TABLE OF CONTENTS May 2014 - 0 comments

A holistic approach is best

Why Ottawa should resist the temptation to provide industry-specific transportation regulation

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2014-05-01

There is no question Ottawa moved swiftly this spring to address the backlog of grain sitting in grain elevators across the Prairies. More challenging is the question whether Ottawa moved wisely in doing so.

Ottawa reacted to the railways’ inability to efficiently handle the unusually high grain harvest by first leveraging the emergency powers within the Canada Transportation Act to order the railways, under threat of significant penalties, to greatly improve their movement of the stored grain. Then it tabled Bill C-30, the Fair Rail for Grain Farmers Act, which provides a series of measures Ottawa thinks will improve grain transportation.

Should Ottawa have intervened? And will its intervention help or hinder the current situation? According to the Western Grain Elevator Association, the nation’s rail car capacity was woefully short of what was needed to move the 100-year crop, and the resulting backlog has resulted in artificially depressed prices to farmers. According to another grain industry group, the Western Canadian Wheat Growers Association, this is just further indication of the “chronic performance failures of CN and CP” and “their cavalier attitude toward the resulting losses suffered by Prairie grain farmers.”

That some of our Class I railways’ customers think of their service providers in such terms is an issue on its own, but can we realistically expect the railways, or any carrier for that matter, to routinely maintain capacity levels so high that they can address such a bumper crop? The five-year average grain crop yield has been 55-56 million tonnes. Yet the latest crop came in at 76 million tonnes. This was compounded by the fact Canada’s grain companies themselves did not realize soon enough the size of the crop that would be coming in. By late August they were still wondering if the grain would suffer from frost. And when the reality of the real size of the grain crop hit, we were already into one of the earliest, coldest and longest winters we’ve experienced nationwide the last 20 years and train lengths had to be shortened for safety, further compounding available capacity.

When you put all those factors together, is it any wonder there was such disruption to the grain supply chain? Does it really indicate the railways can’t efficiently move grain? And what is the impact, I wonder, on all the other commodities that still need to be moved when Ottawa forces railways to move grain?

The Western Canadian Wheat Growers Association wants Ottawa to bring about more competition in the Western Canadian rail sector, because it believes CN and CP essentially operate side-by-side monopolies in Western Canada. It points out that only 7 of the 342 elevators on the Prairies have direct access to both CN and CP.

One of the measures in Bill C-30, which followed Ottawa’s emergency order to the railways, is an extension of the interswitching limit in Alberta, Saskatchewan and Manitoba, for all commodities, from the current 30 km to 160 km, as a way to increase competition among railways and give shippers access to alternative services.

But would the proposed changes to interswitching contribute much to alleviating the backlog? A policy brief issued by the Canadian Transportation Research Forum authored by Joseph Schulman points out that “CN and CP are both experiencing capacity issues in moving the 2013 harvest. It is not as if one railway has excess capacity while the other does not. Second, similar problems are being experienced with rail service in the US, limiting the possibilities of re-routing traffic south.”

So it’s possible that expanding the interswitching limits may amount to little improvement as far as the grain supply chain is concerned.

A sector-by-sector approach does not address the broader issues faced across the system. Rather than focusing on one part of the economy, Ottawa should take a holistic approach to transportation challenges, and develop sustainable commercial solutions good for all sectors.



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