"If the Railway Wins, We Are All Finished"

April 30, 2007
 
Most farmers are too busy this time of year to pay much attention to the level-of-service complaint an Alberta-based grain company has levelled against CN. Me too. But a chance remark by a friend shook me out of my preoccupation with pre-working and cost me a few sleepless hours.
 
My friend was travelling to a meeting with a former CN executive. While no longer in the railway's employ, this person remains a careful observer of the industry. They were discussing the Great Northern Grain complaint to the Canadian Transportation Agency when the former CN staffer declared that if the Agency rules against GNG, then "we are all finished". It was a startling remark from someone who a few years ago would have defended the railway to the hilt.
 
But, it is likely true. Mind you, it may be true even if the Agency rules in favor of GNG and the myriad of small grain companies, farm lobby groups and the CWB, which are supporting its complaint. This is because the Agency's rulings have few teeth, and the railways can selectively choose to follow the parts they want and ignore the rest. (The railways and Agency would deny this, but the Naber Seeds cases from 1998, 2000 and 2001 illustrate it well. Naber won the first level-of-service complaint but had to launch a second and third to get the railway to provide the service it was ordered to provide after the first case. Naber Seeds subsequently went bankrupt.)
 
GNG's complaint hinges on the continuing evolution of CN's car allocation policy. Prior to 2000, railway allocation of grain cars was largely governed by a policy arrived at jointly by the grain companies, CWB and railways. However, in 2000, the railways unilaterally declared they would set up their own car allocation mechanisms, and the industry could like it or lump it.  Like the incentive rates that came before, the car allocation policies put in place by the railways were designed to serve railway interests. Chief among these is the railways' desire to source grain in the largest possible car blocks from the smallest possible number of origins.
 
The railways have made slow but steady progress toward this goal. Grain delivery points have gone from thousands a couple decades ago to a few hundred today. Clearly though, the railways are not yet content. Incentive rates were withdrawn from 25 car spots several years ago. The incentive for a 50 car spot has gone down while the value of loading 100 or more cars in a single day has risen. As well, it is no longer enough to just load a train of 100 cars. CN gives the greatest breaks to elevators that can do so for 42 consecutive weeks.  Rumors in the grain industry are that the incentive rate spread between 50 and 100 car spots will continue to rise, from the current $3 and $7 to $2 and $8.
 
These moves have a clear end in mind. Small shippers like special crops processors, producer car facilities, single point grain companies and even the smaller of the line companies will be at an economic disadvantage in two ways. First, they will be unable to get enough cars to handle the business they could otherwise do. Second, they will pay more for the cars they get than the biggest shippers, putting them at a competitive disadvantage and thereby reducing their viability.
 
Eventually, the railways will be left with exactly what they want - a few very large shippers. Farmers are left with longer truck hauls, less competition in the grain handling system, failed processing ventures and thinner wallets.
 
In response to GNG's complaint, CN claims the Agency has no right to interfere in its car allocation policies. The Agency lost this right in 1987, says CN, when changes to the Transportation Act removed the protection of public interest from its mandate. The Agency is restricted to only deciding if CN has failed to provide adequate service to GNG. CN could well be right depending on how restrictively the Canadian Transportation Agency interprets the Act.
 
Deregulation of grain transportation has been a decades long experiment. It is clearer every day that the experiment has failed. While grain volumes are down, reliability of movement has tumbled. Customers are being served more poorly while railway profits surge to undreamed of heights.
 
GNG's complaint is but the tip of the iceberg. Other shippers I spoke with are equally concerned but afraid to jeopardise even their bad service by complaining and thus antagonizing the all-powerful railways.
 
It's time for a major re-examination of the Canada Transportation Act and the freedom the railways have been given. By failing to provide adequate service and designing programs that run counter to shippers' needs the railways have lost the privileges deregulation granted them.
 
© Paul Beingessner