New rules for doling out rail cars should create more competition among grain handlers and give farmers more say over where those cars go, say industry officials.
Under the new allocation system, which will be phased in over the next few months, cars for shipping Canadian Wheat Board grain will be awarded to companies each week based on two equally weighted factors:
- The company’s grain receipts during the previous 18 weeks.
- The volume of grain due to come to a company’s facilities under outstanding wheat board delivery contracts held by farmer customers.
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“The idea is it puts the farmer in a bit better position, because if he moves to another company, there’s a lot more at stake,” said Ward Weisensel, the wheat board’s vice-president of transportation and country operations.
Under the old rules, cars were allocated on the basis of a weighted average of grain receipts over the previous 52 weeks.
Here’s how the contract portion of the car award system will work:
A farmer with a 400-tonne delivery contract delivers to company X. After delivering 100 tonnes, he decides to take his business to company Y. The 300 tonnes remaining on his contract, and the cars associated with it, will be credited to company Y in future allocations.
Weisensel said that while he doesn’t want to over-sell the benefits of the new system for farmers, it definitely gives them more influence over the system than they now have.
“It’s important that farmers understand … the importance of what they have if they’re shopping their grain around,” he said.
Will Hill, vice-president of Saskatchewan Wheat Pool’s grain group, said the new system will put more pressure on grain companies to provide good service to farmers and ensure there is space to deliver.
“If not, they’re going to take their business across the road.”
At the same time, he said, the new rules will also give companies more of an opportunity to take market share away from competitors.
“The 18 weeks means that what you do today is going to have a more immediate impact on what’s going to happen to you in the future,” he said. “If you get aggressive and bring more grain up the driveway, you’re going to get cars three times as quick as you did before.”
The 18-week averaging component will take effect the week of Sept. 2. The outstanding contract component will come into play the week of Dec. 2, after the wheat board’s A series contracts are closed.
The new rules represent the outcome of months of intense negotiations between the two sides.
A year ago, the board proposed awarding cars on the basis of outstanding delivery contracts, with the previous six weeks of receipts factored in. Cars were to be allocated to specific train runs and elevators. The companies objected, saying that interfered with their ability to manage their elevator system.
Now cars will be allocated to the 13 transportation zones across the Prairies, although the board keeps the legal authority to direct them to specific train runs to ensure farmers are properly served. Companies will direct cars to individual elevators.
Weisensel said the board will try to ensure that elevators farmers want to use are served, but he doesn’t anticipate the board will direct cars to specific locations.
