You’d think this year’s railway shortfall would be the impetus to make meaningful changes in the system. Grain industry attention is focused on logistics, and all the main players are saying the same things.
However, the railways are slippery and they have a history of getting their way.
None of the export sectors are happy with rail performance, but the situation is dire for the grain industry, which has a 30 to 40 percent larger than normal crop to ship.
More than 50,000 unfulfilled rail car orders represent real sales commitments that aren’t being met. About 50 ships are waiting to load at the West Coast. West coast export terminals are holding well below normal stocks because the grain hasn’t been arriving.
At their peak in the fall, the railways were unloading around 10,000 railcars a week. Since December, that’s gone to hell in a hand basket. A huge carryover of grain is looming. The monetary loss to farmers and the Canadian economy is in the billions of dollars.
The railways had their arguments down pat during testimony at the House of Commons agriculture committee, with the primary excuse being cold weather: much colder than normal, don’t you know. Locomotives can’t pull long trains and it can take hours just to get all the air brakes pressured up when the temperature drops below -25 C.
There are no problems with railway resources, according to Canadian National Railway and Canadian Pacific Railway. CP didn’t want to comment directly on the allegations that it has taken 400 locomotives and 2,700 rail cars out of service while reducing staff by 4,500 employees, saying instead that new locomotives will be much more efficient and that it’s actually adding resources and making investments.
To hear the railways tell it, they’re right-sized. They had incredible movement in the fall before the cold weather hit and they’ll get back to those volumes as quickly as they can once the weather improves. It’s just the darn polar vortex that messed them up.
Unfortunately, even if they can crank back up to 10,000 or more cars per week, it’s going to leave a massive carryover of grain on the Prairies.
But don’t be too hard on the poor railways. It was a one in a 100 year crop and a one in a 100 year winter, by their reckoning.
Everyone was surprised by the size of the crop, and movement was slow in August because the harvest was late and the system wasn’t demanding early movement.
Beyond hoping for warmer weather, what are the railways going to do to help solve the short-term situation? Well, to hear them tell it, they certainly can’t find significant new capacity overnight, even if they thought it was needed.
However, they admit they could provide greater surge capacity, given the proper financial incentives. They point out that there are market-based mechanisms in the United States for allocation of capacity. Freight trades at a premium during peak periods through a bid car system. No grain revenue cap down there.
While it may seem galling to reward CN and CP for substandard performance, the only medium to long-term solution would seem to be an incentive system that encourages greater movement, particularly during peak times. Maybe there’s a way to design it with both financial carrots and sticks.
We should also issue them a calendar that clearly indicates when winter weather typically arrives each year.