Grain freight minimums beneficial, but not seen as best solution

CNS Canada –– The Canadian government’s decision to extend its order-in-council requiring a minimum tonnage of grain shipped by the two major railways each week will benefit the ag industry — but it’s not the best solution out there, according to some participants.

“Extending the minimum volume requirements through the coming winter and spring season will keep the grain moving as we continue to work toward our goal of a sustainable and reliable transportation system,” Kent Erickson, chair of the Alberta Wheat Commission, said in a release.

Grain handling targets that required both Canadian National (CN) and Canadian Pacific Rail (CP) Railway to move 500,000 tonnes of grain each per week were set to expire on Saturday.

The new order-in-council continues through to March 28, 2015, with the amount of grain to be shipped per week varying depending on the time of year. But the minimum shipments will be lower than the previous 500,000-tonne requirement. [Related story]

The extension should help ensure rail shipping deficiencies seen last winter don’t happen again, the Grain Growers of Canada said in a news release.

Farm groups said they’re also happy the government has made it mandatory for CP and CN to submit formal winter contingency plans, describing such plans as integral in responding rapidly to changing winter conditions.

But the extension of the minimum shipping requirements are not a long-term solution for Canada’s logistics problems, and farm groups they plan to continue to press for reforms to Canada’s grain transportation system through the pending Canada Transportation Act review.

“We will continue to voice our opinion on what we believe is the most critical mechanism to ensure that railways are held accountable for their performance through the inclusion of reciprocal penalties in service level agreements,” Erickson added.

The Canadian Canola Growers Association (CCGA) agreed the mandates are beneficial, but said more needs to be done to improve the flow of grain across the Prairies.

“While CCGA prefers more market-based solutions that benefit all shippers and would address the grain movement issue, there remains nothing commercially available to compel the railways to maintain accountability in the face of ample supply, a strong commercial grain marketing program and impending cold weather,” CCGA CEO Rick White said.

“The provision of information on car order fulfillment by corridor will bring a new degree of transparency to the logistics system.”

CN, for its part, said it believes that the extension of the mandate is not the best way to address any issues with logistics throughout the winter.

“CN has met, and continues to meet, the pledge it made to the Canadian government last March to move as much grain as possible, as efficiently as possible, in Western Canada. End-to-end balance has been restored to the grain supply chain and CN continues its record-setting grain movements in the 2014-15 crop year.”

Thus, CN said, the government “should have focused on encouraging greater supply chain collaboration and announced it was lifting — not re-imposing — minimum weekly grain volume requirements on railways.”

CP, meanwhile, said it will continue to move Canadian grain consistent with demand from its customers and with the mandatory minimums.

“CP continues to work with all of its commodity customers, from grain to potash to coal and more; and all stakeholders to improve operating efficiencies and increase capacity. CP acknowledges the importance of efficient, competitive rail service to the economy by connecting local producers to international markets.

“It is also important to remember that CP is one link in the global supply chain,” the company said via e-mail.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.