensure efficient transportation and fair prices to farmers.

4. What level of carry-out stock at the end of the 2014-2015 crop year should the grain handling and transportation system be aiming for? On what basis are you establishing that objective? Does the grain handling system have the capacity to achieve that desired carry-out at the end of the 2014-2015 crop year? If the crop size were to be significantly larger or smaller than currently expected, how would this affect your assessment of the level of carry-out stock at the end of the 2014-2015 crop that the grain handling system should be aiming for?

The question of carry-out levels is a matter of public interest for Canada and should not be left to private grain companies seeking their own benefit.

The single publicly accountable forecasting service as outlined in 3 above should set enforceable targets for carry-out stock.  Minimizing the price spread between port and farm gate needs to be central in the final decision-making mechanism for this Agency.  Price spreads above the cost of movement indicate inadequate aggregate service and an uncompetitive level of service level. Actual sales prices and not futures markets are required, since futures markets are often distorted by factors that have nothing to do with the actual value of commodities.

5. What is your estimate of the maximum sustainable amount of grain that your company would like to move on a corridor by corridor basis for the 2014-2015 crop year? On what basis have you established that maximum sustainable level? What specific operational conditions (e.g. sequencing of unloads, communications protocol, etc.) would railway companies need to meet for that estimated maximum sustainable capacity to be achieved? Are these conditions currently met? If these conditions were not to be met, what effect would this have on your estimated capacity to handle grain?

The question of corridor by corridor service levels is a matter of public interest for Canada and should not be left to private grain companies seeking their own benefit. The guiding principle should be equitable treatment of farmers in all growing areas, with the principle of generally distance-related rates prevailing.

Using available CGC data, it is clear that in the 2013-14 crop year shipping has been skewed, with Alberta and BC gaining greater access to Pacific terminals than Saskatchewan and Manitoba while Manitoba has gained slightly greater access to Thunder Bay once it opened. If this pattern is allowed to continue, grain farming in Saskatchewan will decline as it becomes less and less viable.

Over the past five crop years Saskatchewan accounted for approximately 40% of both the wheat and canola shipped from prairie elevators; Alberta’s share was just a bit less, between 35 ad 40%. Manitoba’s share has been in the neighbourhood of 20% for wheat and a bit less for canola. BC accounts for approximately 1% of both crops (Figure 4).

If the transportation system was serving all areas of the prairies equitably in 2013-14 we should see these percentages reflected in the weekly statistics. However, when the weekly differences between percent share of shipments and the 5-year average for each province is compared, we can see that BC and Alberta have had better access to canola transportation than Saskatchewan and Manitoba (Figure 2) and Alberta has delivered a larger than average proportion of wheat shipped (Figure 3).

In Figures 2 and 3, the coloured lines represent the difference between the 5-year average % of canola shipped from each province and the weekly % of canola shipped in the 2013-14 crop year. The solid lines are linear trend lines.

The single publicly accountable forecasting service as outlined in Question 3 above should set enforceable targets for corridor by corridor movement.  Minimizing the price spread between port and farm needs to be central in the final decision-making mechanism for this Agency.  Price spreads above the cost of movement indicate inadequate aggregate service and an uncompetitive level of service level. Actual sales prices and not futures markets are required, since futures markets are often distorted by factors that have nothing to do with the actual value of commodities.

 

6. What is your estimate of the maximum sustainable capacity of the grain handling system by port destination? Has this estimate been achieved in the past? Has it been achieved consistently on a weekly or monthly basis, taking into account winter constraints such as port shutdowns? If not, why?

The question of capacity of the grain handling system by port destination is a matter of public interest for Canada. The maximum sustainable capacity is a vague concept, as we do not know how “sustainable” is being defined. In the 2013-14 crop year port terminal capacity frequently went unused while vessels waited in the harbour. Lack of coordination among terminal companies may well be at the root of this inefficiency, as each company sought to maximize its own private benefit at the expense of the greater good – that being efficient movement of grain from country elevator to waiting vessel. This failure shows that port terminal capacity was under-utilized, and thus defining maximum sustainable capacity should not be left to private grain companies seeking their own benefit.

The single publicly accountable forecasting service as outlined in Question 3 above should set enforceable targets for port terminal throughput.  Minimizing the price spread between port and farm needs to be central in the final decision making mechanism for this Agency.  Price spreads above the cost of movement indicate inadequate aggregate service and an uncompetitive level of service level. Actual sales prices and not futures markets are required, since futures markets are often distorted by factors that have nothing to do with the actual value of commodities.

7. The Agency has been asked to provide the Minister with advice on a monthly basis. Would expected traffic demand in other corridors (e.g. U.S. and Eastern Canada) in the winter months be sufficient to compensate for the shutdown at Churchill and Thunder Bay? What is a reasonable amount of traffic to expect railway companies to maintain during the months when the ports at Thunder Bay and Churchill are closed?

A uniform volume moved in each month of the year is not as important as making sure that grain moves smoothly and efficiently when it does move and that sufficient capacity exists and there is certainty that it will be used to move the whole crop in a timely fashion. The crisis that developed this year not only caused unnecessary economic losses but also took a steep human toll, as many farmers feared they would not be able to sell a single bushel while knowing that loans needed to be repaid and the cost of seeding next year’s crop loomed.

Plugged elevators, delays in car spotting, bottlenecks and demurrage are being used to justify and enforce wide basis, depressing prices at the country elevators and reducing farmer incomes. Well-planned and coordinated grain movement will minimize basis. The difference between the price grain sells at port and the price farmers are paid at the country elevator should never exceed the cost of elevation and transportation. When/if it does, that indicates inefficiency in the system and that non-farmers (railways, grain companies and financial institutions) are obtaining unearned income at the expense of farmers.

8. What is your organization's assessment of service since minimum volume targets have been set for the railway companies? Have you noted an improvement in the delivery of cars since the OIC has been in place? Have the minimum volume requirements resulted in unintended effects? Have you experienced difficulty receiving the cars you ordered or turning around the cars received? Are there issues or concerns regarding the railway companies' compliance with the targets? What percentage of car orders has been filled? How often are fewer cars spotted than were originally ordered? Have difficulties occurred obtaining cars for certain grains or to service certain corridors? If so, which ones?

Farmers are reporting highly inequitable treatment by grain companies, with delivery opportunities being offered or denied to farmers on the basis of other commercial relationships. For example, a farmer who purchases inputs from the grain company will be allowed to deliver first. A farmer who had financed purchases and still owed money was given precedence over farmers who obtained credit elsewhere. The crisis in grain transportation has been used to discipline farmers into using grain companies for other purchases, which leads increasingly to a “company store” mentality, unduly consolidating the power of these global corporations.
 

Supplemental questions

Transportation demand – crop supply & sales

9. Given an expected crop of 60 MMT and an expected 2013-2014 carry-out of about 18-20 MMT, what are your firm and projected (unconstrained and constrained) 2014-2015 sales forecasts for the various transportation corridors by month, assuming that the following number of cars could be offered for the movement of grain by both CN and CP:

a. The number of car unloads you currently receive per week from each of CN and CP.
b. 10% less than the number of cars being unloaded now;
c. 10% more than the number of being unloaded now;
d. 20% more than the number of cars being unloaded now;
e. 30% more than the number of cars being unloaded now;
f. Unconstrained number of cars being unloaded per week (if different from any of the above).

The current number of weekly unloads should be based on the recent past (e.g. most recent month).

When the single-desk CWB looked after sales, it was able to predict and draw grain according to sales. The information gathering required now is the direct result of ending the CWB’s single desk authority in 2012.

10. If the sum of the expected unconstrained sale forecasts by individual grain shippers exceeds the expected crop to be moved by rail, do you have any suggestions as to how to reconcile the various forecasts?

It is essential that the market shares of producer cars, dealer cars, small grain companies and farmer-owned terminals are protected and that all train runs get equitable service within the ongoing aggregate service level.

It is well-accepted that a high level of concentration of ownership within a sector is undesirable. The four-firm concentration ratio (CR4) (percentage of market share held by the four largest firms in an industry) is a standard economic measure. A CR4 above 50% indicates oligopolistic conditions, and above 80%, a monopolistic situation. Today, the CR4 in Canada’s grain trade is at least 70% and the top three companies, Richardson, Viterra and Cargill, own 60% of Canada’s grain terminal capacity and 59% of the prairie elevator capacity, according to Canadian Grain Commission statistics.

Regulation of the grain transportation system can be used to counteract the trend toward monopoly and resulting non-competitive market behaviour by privileging service to smaller companies when a limited grain supply needs to be apportioned.

The apportionment problem requires accurate data on crop volume projections as well as honest disclosure of projected sales before rail service can be allocated. The most difficult barrier to overcome is likely to be accuracy of sales data, as companies will not want to make that information public, and even if it is kept confidential, there is an incentive for them to inflate their predictions to secure a larger share of transportation services.

To address this problem, the CTA should have the authority to allocate rail service, and should develop a formula for doing so based on the principles of promoting equity/discouraging concentration and on disciplining companies that seek more than their fair share. Such a formula would seek to move the highest percentage of projected sales for the smallest companies. Because the largest companies have such high volumes comparatively, reducing their relative share by a few percentage points would provide enough volume for smaller companies to obtain enough grain to continue operating in tight years. The formula could also be balanced each year by comparing actual sales records to projected sales submitted. Those companies that over-estimated sales to obtain a higher service level in year one would be disciplined in year two by having their allocation reduced by double the proportion they over-estimated. If they continued to over-estimate, their allocations would be reduced at an increasing rate in subsequent years, and in addition, they would be fined. A farmer-elected body could be responsible for disbursing any fine revenues to fund suitable initiatives that would promote better service at lower costs to the primary producer.

11. Are there any practical limits to the amount of western Canadian grain that can be sold in the coming crop year if the grain handling and transportation is not a constraint (e.g. could a much larger percentage of the crop be sold on the West Coast over a shorter time period)? What is the seasonality of the sales and how dependent are sales on the seasonal capacities of the railway companies or grain handlers? How far out are sales/delivery dates typically confirmed?

For this information we would suggest the CTA refer to the records and experience of the single desk CWB, which was highly successful in marketing Canadian grain and in managing logistics so that grain was delivered to exporters and domestic processors on time. The ability of the single desk CWB to manage logistics maximized the transportation infrastructure’s capacity, allowing more grain to be moved more quickly. Today, without the single-desk CWB both grain companies and railroads are faced with investing more capital and paying higher storage and handling costs due to the inefficiencies created by self-interested companies seeking their own advantage at the expense of both farmers and the larger public interest.

12. Do you anticipate significant structural changes in the demand for transportation, i.e. a change in the relative use of corridors? If so, when and where?

This is very much a moving target – the outcomes will be affected by government policy decisions as well as corporate behaviour.

If the 2013-14 situation is the beginning of a trend and not an aberration there will be very significant structural changes in prairie agriculture. Perhaps farmers will quit producing grain in areas of Canada poorly served by the transportation system. If grain transportation is not regulated, slight changes in relative freight rates between commodities (oil vs grain, potash vs grain, iron ore vs grain, etc.) will affect access to service for farmers and increase volatility within the agricultural economy. Currency rate fluctuations would have similar negative effects in an unregulated grain transportation environment. Canada’s grain economy developed within specific conditions shaped by policy and public institutions – without these structures we may end up with very little viable grain production. It is worth remembering that the state of Iowa’s annual corn crop (47 M t in 2013)[1] alone is larger than Western Canada’s combined wheat (35 M t) and barley (9.5 M t)[2] production.

The principle of maintaining generally distance-related rates – that is, that freight rates at points closer to the destination should be less than those at more distant points – should be upheld. This principle prevents railways from using differential rates to restructure the grain transportation system unilaterally and ensures that farmers in all grain producing areas will continue to have access to service.

Rail car and power allocation

13. Currently when car orders exceed the railway company's capacity, railway companies have indicated that they are allocating existing capacity based on historical market share. Some stakeholders have indicated that this is unfair as it restricts a company's ability to increase its sales in response to marketing opportunities. Given that the rail system in Canada is constrained, at least in the short term, is there a better approach to car allocation, recognizing any capacity limitations that might exist?

The CTA should develop a formula for allocating cars based on the principles of promoting equity/discouraging concentration similar to what is proposed in Question 10 above. Allocation according to the formula needs to be monitored and enforced with meaningful penalties if railways fail to comply.

14. Should the Minister consider giving railway companies guidance on how the minimum volume requirements are to be met (e.g. by corridor; commodity type; distribution of the movement in a normal pattern; specific targets for certain groups like smaller farmer-owned grain terminals, small-lot markets, short-lines, areas outside interswitching catchment areas; etc.)? Why? If yes, what guidance? What impact would this have on the overall system capacity and efficiency?

Yes, each corridor should have enforceable targets; service to producer cars, smaller farmer-owned grain terminals, small-lot markets, short-lines, and areas outside interswitching catchment areas should have priority. By giving these shippers precedence the CTA can promote greater equity and diversity within the grain system. 

15. How should interswitched traffic be recognized for the purpose of establishing and monitoring compliance with minimum volume requirements?

Interswitched traffic should be counted by crediting the percentage of loaded miles carried by each railway to that carrier.  When interswitching is used by a shortline railroad the mainline carrier should be given double credit for those loaded miles.

16. Should the common carrier obligations of rail carriers to shippers of other commodities affect the establishment of minimum volume requirements, and, if so, how?

No. Railroads have a public duty to serve all, so it is their problem to figure out how to do that. Common carrier obligations should not be tampered with!

Surge capacity/dealing with increased demand

17. Given that it is possible based on past demand to plot a trend line and establish an expectation for future demand, how much surge capacity above that trend line should railway companies (grain companies) be expected to be able to offer immediately, with respect to rail car carrying capacity (terminal and elevator capacity)? With respect to crew/tractive power? To what extent and how quickly should railway companies (grain companies) be expected to increase capacity to respond to a demand surge that exceeds that allowance?

Transportation requirements are linked to many other factors including weather, climate change, commodity price fluctuations, agricultural practices, cost of production, export-related policy, currency rate fluctuations,  etc., all of which affect both the types of crops produced and the volume of each as well as the destination markets. A dynamic system that can take into account the various factors and prepare the grain logistical system to manage the inevitable annual variations is required.

The grain transportation system needs the ability to anticipate and prepare, as well as flexibility to respond to the unexpected. The system requires built-in redundancy so that these variations in demand/need can be met. A “just in time” system that is designed to be ultra-lean will soon become an “always late” system, particularly for captive commodities such as grain. If railroads are allowed to choose between moving grain or moving another commodity that could be trucked instead, the grain will always wait, so the CTA needs to make sure that in addition to requiring railroads to build in surge capacity there are mechanisms to compel service during peak periods. The intensity of peak requirements can be reduced through planning and cooperation among grain companies as outlined in our responses to Questions 20 and 25.

Climate change is altering global hydrological cycles. This will have an impact on seeded acres, yields and crop rotations. It will also have an impact on railroad capacity because infrastructure will increasingly be affected by flooding and saturated soils. It is important for railways to build in excess capacity to deal with the increase in these kinds of problems. This is part of the railways’ statutory common carrier obligations.

18. Would increased purchases/lease of hopper cars by shippers assist grain companies in increasing grain sales or improve rail capacity or improve the efficiency of the system in general? Are you considering the acquisition of hopper or tank cars in 2014-2015?

To answer this question an inventory of hopper cars, including their condition, may be required. Maintenance and renewal of the hopper car fleet should be an ongoing process and the responsibility of fleet owners.

An assessment of car turnaround time may also be required. There are reports that an undue number of cars were used for grain storage at Vancouver in 2013-14 while the terminal in question gave container shipments priority. This practice should be investigated. Car pooling as outlined in Question 25 would allow for more efficient use of the existing fleet.

There are also unconfirmed reports that grain cars were being used to ship fracking sand during the winter of 2013-14. If this has been happening, it should be stopped.

If new hopper cars are required, a Crown Corporation should be tasked with supplying and leasing the cars with priority given to short lines that serve producer car loading sites. As an alternative, we recall that a great deal of work was done on turning federal hopper cars over to farmers with the Farmer Rail Car Coalition, giving them a stake in the transportation system. This model could be revived.

Impact of weather and other disruptions

19. Should disruptive factors such as weather, strikes, avalanches, etc. be considered when establishing minimum volume requirements? Should railway companies be expected to have the necessary resources to perform in winter at the same capacity as in the summer? Should there be distinct minimum volume requirements in the winter months to adjust for the seasonality of the ports at Thunder Bay and Churchill and other constraining factors?

No. The CTA should review the level of shipping during winter months in other years and for other commodities this year and in the past. Was there a disproportionate decline in service for grain? Prairie grain is harvested in the fall and thus adequate winter movement is required to make sure that country elevators are served quickly to allow farmers to clear their on-farm storage in time for the next year’s harvest and reduce the risk of waste due to spoilage.

Railways have been dealing with avalanche risk for over 100 years and have invested in tools to predict them and prevent lost time. With climate change the frequency of avalanches may change, but this is a risk that will affect all rail traffic through the mountains, not just grain. The railways need to plan ways to deal with the problem. It is not fair to ask farmers to carry this risk when they have zero power to do anything about it.

Terminal capacity and through-put

20. What are the limitations for the port terminals? What factors contribute to these limitations? How does the structure of the demand affect car cycle times?

Cooperation between companies at port could be used to promote expeditious shipments. Our standardized grading system provides the opportunity for partially filling ships from two or more companies, depending on which had the grain of specification in store at the port. An exchange system among terminals could rebalance the totals for participating companies. This practice would benefit all  -- including the companies -- by facilitating more timely delivery of the grain to the end user or purchaser.

21. In what way are the segregation practices of grain companies affecting the efficiency of the grain handling and transportation system? Are the logistical demands on the system changing as a result of grain segregation practices?

See question 25

22. What is your view about the capacity of CN and CP to move grain traffic through Vancouver, bearing in mind the needs of other commodities?

Knowing grain is captive to rail transportation, CN and CP had no incentive to significantly increase locomotive or car capacity to move this year’s large crop quickly. The fact that demurrage was incurred and ships were kept waiting for extended periods indicates that terminals lacked grain supplies. Increased locomotive power and crews could have addressed this problem. Railways do make a profit moving grain -- but they can make higher profits by minimizing resources and reducing costs involved. They have been capturing excess revenues by industry standards for years so it is reasonable to expect them to provide timely grain shipping service by employing the required labour and capital to get the job done.

23. Do grain companies co-ordinate the scheduling of ships arriving at port for loading? If so, describe the mechanisms in place.

Before 2012, the CWB looked after coordination of vessels and terminals and often was so efficient that the CWB collected despatch and returned the resulting gains  to farmers. Now we have no way of knowing when ships are ordered or whether grain companies are coordinating among themselves. Cooperative coordination would be helpful, however.

Other relevant factors

24. Are there factors other than rail movements that are affecting the ability of shippers/producers to get the record 2013-2014 grain crop to market? Are these factors unique to this year or are they likely to be factors in the future?

Although 2013-14 is a record crop, the previous year was also a large crop that got to market without the logistical problems experienced this year. Clearly railways believed they could delay grain transportation with impunity because they know that farmers are captive to them. Grain companies may not have pushed for better service from the railways because the bottleneck allowed them to maximize basis levels and thus their profits at the expense of farmers.

25. Are there any measures that the various grain handling and transportation logistic partners can take to improve capacity and efficiency in the grain transportation and handling system?

One significant measure could be a return to car pooling. We have standardized grading system here in Canada and for high volume crops such as wheat. One company’s #1 CWRS 13.5 protein should be the same as the other’s and, therefore, when the cars arrive at port they should be unloaded wherever there is space. This would improve car cycle times and if a company is plugged with that grade of grain it should not be left in cars waiting for unload. It should be relatively simple to track unloads by company of origin and rebalance with subsequent trainloads as space becomes available. This would also reduce demurrage costs charged to grain companies but borne by farmers.

Interswitching

The NFU would also like to comment on the interswitching regulations, as the amendments to the Canada Transportation Act enacted through Bill C-30 enable the Minister to create regulations that change the distance allowed for interswitching and to have different distances apply to different commodities.

A key element in maintaining equity and diversity in the grain and rail system is the successful operation of short line railways. Short lines serve producer cars and other small shippers. They are locally owned and thus create valuable economic activity in their regions, and must provide excellent service to their customers to stay in business. Short lines depend on interswitching to obtain access to export markets. The NFU recommends that the CTA have an in-depth consultation with the short line companies and farmers to develop a regulatory environment that will ensure the short lines can thrive as an integral part of the grain transportation system.

Short line railways must have fair inter-switching contracts to provide service to producer car shippers along branch lines. If there is an impasse in negotiating such contracts, the CTA should provide an arbitration mechanism to ensure that effective, reasonable, economically viable inter-switching contracts are in place such that all shippers within the inter-switching region may be served by all available railway companies.

In some cases, short lines have had to accept contract language when purchasing track from one railway that prohibit using nearby tracks that belong to another railway. While not precisely an interswitching matter, such clauses promote anti-competitive behaviour by the mainline railways. The CTA should consider using its authority to remove and prohibit such conditions on sales in the interest of providing better service to shippers and supporting the viability of short lines.

Common Carrier Obligations

Finally, the NFU would like to emphasise, as other shippers have, that the common carrier obligations are a critical part of the Canadian rail system and need to be maintained.

 

All of which is respectfully submitted by the National Farmers Union, June 20, 2014

 



[1] Crop Production 2013 Summary (January 2014) USDA, National Agricultural Statistics Service

 

[2] Statistics Canada, Table 001-00101, 31 - Estimated areas, yield, production and average farm price of principal field crops, in metric units

 
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