Canada: Grasping government tightens grip on grain

Pitting farmers against railroaders has a long tradition in Canada. This is the second year in a row that the federal government has commandeered grain car deployments, this time pre-empting any sign that the commercial market is not working to shipper satisfaction. Market economics for the transport of grain by rail now appear to be suspended indefinitely.

The government seizure of grain car dispatching makes no demands on grain terminal operators to load and unload cars in a timely fashion, a factor both carriers identify as impediments to their moving crops from prairie to port.

Announced late Saturday in a tired public relations ploy to avoid next-day coverage in a country without Sunday newspapers, the “Order in Council” is an executive-level diktat issued under Orwellian cover of the “Fair Rail for Grain Farmers Act” adopted last March. Railways were already required to move grain at government-fixed rates under earlier legislation.

An evidently miffed CN itself skipped the niceties of the weekday business news cycle by issuing an unusual Saturday-night denunciation of the government takeover of grain car movements.

“More regulation threatens to increase costs, stifle innovation, and potentially discourage investments that are critical to building the strong, safe, and resilient supply chains of the future,” declared Mark Hallman, director of public affairs for CN.

Transport Canada is still studying last crop season’s reports to determine whether CN should be penalized for missed weekly quotas. CN maintains that any shortfall was due to an insufficient demand for cars and that, in any case, it surpassed its total requirement by one million tonnes.

CP’s Sunday morning reaction was mild by comparison: “CP will continue to move Canadian grain consistent with demand from its customers and in compliance with the mandatory minimums,” said CP spokesman Jeremy Berry. “More than anything, it is market forces that have driven the record volumes of grain that CP has delivered this year and last.” CP declined to say whether its performance is being audited for last season’s performance.

With the precision of a Soviet five-year plan, the government is ordering both railways to move the same each, according to a strict weekly schedule starting Monday, Dec. 1. By the following Sunday, CN and CP must each have delivered 345,000 metric tonnes of grain to receiving terminals. The minimum rises to 465,000 tonnes each for the week starting March 22, 2015.

Issued in the names of Transport Minister Lisa Raitt and Agriculture Minister Gerry Ritz, the order requires CN and CP to report grain car movements, detailed down to “car order fulfillment by corridor, including the placement of railcars at producer car loading sites and along short line railways.” The railways must report weekly to the “Grain Monitor”—the private Quorum Corp. of Edmonton, appointed as overseer by the government.

The governing Conservative party of Prime Minister Stephen Harper is most often characterized as a champion of free markets and minimalist regulation. Its exceptional choice of command economics for grain transportation is tied to the party’s power base of western farmers and grain marketers. A federal election is due in 2015.

“CN has met, and continues to meet, the pledge it made to the Canadian government last March to move as much grain as possible, as efficiently as possible, in Western Canada,” said CN’s Hallman. End-to-end balance has been restored to the grain supply chain, and CN continues its record-setting grain movements in the 2014-2015 crop year. As such, the government of Canada today should have focused on encouraging greater supply chain collaboration and announced it was lifting—not re-imposing—minimum weekly grain volume requirements on railways.

“CN’s grain performance shows a supply chain fully in sync. CN posted a record performance in the 2013-2014 crop-year ended July 31, 2014—its movement of Western Canadian grain was a full 25% greater than past average performance. Since the start of the new 2014-15 crop year on Aug. 1, 2014, CN has fully kept pace with demand and has maintained a record-setting pace in supplying covered hopper cars for movement of Western Canadian grain—19% above last year’s year-to-date performance. With the stocks now drawn down in line with normal levels, the mission of bringing the grain supply situation back to balance was achieved within a period of a little more than a year despite the 100-year crop harvested last fall.

“CN believes that normal commercial relationships and a stable regulatory environment are essential for an effective, well-functioning rail transportation marketplace, including that for grain.”