Canada Markets

Railways to be put to the Test

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars represent the western grain terminal unloads for 2013/14 (Vancouver, Prince Rupert, Churchill and Thunder Bay), while the brown line represents the weekly unloads for the first 32 weeks of the 2017/18 crop year. The yellow bar represents the shipping week that saw the introduction of the March 7, 2014 Order in Council that mandated weekly minimum volumes moved. (DTN graphic by Cliff Jamieson)

In Monday's emergency meeting of the House of Commons Standing Committee on Agriculture and Agri-Food that focused on the prairie grain shipping backlog, CN official Sean Finn stated that press releases and Orders in Council (OIC) do not move grain, instead, "people and locomotives move grain." Both railroads will soon be forced to back up this statement along with recently released plans following dismal performance reported over a number of weeks.

The reference is made to the federal government's OIC, which was announced on March 7, 2014 and included weekly minimum volumes of grain to be moved by each railroad for a period of 90 days, which was later extended on Aug. 1 for much of the following crop year. The government order stated, "The Order creates direct legal obligations on railways and will result in penalties for non-compliance of up to $100,000/day."

The introduction of the OIC is marked by the week 31 yellow bar on the attached chart. While the volumes unloaded at western terminals does not tell the entire story of grain shipping, it represents the largest share. The 453,671 metric tons of terminal unloads in week 31 had already recovered from the week 23 crop year low of 255,893 mt following the holiday season, while weekly volumes moved after the OIC reflected a week-over-week increase in eight of the following 12 weeks to a crop year high of 806,300 mt in week 43.

In terms of volumes moved, an average 401,152 mt was moved per week in the 10 weeks prior to the week 31 introduction of the OIC, while averaging 616,789 mt in the 10 weeks following the OIC.

The railways look back to 2014, say the brutal winter weather broke, trains were longer and moved faster in spring. The OIC was an idle threat, while "people and locomotives" moved the grain.

While ipolitics.ca reports that federal Transportation Minister Marc Garneau is satisfied with the plans released by the two railways to move grain, producer and industry representatives on Monday's panel are less convinced. Just the same, short-term measures such as the OIC seem to be overlooked in favor of longer-term solutions that Bill C-49 can bring, along with potential amendments.

In other shipping news, both CN and CP are demanding higher rates for shipments of crude by rail. Global News reports that a forecast released by Barclays has increased the average Western Canada Select differential from West Texas Intermediate from $18.40/barrel to $24.60/barrel for 2018, given the reality of higher freight costs. The piece notes that Canadian oil terminals are shipping well below capacity given current rail congestion and a current lack of locomotives, the same issues facing the grain industry.

As one railway official stated on Monday, they are facing a "perfect storm" of increased demand. This on top of ineffective forecasting and bad management decisions.

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DTN 360 Poll

This week's poll asks if readers are satisfied with the short-term measures proposed by Canada's two railroads to get grain movement back on track. You can weigh in with your thoughts on this week's poll that is found at the lower right of the DTN Canada Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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