FOR YEARS, farmers have heard how they must learn to operate more efficiently by expanding and adopting new practices. Grain companies have consolidated operations and centralized collection points in search of the same Eldorado. Rail companies, too, have trimmed costs and streamlined operations to improve their bottom lines.
But when one link in the grain export chain has the ability to disproportionately absorb benefits from a more efficient system, it points to a problem.
Canadian National Railway is facing criticism that its lean operations may be too profit-oriented and that the company is sacrificing service at the expense of grain companies and farmers.
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James Richardson International vice-president Jean-Marc Ruest recently cited his company’s complaints about poor grain transportation service. While grain companies have centralized pick-up points, making it easier for railways to deliver and pick up cars, there have been no improvements in rail car cycle times, he said. He added the railways use the grain companies’ efficiency gains to increase their own profitability.
Mark Hemmes, head of the federal grain monitoring agency, shares some of those concerns, especially about CN. This comes just months after CN and Canadian Pacific Railway reported record-setting fiscal results for 2005. Grain transportation played a significant role.
CPR, which has escaped complaints this year, recorded net income of $543 million last year. Grain accounted for $745.5 million, or 18 percent of the company’s freight revenue – second only to intermodal shipments as the top freight revenue generator.
CN’s net income was $1.56 billion. Grain and fertilizer (CN does not list grain separately in its financial statement) accounted for $1.1 billion in revenue, ranking those commodities third in freight revenue. For CN, grain was second in terms of money earned per carload at $1,977. For CP, grain was tops in this measurement at $2,080.
Few would dispute the need for the railways to operate profitably. Railway executives rightly cite the high capital investments and maintenance costs required in the industry.
But the grain transportation business is different than most in one key respect. When most companies look to improve profits through cost-cutting measures and efficiency gains, they risk alienating customers should their service or product fall to substandard levels.
In the grain transport system, disgruntled customers cannot shop elsewhere. There is little competition and scant options for shippers.
Perhaps it is time to resurrect the open running rights discussion, a practice that would allow one carrier to use another’s track. It could improve competition for farmers’ business, which in turn would offer them more choice and force rail companies to better balance efficiency with customer service.
That could allow all players to more proportionately enjoy industry profits.
