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CN CEO sees grain backlog extending into 2015

Toronto | Reuters — A record-shattering Canadian harvest, combined with one of the most frigid winters in decades, has created a grain-handling backlog that will not be cleared until next year, the head of Canadian National Railway (CN) said Wednesday.

“It will take more than the summer, continue into fall, into next year,” Claude Mongeau, CEO of the country’s biggest railway, told Reuters.

Delays in moving the 76 million-tonne crop, nearly 50 per cent higher than average and 20 million tonnes higher than the previous record, have angered farmers and prompted Canada’s Conservative government to order railroads to dramatically ramp up shipments or face penalties. [Related story]

That move, along with a break in the extreme winter chill, has helped CN spot an average 4,320 grain hopper cars per week over the last two weeks, up from an average 2,964 cars per week in February, the company said earlier this week. Spotting means to place a rail car in position for loading or unloading. [Related story]

CN has already hired more crews and added locomotives and 1,000 additional hopper cars since last fall to cope with the surge in volume, Mongeau said, adding that the assets are in place for CN to outperform its record pace last fall of more than 5,000 cars per week.

A deep freeze between December and February, which saw one of the worst Decembers in Winnipeg since 1893 and the worst January in Saskatoon since 1955, drastically hampered CN, said Mongeau.

The combined government target for CN and its rival, Canadian Pacific Railway (CP), is 11,000 cars a week. Grain companies have said they would like to see 13,000 rail cars per week.

“To go to 11,000 is a tall order. And it’s not just a tall order for the railroads,” said Mongeau, noting that rate would surpass the rail industry’s peak in the last decade of 9,800 cars a week.

“We will find out as we ramp up here, that it’s also a tall order to align all of the participants in the supply chain.”

New legislation

Transport Minister Lisa Raitt acknowledged on Tuesday that the weekly shipping targets the government has set represented historical highs for rail companies and said grain companies, elevators and shippers must co-ordinate in getting the country’s grain to markets around the world.

Ottawa plans to draft legislation to make sure railroads deliver grain shipments in a timely way, a move Mongeau opposes.

“Threatening to add legislation… would be a very grave mistake for the government to make,” he said.

“Penalties don’t move traffic… Finger-pointing and exaggeration and blaming of railroads is not constructive. You don’t do regulation in the heat of moment.”

The provinces of Alberta and Saskatchewan are also asking the government to pull together legislation so that competing rail companies can use each other’s tracks, a practice called running rights.

Mongeau said being forced to share tracks would be “very damaging to the rail industry” because it would complicate logistics and add to problems in an already challenging environment.

The grain transportation legislation will be introduced when Parliament resumes, according to Jeff English, a spokesman for Agriculture Minister Gerry Ritz. The next session begins on Monday.

Crude not crowding out grain

The grain bottleneck has also spurred charges that rail operators are supplanting grain shipments with more lucrative oil. Crude via rail has seen an unprecedented surge in North America as production exceeds pipeline capacity.

“The notion that crude by rail is crowding out the movement of other commodities like grain is not the truth,” said Mongeau, noting that crude made up only 1.4 per cent of CN’s entire volume last year.

— Solarina Ho is a Reuters correspondent covering the Canadian transportation and retail sectors from Toronto. Additional reporting for Reuters by Rod Nickel in Winnipeg.

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