What are the reasons for the grain transportation shortfall this year? Is unusually cold weather the cause, as the railways say? What role does increased movement of crude oil by rail play? Is there enough rail capacity after Canadian Pacific Railway made big staff cuts and reduced its locomotive fleet? Has grain movement suffered since CWB lost its role? Western Producer reporter Brian Cross looks at the explanations and allegations that have made this the hottest topic of the winter.
What are the reasons for the grain transportation shortfall this year? Is unusually
cold weather the cause, as the railways say? What role does increased movement of crude oil by rail play? Is there enough rail capacity after Canadian Pacific Railway made big staff cuts and reduced its locomotive fleet? Has grain movement suffered since
CWB lost its role? Western Producer reporter Brian Cross looks at the explanations and allegations that have made this the hottest topic of the winter. (part two is available here)(part four is available here)
Seldom welcomed and often cursed for his stubbornness, Old Man Winter is being vilified this year for causing transportation tie-ups that could cost the Canadian grain industry hundreds of millions of dollars. With the winter of 2013-14 shaping up to be one of the coldest on record in Western Canada, the country’s major railway companies continue to point to frigid temperatures as the main factor behind a system-wide slowdown in grain shipments. But frustrated grain producers across the Prairies are not convinced that cold weather is anything more than a convenient excuse. Other factors are just as much to blame, they say, including a huge increase in the amount of crude oil being shipped by rail, a lack of logistical co-ordination at all points in the supply chain and an ineffective regulatory regime that doesn’t hold railway companies accountable for poor performance. In Ottawa, meanwhile, calls grew louder last week for the federal government to take immediate steps to require that Canada’s highly profitable railway companies provide better service to grain shippers and farmers, many of whom are amassing huge costs because of their inability to ship and sell grain. “The issue of the extreme cold weather has impeded CN’s network capacity,” said Mark Hallman, director of communications with Canadian National Railway. “This has significantly impacted CN’s operations, not just for grain but for everything we move. It affects our entire book of business.” Hunter Harrison, president of Canadian Pacific Railway, offered a similar explanation when asked about grain movement during a recent presentation to the Calgary Chamber of Commerce. “Has anybody been out in the weather recently?” Harrison said. “You cannot run a train down the side of a mountain at 40 below safely. We’re not going to push that envelope. We’ve got a lot of employees that have had frostbite from getting out in this weather.… When the weather gets like that with an air brake system, your capacity is virtually cut in half.” A locomotive engineer and long-time employee with one of Canada’s Class 1 railway companies, who didn’t want to be identified, said weather has definitely affected train movements this winter. In the railroad industry, temperatures below -20 C or -25 C usually mean delays in rail yards, shorter trains and a greater risk of mechanical problems. However, the engineer said frigid temperatures are not the only factor affecting grain traffic this winter. The composition of trains travelling across the Prairies has also changed significantly. In the past few years, trains departing from the yard where the engineer works have carried more intermodal containers, more crude, more potash and “more of everything,” he said. “That’s one of the problems in the operation right now is we have too much traffic and not enough infrastructure.” He said CN and CP have seen major operational changes during the past decade. The number of trains has decreased, train lengths have increased and workforce numbers at both railways have been reduced. One of Harrison’s first major initiatives when he took over as CP president in 2012 was to cut the railway’s workforce by 4,500 employees, a reduction of nearly 25 percent over four years. At CN, many of the smaller railway sidings in Western Canada have been torn up to accommodate larger trains and remaining sidings have been expanded. Have those changes resulted in greater efficiency on Canada’s railway network? The locomotive engineer is not sure. What is certain, however, is that the railway business is booming. In the 20-odd years that he has been driving trains, the hours have never been longer, the workload has never been heavier and railway revenues have never been higher. Last year, both of Canada’s major railway companies reported record revenues. CP reported year-end revenues of $6.1 billion, up eight percent from 2012. Freight revenue from grain at CP was $1.3 billion, up 11 percent from the previous year. CN also reported record revenues of nearly $10.6 billion in 2013, including $1.6 billion from grain. Although many business segments have contributed to the railways’ impressive revenue growth, oil and gas business is taking much of the blame for poor grain movement. Statistics Canada figures show western Canadian rail car loadings of fuel oil and crude petroleum at Canada’s major railway companies increased to an average of nearly 9,300 cars per month in 2013, up from 2,800 per month in 2009. “We’ve seen a (huge) growth in oil containers,” the locomotive engineer said. “Today, we have solid oil trains, moving nothing but oil. And we have mixed trains with a lot of oil in them. Ten years ago, we would have never seen that.” However, railway officials reject suggestions that increased crude shipments are hurting grain movement on the Prairies. “The notion that CN’s crude by rail business is displacing grain on the company’s rail network has no merit,” said Hallman in an email. “CN’s crude oil car loadings in 2013 accounted for less than two percent of the company’s total freight volumes, and CN has ample network capacity in normal weather conditions to move all commodities efficiently, including grain.” However, according to some grain producers and shippers, movement of crude and other cargoes that support the oil and gas industry have all but displaced shipments of prairie grain through eastern and southern rail corridors. In some communities in southeastern Saskatchewan, oil trains run daily while producers wait weeks for empty hopper cars to be spotted. In those areas, the prospects of moving grain are not likely to improve soon. Last week, during a meeting with federal agriculture minister Gerry Ritz in Winnipeg, officials with CN and CP said they are not inclined to haul western Canadian grain to eastern and southern destinations. Instead, the vast majority of the prairie grain will continue to move west to port locations at Vancouver and Prince Rupert. “They (the railways) have told grain companies that they’re not going to entertain anything, in the next short time, that goes to the U.S. or Thunder Bay,” Ritz said. That’s bad news for all grain growers, but particularly those in Manitoba and eastern Saskatchewan. To ensure that hopper cars are cycled more quickly, much of the grain that is shipped to the West Coast will likely be sourced from Alberta and western Saskatchewan, which are closest to Pacific Ocean terminals. “Both railways are putting more assets into the shorter cycle-time elevators, which will be at the expense of eastern Saskatchewan and Manitoba,” said Keith Bruch, vice-president of operations at Paterson Global Foods. “There’s prioritization on western elevators to Vancouver.” Despite mounting frustration among farmers and grain companies, there is little to suggest that demand for railway capacity from Canada’s agricultural sector will soften. In conference calls with investors last month, executives from each railway company said demand from the grain industry should be strong and steady throughout 2014. “When I look at the outlook for grain, I think that we’re going to move grain more consistently,” said Jane O’Hagan, CP’s chief marketing officer. “I think it’s going to be one of the crop years where we don’t have the peakiness that we’ve had in the past. We’ll probably have some large carryover, and with an average crop (in 2014), we’re going to see strong movement throughout the year.” Added CN president Claude Mongeau: “We have a huge crop, and things are looking good for the balance of the year and probably well into 2015.”