Canada’s largest railway company says it’s confident it will be able to move Western Canada’s 2018-19 grain crop in a timely fashion, despite surging demand from Canada’s crude oil shippers.
“We are focused on getting it right for farmers and our grain customers, regaining the confidence of Canadian business and enhancing Canada’s reputation as a reliable export partner,” said J.J. Ruest, president and chief executive officer of Canadian National Railway.
“CN is well positioned to meet the transportation needs of its customers for the 2018-19 crop year and beyond.”
Last week, CN released its 2018-19 grain plan, a document that outlines how the company plans to handle this year’s grain crop and avoid transportation bottlenecks that could negatively impact the grain and oilseeds sector.
Based on government estimates, the company said it is anticipating an average-sized crop of approximately 69.4 million tonnes in 2018-19.
Of that amount, CN expects to move 24 to 26 million tonnes of grains and oilseeds over the next 12 months, the vast majority from western Canadian collection points.
That amount does not include a 2017-18 carry-over estimated at 12 million tonnes, about a million tonnes higher than last year.
In its plan, CN highlighted a number of investments that will expand network capacity and enhance the company’s ability to move this year’s crop.
Those investments include the acquisition of 1,000 new high-capacity hopper cars over the next two years, the addition of 200 new locomotives, including 60 that will be added to CN’s fleet before the end of the calendar year, and 1,250 newly trained conductors that will be ready to work this winter, when demand from the grain sector is expected to peak.
Roughly $400 million of the company’s record-setting $3.5 billion capital expenditure budget for 2018 will be spent on network expansions that include double tracking and siding expansions between Edmonton and Winnipeg.
Those improvements are scheduled to be completed before the winter of 2018-19.
However, the company also stressed that factors beyond its control, such as difficult winter railroading conditions and interruptions in ship loading at export terminals, could affect the company’s ability to meet grain shipping targets.
Based on a CN grain car fleet that includes 11,500 covered hoppers, the company said its maximum sustainable car supply will average 5,500 car spots per week across Western Canada during the months of August, September, October and November.
CN’s weekly car spots are projected to slow to an average of 4,000 per week in December, January, February and March, when demand from grain shippers is typically the strongest, the CN plan suggests.
“We believe these numbers reflect the sustainable capacity of the supply chain,” the company said in its report.
“However, there will be weeks where these levels are likely to be exceeded and others where these levels may not be achieved, depending on the fluidity of the overall supply chain.”
CN executive vice-president Sean Finn said the grain plan — a requirement under Bill C-49 — involved an unprecedented level of consultation with shippers and producer groups across the West.
The plan will be updated throughout the shipping season, he added.
CN’s projected shipping volumes of 24 to 26 million tonnes are consistent with the company’s three-year average.
However, the 12 million tonne carryout could put further pressure on Canadian railways, particularly if a significant portion of it is marketed during winter months.
Fluctuating demand for rail capacity by the grain industry is an ongoing challenge.
Historically, a significant portion of the grain and oilseed crop is presented for movement between November and April, a period when railroading operations in Canada are least efficient because of cold weather.
“We’re not moving that much grain … right now, for all kinds of good reasons,” Finn said.
Demand for rail capacity by the crude industry is increasing, Finn acknowledged.
However, crude shipments represent a small part of the company’s overall business and should not have a significant impact on CN’s ability to move grain in a timely manner.
Wade Sobkowich, executive director with the Western Grain Elevators Association, said in an email that network investments outlined in CN’s plan provide a higher degree of confidence that CN will come closer to meeting grain sector demand in 2018-19.
However, the average weekly car spot numbers provided by CN are maximum projections and are roughly the same as the numbers presented in previous years.
“CN could provide much less capacity than 5,500 and 4,000 rail cars per week and still technically adhere to the plan,” he said.
Sobkowich said it is partly true that grain shippers and farmers decide when to ship grain based on commercial interests, but when rail system fluidity is reduced and car rationing occurs, the commercial interests of shippers are compromised.
“Just as the railways have operational limitations in the winter, the grain industry has commercial limitations in the spring and summer,” he said.