Uncertainty surrounding the future of Western Canada’s rail and grain handling systems is causing nervousness in the industry, says a former University of Saskatchewan economist and spokesperson for a short-line rail company in southern Saskatchewan.
Bill Martin, a board member with the GHR Inc. short-line rail group, said legislation that will eliminate single-desk grain marketing could also have a profound impact on the economics of loading and shipping producer cars.
That uncertainty is causing anxiety among farmers, producer car shippers and short-line rail operators, Martin said.
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The federal government has indicated that changes are in store for prairie rail services.
The nature of those changes has not been determined but federal agriculture minister Gerry Ritz has indicated that he would like to see a more commercial rail system that moves prairie grain to port more efficiently.
Martin, whose academic work included numerous studies on transportation policy, said GHR Inc. is negotiating with Canadian Pacific Railway to buy about 90 kilometres of rail line that runs through Hodgeville, Gravelbourg and Mossbank, Sask.
The group hopes a deal can be reached on the soon-to-be-discontinued line, but time is running short and regulatory uncertainty surrounding the grain handling and rail transportation industries is disrupting negotiations, he said.
Regulatory uncertainty “very definitely makes it difficult” to negotiate a deal, said Martin, who also serves as a consultant to Farmers of North America, a shareholder in the GHR rail group.
“When we got into this process, it was with an established regulatory framework in mind,” Martin added.
“But if they (make changes to) the rail revenue cap, for example, our whole business model is affected. What’s the value of the line then?”
There is speculation among short-line rail groups that the federal government is looking at changing or eliminating the railway revenue cap, which limits the amount that Canadian National and CP can earn from the movement of prairie grain to port.
Review recommendations
There is also uncertainty about recommendations that came out of a rail service review completed in March.
The rail service review suggested several measures:
• the use of enhanced service agreements between shippers and rail companies;
• a standardized process to resolve service disputes between shippers and rail companies;
• improved reporting on railway performance;
• an in-depth analysis of the grain supply chain, involving Agriculture Canada and Transport Canada, aimed at improving rail service and increasing the competitiveness of the Canadian agriculture sector. It is unclear how or when the recommendations will be implemented.
“There’s a real problem here,” said Martin.
Lonny McKague, a director with Red Coat Road and Rail, another short-line operator in southern Saskatchewan, said his group is dealing with similar issues.
He said the demise of the CWB would leave Red Coat and producer car shippers in the unenviable position of depending on private grain companies to market their grain and unload it at port.
“The wheat board does not give producer cars any special treatment, they give us equal treatment to the grain companies,” McKague said.
“If the wheat board is eliminated, I don’t know of any grain company that’s going to give us equal treatment. We’re going to have to compete against them to get grain to port and we’re going to have to market through them.”
Past experience has shown that the interests of private grain companies are often at odds with the interests of short-line railways, he said
“Where are the grain companies going to access their grain first? Through their own facilities or through producer cars?”
McKague said the federal government must look at the economics of producer car shipments and the future of short lines in a post-CWB environment.
The only way to ensure the viability of prairie short lines and producer car shipments is to ensure that producer cars have regulated access to privately owned port facilities and that private grain companies offer competitive pricing for grain handling services at port, he said.
“I believe short-line rail lines, after the elimination of single desk selling, will have about 12 months to 18 months of operation before they start losing money,” McKague said.
“They (the federal government) are going to have to legislate grain companies to unload our grain (efficiently and competitively).”
• an industry-wide group, or commodity supply chain table, to identify and address logistical concerns
