The Western Grain Elevator Association (WGEA), which represents major handlers such as Viterra, Richardson, Cargill and others, raised the issue of recent railway performance following a recent MarketsFarm article on the matter.

That article asserted the most pressing issue for the grain terminals at the Ports of Vancouver and Prince Rupert was a shortage of grain to load onto vessels — despite Canadian National and Canadian Pacific Railways (CN, CP) moving record amounts of grain to the West Coast. The situation was further intensified due to the cold snap last month across the Prairies.

The reason for the shortages at Vancouver and Prince Rupert is the fault of the railways, according to WGEA executive director Wade Sobkowich.

“The article suggests that part of the problem with rail movement is insufficiency of grain deliveries, but this is not accurate from a grain company perspective,” he said via email.

“While producers might not have been hauling as much grain during a cold streak, elevators had and continue to have plenty of grain in store to move but needed railcars. The issue is that inadequate rail service is what is causing delays at West Coast ports.

“The article also suggests that with the exception of the cold two weeks, the railways have performed exceptionally well, which is not how [the WGEA] would characterize it. The railways may have moved greater volumes of grain than in previous years, but they have not performed exceptionally well. Comparing this year to last is not an appropriate measurement because service in the same period last year was very poor.”

Citing data in the Grain Monitor, produced and published weekly by Quorum Corp., Sobkowich said that terminal storage has increased 11.2 per cent over the last five years and country storage by 13.9 per cent — plus system throughout was up 16.5 per cent and the annual grain supply rose 14.2 per cent.

During that time, Sobkowich said, the railways increased their average active fleet by 2.5 per cent, with loads per car up 3.1 per cent, the car cycle rising 19 per cent and the net change in locomotives was up 11 per cent for CN and down three per cent for CP.

CN and CP, he said, have both failed to meet market demands and have not delivered consistently nor have they adjusted their capacity to meet growth.

Asked for comment, the spokespersons for the Ports of Vancouver and Prince Rupert declined or referred to the weekly Grain Monitor reports. Furthermore, the two railways didn’t offer any comments upon request, and CP referred to rail movement data on the company’s website.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Wade Sobkowich, executive director of the Western Grain Elevator Association, said despite the heat stress that has hit many crops this year, grain companies expect this year’s overall crop to be roughly equivalent to those of the past two years, when shipping backlogs were an issue.

“There’s been a lot of heat stress but we’re still seeing a crop size that is going to be somewhere in the neighbourhood of 70 million tonnes, 71 million tonnes. So, it’s still a very sizable crop in Western Canada.

“We’re still talking about the new normal here; what is a very large crop in Western Canada.”

He said it remains to be seen whether provisions in the new Transportation Modernization Act (formerly Bill C-49) will benefit shippers.

Some of the provisions in the act will be in place, Sobkowich said. Those include long-haul interswitching, requirements for railways to file reports on winter grain movement and changes to the maximum revenue entitlement (MRE), which sets down a pricing structure that railways can charge to carry grain.

However, a key aspect of the transportation regulatory changes made this spring — the provision that allows for reciprocal penalties for service failures — will not be available this crop year. That’s because a lengthy process is needed to establish what service contracts should look like and what the penalties should be.

“That’s something we hope will be in place for the 2019–20 crop year,” Sobkowich said.

Both national railways have announced capital spending programs designed to help avoid a repeat of the recent grain backlogs.

Sobkowich said it’s difficult to say what effect those changes will have until the busy shipping season arrives.

“Rail service now is pretty good, but it’s always good this time of year. What happens after the harvest comes off, that is the most important time.”

World demand for Canadian grain, pulses and oilseeds runs in earnest from mid-September to April — and that’s when when railway performance will be judged, he said.

Global trade disruptions this year could make the situation less predictable for grain companies trying to assess market risks, he said, but grain movement is fairly stable.

“That doesn’t have much of an impact on movement, though, because they’re going to move as much as they can during that peak period.”

Sobkowich said the premium markets will remain off the West Coast and grain shippers will still use terminals there as much as possible.

Most grain shipper members of the WGEA have signed onto shipping programs with one of the railways, he said, but only because they see it as better than having no agreement at all. Over the long term, they want reciprocal agreements with service standards and penalties, he said.

As well, the WGEA would like railway grain service plans filed with the federal government to be based on actual car delivery targets, not maximums.

The railways have promised a maximum of 5,500 cars per week until the weather gets cold, then a maximum of 4,000 cars per week.

Sobkowich said he’d rather see minimum guarantees from the railways with the expectation they would then strive to beat those numbers.

“We’ll see this year. They’re promising the same numbers (as last year). Maybe they’ll come closer to meeting these numbers, we don’t know yet.”

This summer, Canadian National Railway (CN) budgeted $3.5 billion in capital spending to upgrade its locomotive fleet, rail cars and improve track.

Canadian Pacific Railway (CP) promised to have 15 per cent more locomotives available to haul grain this autumn and is investing $500 million on new grain cars. It hoped to have 500 in place for this crop year.

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A combination of “higher than expected grain volumes and lower than expected spending” in the past three crop years has led to the surplus, about two thirds of which came from CGC user fees for official inspection and weighing services, the commission said.

The accumulated surplus, which at March 31 last year sat at $95.9 million, reached $107.2 million as of Sept. 30, the commission said.

A revolving fund is a fund or account whose income is available to an organization to finance its operations and is not limited to any fiscal year. For agencies such as the CGC, which has operated through such a fund since 1995, federal policy requires revenues and expenses to be balanced over a five-year time horizon.

After the CGC’s last update to its user fee schedule in 2013, record-high crops in the 2013-14, 2014-15 and 2015-16 crop years came in 30 to 65 per cent above the CGC’s annual average official inspection and weighing volume of export grains.

The CGC’s consultation period on the surplus — and on a proposed new system of user fees that would see fee cuts for most services — will both run until May 1, the commission said.

Updated fees would take effect next year on April 1, the day after the current five-year user fee review cycle ends, the CGC said.

Of the surplus, the CGC would be required to hang onto $30 million as a contingency operating reserve, another $3.6 million for “future labour contract settlements and severance payments for some employees,” and $2 million for draw-down authority, similar to a line of credit.

That leaves $71.6 million of “potentially available” surplus. The CGC’s list of options under discussion for the money includes:

• initial funding for a new Producer Compensation Fund, which would be available to producers when a licensed elevator or grain dealer fails to pay for grain deliveries, thus reducing the amount paid by licensees under the producer payment protection model;
• reducing user fees over a fixed time period — for example, setting aside $25 million to reduce fees by $5 million a year during the 2018-2023 cycle;
• upgrading the CGC’s research labs, office space and base building systems; and
• setting up laboratories and “real-time analytical testing” at licensed terminal elevators or other sites, to help grain handlers and producers meet requirements under sales contracts.

The surplus can only be spent on programs and activities that are related to services that the CGC is authorized to provide, the commission said, noting it also needs approval from the federal Treasury Board to spend the money.

After the consultations, options for use of the surplus funds would be presented to the federal agriculture minister for consideration before the Treasury Board makes any decision.

For farmers, contact information is available online for the discussions on changes to user fees and on the use of the surplus. — AGCanada.com Network

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“Operationally, CP is eager and prepared to move grain this coming crop year,” company CEO Hunter Harrison said in a letter to federal Transport Minister Marc Garneau.

The letter, dated Tuesday, was also circulated to Prairie transportation and agriculture ministers and received by the Manitoba Co-operator.

“As we continue to execute our Scheduled Precision Railroad model, our network has never been in better shape to perform.”

If Prairie farmers harvest an above-average crop this fall, as some experts predict, the whole supply chain must co-operate rather than finger-point, Harrison wrote, alluding to past criticism that the railways weren’t well enough prepared to move the record crop harvested in 2013.

“Not only is finger-pointing counter-productive, it unfairly tarnishes Canada’s reputation as a world-class supplier, and it distracts us all from the most important task: moving grain to the benefit of Canadian producers and companies,” Harrison wrote.

“Ultimately, that’s how we all win. And that’s what will grow the Canadian economy.”

CP has made record investments in improving its system, he added.

“We have constructed 22 new and extended sidings on our North Line between Edmonton and Winnipeg, four new extended sidings on the Western corridor through B.C., and nine new sidings through the Upper Plains states to Chicago,” he wrote.

“These capacity-enhancing infrastructure investments allow us to move more commodities — including more grain — in an efficient and safe manner. This will improve our service and reliability, and it will accelerate our growth in lock-step with our customers.”

Canada’s grain sector has increasingly relied on exports through Vancouver, which has finite capacity, Harrison wrote. To move more grain, Thunder Bay — which closes in early winter — must remain open longer, he added.

If the forecast for a crop possibly just four or five million tonnes below the 2013 record of 76 million is correct, the grain sector should do all it can to reduce carryover grain stocks, Harrison wrote.

“The grain supply chain in Canada, like all efficient supply chains, is not built to move total annual volumes of a commodity in a short, peak period of time and then sit idle for the rest of the year.”

CP will operate 24/7, 364 days a year, Harrison wrote.

“Operationally, CP is eager and prepared to move grain this coming crop year,” he wrote. “As we continue to execute our Scheduled Precision Railroad model, our network has never been in better shape to perform.

“Case in point: CP’s network train speed this current quarter (Q2 2016) is 30 per cent faster than the same period in 2013 (just before the record 2013-14 crop).”

The company’s Dedicated Train Program program has made grain movement more efficient, he added.

CP on June 21 posted an earnings outlook warning of recent fiscal headwinds such as “lower-than-anticipated volumes in bulk commodities, such as grain and potash,” along with northern Alberta’s disastrous wildfire season and a strengthening loonie.

The company said it expects its actions in the first half of the year, and an “anticipated improvement in commodity volumes,” will still help see it toward its full-year guidance target.

That said, CP warned it now expects revenues in its second fiscal quarter to drop about 12 per cent from the year-earlier period. CP’s Q2 results are scheduled to be made public July 20.

“While we acknowledge the environment remains challenging, additional cost reduction opportunities and the potential for stronger volumes in the back half of the year still lead us to believe that achieving double-digit (earnings per share) growth in 2016 is a possibility,” Harrison said June 21.

Among those cost cuts, CP separately announced temporary layoffs for 500 rail maintenance workers effective Thursday.

— Allan Dawson is a reporter for the Manitoba Co-operator at Miami, Man. Follow him at @AllanReporter on Twitter. Includes files from AGCanada.com Network staff.

Click here to read Hunter Harrison’s letter.

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North West Terminal, which operates a grain terminal and ethanol plant just east of Unity, about 90 km southwest of North Battleford, said Thursday it won’t go ahead with the share buyback as announced in February.

The buyback plan had called for NWT to repurchase about $800,000 worth of Class A and Class B NWT shares from shareholders, who are mainly local farmers.

The move, when announced in February, was described as a way to offer a “liquidity option” for shareholders who may be exiting farming and wanting to redeem their shares.

However, NWT’s board is “very concerned about dryness in the region, as this has the potential to greatly reduce grain handling volumes,” company president and local farmer Brad Sperle said Thursday in a release.

The dry spell, on top of lower oil prices and reduced margins for the company’s ethanol and bioproducts business, “will likely mean lower revenues” for both the grain and ethanol operations, he said.

The company may reconsider an issuer bid in the future “if circumstances change,” Sperle said. — AGCanada.com Network

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