SASKATOON – Prince Rupert Grain Ltd. must find ways to cut costs or it may become a residual outlet for Canadian grain exports.
Chief executive officer Clarence Roth said if it costs more to ship prairie grain through Prince Rupert than Vancouver, the Canadian Wheat Board will direct as much grain as possible to Vancouver in order to maximize farmers’ returns.
“In high volume years that might not mean any reduction in tonnage, but in years like the one coming up (with lower export volumes) Prince Rupert would be residual,” he said in an interview from PRG’s head office in Vancouver.
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Under the new freight rate structure, it costs an average of $4.50 a tonne more to ship grain from the Prairies to Prince Rupert than to Vancouver because of the greater distance to the northern B.C. port.
In the past, all of those additional freight costs were pooled, as were the costs of shipping grain through the St. Lawrence Seaway.
Some of the costs will come out of the pool accounts this year, but freight pooling is no longer seen as an acceptable long-term solution in the post-Crow, market-driven transportation environment.
A partial solution was provided when CN Rail announced it would provide volume-related rate discounts ranging from $1.50 to $2.25 a tonne on grain hauled on its line to Prince Rupert.
That still leaves a shortfall of $2 to $3 a tonne, which will have to be made up from some combination of revenue from the Canadian Wheat Board’s pool accounts and Prince Rupert Grain’s own bottom line.
The grain company and the board have been negotiating how that will be done, but Roth said it’s clear the grain handling firm will have to pick up some of the tab.
“We’re looking at how we can reduce and change our cost structure so we might be able to absorb that additional cost,” he said. “That takes some major doing. It won’t be easy.”
For starters, the company is discussing lease costs with the Prince Rupert Port Corp., and property taxes with the local government.
Use savings on freight
It has been proposed that the wheat board use some cost savings that can be gained by using Prince Rupert and direct the money towards the additional freight cost.
For some customers, there are advantages to using Rupert. The port is 1.5 days closer in sailing time to some major Pacific Rim markets. Vessels load at one terminal, while at Vancouver they can be shuttled among three or four. And vessel turnarounds tend to be quicker at Prince Rupert, allowing the board to earn efficiency payments.
Roth said PRG has been encouraging the board to have separate sales contracts for Vancouver and Prince Rupert, rather than just selling out of the West Coast.
“By contracting separately on sales out of Prince Rupert, the board can capture a lower cost for the ocean-going freight or sell grain at a higher price,” he said. “It looks like the board may be able to capture about $1 a tonne.”
Board spokesperson Jim Petryk said the board is aware of the savings available at Prince Rupert and is discussing it with customers.
Ideally, he said, the combination of railway incentives and additional revenue gained from negotiations with customers will cover the entire freight shortfall, with no transfer of funds out of the general pool accounts.
PRG’s board of directors is slated to discuss the issue at a meeting later this month. The company is owned by a consortium of the six major grain handling companies – the three prairie pools, United Grain Growers Ltd., Pioneer Grain Co. Ltd. and Cargill Ltd.
