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Ottawa tightens rail service agreements, boosts rail switching range

(Dave Bedard photo)

Federal legislation tightening the terms of grain freight service agreements between shippers and railways — and allowing some captive shippers a wider radius in which to shift cars to another railway — is now on the table.

Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt introduced what’s dubbed the Fair Rail for Grain Farmers Act, a package of amendments for the Canada Transportation Act and Canada Grain Act, on Wednesday in the House of Commons.

Raitt described the legislative package as “another important step to address this backlog” in grain freight, following Western Canada’s harvest last fall of a record 76 million tonnes of grain, 50 per cent higher than the average crop since 2002.

The resulting rail freight backlog, due also in part to extreme winter conditions, has left Prairie elevators filled nearly to capacity (93 per cent); port terminals with 39 per cent lower stocks to load vessels for export; record line-ups of vessels, ranging in recent weeks from 43 to 57, up from an average 10 to 12; and contracts unfulfilled with both foreign and domestic buyers.

Wednesday’s bill builds on the government’s March 7 order-in-council, which imposed grain handling quotas on Canada’s big two railways, Canadian National (CN) and Canadian Pacific (CP), to rise over the following four weeks to a total of 500,000 tonnes per week each, subject to fines of up to $100,000 per day for non-compliance.

Where the order-in-council was set to run until June 7 this year, Wednesday’s legislation proposes to extend its requirements and penalties to Aug. 3.

“Farmers and our economy need a system that works today and tomorrow, with the capacity to move what is grown,” Ritz said in a release.

Wednesday’s bill also authorizes the federal Governor-in-Council to continue to set grain transport volume requirements if need be in “extraordinary circumstances,” on the joint recommendation of the federal agriculture and transport ministers, with penalties of up to $100,000 per day.

The Canadian Transportation Agency from now on will also advise the transport minister “as to whether minimum volume requirements may be required for the coming crop year,” based on consultations each year with railways, grain companies and others in the supply chain.

There are no provisions in the new bill for railways to distribute grain traffic to specific westbound, eastbound or southbound corridors, the government noted; its grain volume requirements will remain aggregate.

If the railways wanted to show, from a public relations standpoint, that there isn’t enough West Coast port capacity to handle the extra grain, it would be “quite easy” for them now to sequence cars to plug up port terminals in Vancouver, University of Saskatchewan ag economist Richard Gray warned on the sidelines of a conference on grain transportation Wednesday in Saskatoon.

On the question of how the railways could prioritize car movements, Gray said it would be possible for them to spot cars based on the percentages spotted to individual grain companies in previous years. Moving to a rail car auctioning system, as is used in the U.S., would serve only to hand over the basis earned by grain firms to the railways, he added.

Wednesday’s bill also adds regulatory authority to the Canadian Transportation Agency to allow for “greater specificity” for the operating requirements in any level-of-service agreements reached by arbitration between railways and shippers.

The government noted there have been no requests made for arbitrated agreements between shippers and railways since the government legislated the authority to do so in June last year, but said it expected the tightened amendments may make parties “more comfortable” in seeking arbitration.

It may be difficult to further tighten such agreements, Gray said, “unless there’s a really deliberate plan on how you’re going to make railways liable for not moving grain — and how do you make someone liable when they’re only one part of the supply chain?”

Outside of Wednesday’s bill, the federal government said it will now also require railways to deliver “more timely and granular data on grain movements” to help monitor performance down the supply chain, on top of more frequent and specific grain traffic reporting requirements announced in February. [Related story]

Interswitching distances

The legislative package tabled Wednesday also grants Prairie shippers — in grain, and all other commodities and goods shipped by rail — a wider radius for interswitching, in which one rail carrier picks up cars from a shipper and delivers them to another railway for the line haul.

Specifically, Wednesday’s amendments authorize the CTA to extend maximum interswitching distances in Saskatchewan, Alberta and Manitoba to 160 km, up from 30 currently, to “increase competition among railways and give shippers access to alternative rail services.”

Today, the government noted, 94 per cent of grain elevators are served by just one railway and the 30-km limit allows only 14 elevators the service radius to make a deal with a competing rail line, be it in Canada or the U.S.

By extending the interswitching limit to 160 km, Wednesday’s bill would bring the number of eligible elevators up to 150. The government emphasized its bill does not confer “joint running rights” to railways.

The effectiveness of the new interswitching provisions will depend on the railways’ reaction, Gray said.

If the railways decide they can gain market share by being more aggressive, “you could maybe have something interesting come out of that,” he said.

However, “if it’s more or less ‘Well, we know what our rate structure is, we’re going to keep our rate structure the same (and) we’re going to both invest in the same mediocre investments,’ then not much will happen.”

“Non-performance”

The new bill also sets up regulatory authorities within the Canada Grain Act to address “non-performance by grain companies in their contracts with producers.”

Specifically, the bill would allow the Canadian Grain Commission to set and regulate the compensation grain companies must pay to farmers if delivery dates set out in a contract aren’t “honoured in a timely way.”

Where the up-to-$100,000-per-day penalties levied under the order-in-council are administrative monetary penalties paid to the federal government, the bill would “create the potential for producers to receive compensation.”

The bill would also allow the Grain Commission to “arbitrate or direct arbitration” where needed, but the government noted those provisions wouldn’t be needed where shippers and farmers “voluntarily develop” contracts with built-in performance and compensation levels.

The government said Wednesday it will also “accelerate” a planned review of the Canada Transportation Act, now scheduled to begin no later than June 2015, for the review to begin “in the coming period.”

A quicker review, the government said, will allow it to consider “further amendments” to boost supply chain efficiency and reliability.

“Ice conditions”

Federal Fisheries and Oceans Minister Gail Shea on Wednesday also announced the government and Coast Guard will “re-assign” additional Coast Guard resources to the Great Lakes, “to ensure that Canadian products, resources and agricultural goods get shipped to market.”

Frigid temperatures have led to “ice conditions that have not been seen in the Great Lakes or Eastern Canada in decades, which are having a direct adverse impact on Canadian products reaching domestic and international markets,” Shea said in a statement.

Due to heavy ice, the St. Lawrence Seaway Management Corp. last week announced the opening of the Montreal-Lake Ontario stretch of the seaway would be postponed to March 31 from March 28.

— AGCanada.com Network staff, with files by Lisa Guenther of Grainews in Saskatoon.

 

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