Interswitching valuable pricing tool

For Canada’s grain sector, the past three years have seen important initial results from competition at work in the movement of grain by rail.

It’s all because of the government’s (temporary) provision to extend the 30 kilometre interswitching radius to 160 km, giving many normally captive shippers competitive options when ordering cars and negotiating rates.

This is a trend that is only going to grow as more shippers find new ways to leverage extended interswitching.

According to Quorum Corp.’s grain monitor, the first three months of 2017 saw the use of extended interswitching more than triple over the same period last year. 

That all means significant savings to shippers and ultimately farmers — $12.6 million, in fact — since the extended interswitching provisions started to be monitored in August 2015.

What the grain monitor numbers don’t show is what a small measure of competition can do for shippers without ever having to use an interswitch.

Even limited competition begins to change the conversation from what the service provider is willing to offer to a discussion about what the customer needs.

As a result, some shippers are extracting better offers on service from their carrier without ever having to physically take their business elsewhere.

This is particularly true for value-added processors.

For example, extended interswitching has proven all the more valuable to canola crushers when serving customers in all 48 lower American states.

Extended interswitching has allowed processors to leverage competition not only between Canadian National Railway and Canadian Pacific Railway, but also with other railways to compete for Canadian canola oil and meal travelling in the north-south corridor.

As the grain monitor numbers continue to show, processor shippers have been especially effective at leveraging this option.

Expanding the field of competitors can only serve as further motivation for Canada’s Class 1 carriers to continue to look for ways to keep U.S.-bound traffic moving on their own lines, which means good news for farmers and shippers and Canada’s western economy as a whole.

Expanded interswitching has also made a big difference on internationally bound grain.

The vast majority of elevators on the Prairies have historically been captive at origin to a single rail carrier. As shippers continue to build capacity and invest in elevators that can handle 100 car trains or more, the lack of competitive options has meant that new capacity is often wasted because efficiency for the customer is not always the railways’ number one priority.

Where more competitive options are at play, these dynamics change. The provision to extend the interswitching limit has meant that the number of these larger capacity elevators with access to a unit-train interswitch has grown substantially.

If the government were to enact the extended interswitching provision into legislation permanently, as we hope it will, shippers could confidently invest in more large capacity elevators, where they can predictably count on competitive options to drive efficiencies.

For the grain sector, the most exciting part of the extended interswitching story is the potential that it holds.

As interswitching options be-come more well known over time, their value as a powerful negotiating tool will only grow.

In our view, this simply would not happen without competitive forces being injected into the grain-by-rail logistics supply chain through important policies such as extended interswitching.

Wade Sobkowich is executive director of the Western Grain Elevator Association, Chris Vervaet is executive director of the Canadian Oilseed Processors Association and Greg Northey is director of industry relations at Pulse Canada.

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