WINNIPEG, MANITOBA--(Marketwired - March 27, 2014) - The Western Grain Elevator Association (WGEA) today stated they appreciate the support of the federal government in attempting to address the serious rail capacity issues. While there are positive aspects to Bill C-30, the Fair Rail for Grain Farmers Act, the WGEA also would like to have seen an enduring piece of legislation designed to ensure that Canadian exporters of all industries receive rail service sufficient to meet and enhance Canada's competitive position in international markets.
The legislation will allow the Governor in Council to set further volume requirements for the next 24 months. "This component essentially follows the existing Order in Council," said Wade Sobkowich, Executive Director. "The legislation has a sunset of August 2016, and it will be the decision of the government of the day to determine whether or not to renew the legislation or allow it to expire." The WGEA's main questions on this element are how to ensure grain shippers receive railcars: (1) at the right level, (2) at a consistent rate, (3) apportioned appropriately among the corridors, (4) spotted at the inland terminals where shippers require service, (5) at increased volumes when required to account for peak shipping periods, and (6) beyond August 2016.
To address the capacity issues, the WGEA had proposed better definitions of "adequate and suitable accommodation" and "service obligations" within the Canada Transportation Act, which would have depoliticized the establishment of capacity thresholds, and taken away much of the ambiguity involved with rail service. "We still ultimately require a permanent piece of legislation that drives correct railway behaviour, without a connection to the political process," added Sobkowich.
The six sets of amendments put forward by the WGEA and the Coalition of Rail Shippers (CRS) at the passage of Bill C-52 have not been accepted into the legislation. Instead, there will be a consultation process with the view to having a regulatory authority further define the operational elements in those agreements as necessary. The six CRS amendments would have forced a better balance in accountability by allowing penalties for poor performance to be included in a Service Level Agreement (SLA), reflecting the way railways penalize shippers through unilateral railway tariffs. The amendment also would have provided for an expedited and reasonable dispute resolution mechanism to recover liquidated damages.
"It remains to be seen whether or not the regulatory process will produce the changes to the SLA's that shippers require," said Wade Sobkowich, Executive Director. "If the process is short, and it results in the specific ability to attain railway penalties for poor performance, along with a fair dispute resolution process and a specific definition of adequate and suitable service, then it could be an acceptable outcome."
The extension of interswitching limits to 160 km is a positive change. "Anything we can do to enhance competition between railways is a positive move, and every grain elevator in western Canada should have practical access to an interchange," said Sobkowich.
The WGEA takes the view that the railways are only one piece in a very long chain. The chain begins with a customer, somewhere else in the world, that has in front of them a wide variety of options in the origins of the goods and services they wish to consume. The chain works back from them to a long array of manufacturers, importers, import terminals, vessels, export facilities, exporters, domestic manufacturers, producers and suppliers. If Canada is able to compete in this global marketplace, then Canada as a whole must be cost competitive and able to deliver on all levels on time, or another country will.
The WGEA is an association of grain businesses operating in Canada, which collectively handle in excess of 90% of western Canada's bulk grain exports. Its members account for approximately 20% of railway revenues and pay annual total rail freight of over one billion dollars.
Other Facts and Views
- There are approximately 50 vessels waiting for grain at the west coast and eastern Canada combined. In addition, US & domestic processors and feed lots have been running out of grain products.
- The railcar shortfall has resulted in lack of farmer delivery opportunities, missed sales, missed price opportunities, vessel demurrage, contract penalties, contract defaults and damage to the Canadian reputation.
- Grain companies run a very tight logistical program where rail shipping orders are matched to individual sales and vessels. Due to the extreme lateness in fulfilling railcar orders, many of the cars being delivered today are out of sync with the vessels waiting for product to arrive. The priorities with respect to which railcars to move, from which locations, and to which destinations, must be set by grain shippers.
- Grain handlers have seen an increase in railcar movements to Vancouver, Prince Rupert and Thunder Bay, which is positive. Both CN and CP have stated they plan on increasing programs to the US and the St Lawrence Seaway, which is consistent with the intent of government. This is an enhancement grain shippers need to see as soon as possible.
- The Canadian grain industry can sustainably handle (load and unload) the approximately 11,000 railcars per week, as per the federal government's March 7th Order in Council. This is dependent on consistent and regular placement of railcars, and allocation of capacity among the corridors (1. West coast, 2. Eastern export, 3. US, 4. St Lawrence and 5. Domestic). If the railways limit their focus to certain corridors, then port terminals could face challenges unloading railcars. However, as long as the railway companies spot and deliver the railcars at a consistent rate, apportioned appropriately among the corridors, grain companies are not concerned with their ability to handle the volume.