Is investment in railway, port capacity sufficient for the future?

There are shocking statistics about the gap between what grain companies and farmers want to move from this year’s record large crop and what the railways are able to deliver.


David Przednowek, CWB pool manager, provided the data in his presentation at Crop Production Week in Saskatoon Jan. 17.


The grain companies have ordered 40,000 more rail cars than what the railways have delivered. 


Traditionally, 10,000 cars a week is considered excellent grain car movement, so the backlog is the equivalent of about four weeks of shipping.


Forty ships will be waiting at anchor at Vancouver and Prince Rupert this week. They want to load grain, but the terminals don’t have the grain they need. 


Thank goodness demurrage rates are a fraction of what they were a few years ago when ocean freight costs were much higher.


Grain prices in the country have fallen sharply because of the oversupply, but prices at port are not falling because the grain companies are asking for large premiums over the futures market from any buyer who wants to squeeze in an order in this maxed out system.


Looking at these numbers, Canada’s grain logistics system looks like an old steam heating system with an overtaxed boiler trying to keep up to an arctic cold snap: shaking, banging, leaking, wheezing and generally a source of frustration.


The rail companies would prefer that critics look at their performance relative to recent experience. They are doing better.


The railways unloaded 12.2 million tonnes of grain at all ports in the crop year to Jan. 5, up 1.7 percent or 200,000 tonnes from last year at the same time. 


The figure is eight percent ahead of the five year average of 11.3 million tonnes.


Unloadings are ahead despite a slow start to the crop year. Little grain was available to move until the harvest came in because grain stocks were so low at the end of the old crop year.


The railways performed well, from a traditional perspective, once harvest generated the grain needed to ramp up movement. 


Each company ran 5,000 cars a week to handle grain, beginning in about October, but it then fell off steeply in December’s abnormally cold conditions.


The question is: what is reasonable to ask of the rail companies when there is a nearly unprecedented 25 percent increase in the size of the western Canadian crop from 2012? 


Is eight percent ahead of the five year average OK or should it be 25 percent?


Farmers and grain companies want the railways to pull out all the stops, but other sectors of the economy also want rail service, and there is a finite number of rail cars and locomotives.


The Canadian railway industry loaded 303,338 cars in October, according to the most recent Statistics Canada numbers, which is an increase of almost seven percent over the same month in 2012.


Of that, 33,190 cars carried coal, an increase of 18 percent over 2012, and 37,083 carried iron ore, an increase of 10 percent.


There is much controversy over moving oil by rail, which increased 34 percent from October 2012 to October 2013, when the railways loaded 14,689 cars with fuel oil and crude petroleum.


The railways loaded more wheat but less canola and other cereals. They loaded 39,783 cars with wheat, other cereals and canola, an increase of 1.8 percent.


Canada’s regulated grain hauling system doesn’t allow grain companies to offer a premium to get more rail cars allocated to them.


Grain companies can bid over the base tariff in the United States, and those bids have soared from zero in November to an average now of $2,000 per car for a shuttle train.


Ending or changing the grain hauling revenue cap will likely be discussed in the coming months, but caution should be taken about making policies to address exceptional situations.


Nevertheless, most forecasts show Western Canada’s grain production will increase over time, and shipping from the West Coast is the most economic way to reach the growing demand from Asian countries.


We need to find out whether current investment levels in expanding railway and port capacity in Western Canada are adequate to meet the rising opportunities.

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