The Great Canadian Grain Disaster: How a rail backlog stranded mountains of grain in the country’s heartland
|National Post 05 Apr 2018 at 09:50|
While much of Canada was focused on the Loblaws bread price fixing scheme, they may have missed another massive grain-based fiasco playing out in the Canadian heartland. For months, billions of dollars in grain that should have been on freighters has instead been trapped in Prairie silos for no other reason than railroads couldn’t rustle up enough trains.
Below, a quick update on the issue that’s been dominating discussion throughout farm country.
Clearing up the mess is going to take months
CN issued a full-throated apology in early March, at hauling grain. The railroad’s CEO, Luc Jobin, resigned last month in what’s believed to be a direct fallout from the backlog. They’ve rustled up extra locomotives and lured engineers out of retirement. They’ve even been buying web ads proclaiming their love of carrying grain. However, digging their way out of this grain backlog is still going to take some time. Grain elevators are still 90 per cent full across Canada. There is still $500 million of grain waiting to make its way to market, according to a back-of-the-envelope calculation by Keith Bruch, a former vice president with the bulk grain handler Paterson GlobalFoods. He based his numbers on a figure of 21,092 grain car cancellations over the 2017/2018 season. “At 90 tonnes per car that is 1.9 million tonnes at an average (market) value of $260 (per metric tonne) … $493 million,” he wrote in an email to the National Post.
Two red CN grain cars photographed in 2014. Backlogs have caused railroads to cancel more than 20,000 grain car orders since last fall. Tom Bateman/Daily Herald Tribune
… but farmers are saying it’s too late
There are . And Steve Pratte, policy manager with the Canadian Canola Growers Association, told the National Post that they’ve “turned the corner” in grain shipments. But for many growers, the damage is already done. A farmer doesn’t get paid until the product is delivered, which means that many farmers have been going months without any cash flow.
“I’ve talked to producers in the last few weeks who have contracts that were scheduled to be delivered in November and they still haven’t been delivered,” said Mark Hemmes, an analyst with the grain shipping monitor Quorum Corp. With debts coming due — and with planting season right around the corner — many have been forced to take on extra debt. Meanwhile, it’s tough to get a good world price for Canadian grain when the delivery is so unreliable.
“The world is looking at us, saying that we’re not a reliable shipper any more,” Grain Growers of Canada president Jeff Nielsen said in February . On top of everything, rail delays have meant that there have been up to 30 vessels at a time queued up in B.C. ports waiting to get filled. It’s not cheap to have a Panamax-sized vessel waiting around for trains to show up. “Demurrage” fees for waiting grain vessels have already reached into the millions, and it all translates into a lower market price for Canadian grain.
Grain cars sit on a siding in the CN Calder Rail Yards in Edmonton, Ab on Thursday, June 7, 2012. hoto by John Lucas/Edmonton Journal
Farmers are blaming a complacent CN
The lion’s share of the delays are the fault of CN. While CP hasn’t been perfect, it’s been able to dodge shortfalls much better than its rival. In February, when bottlenecks were at their worst, CN was — compared to 50 per cent for CP.
“When one railroad struggles … the entire supply chain suffers,” CP wrote in a veiled shot at CN in a statement earlier this year. CN has won awards for its famously lean operations, and has even earned the moniker of “.” However, running a tight ship also means the company is utterly unprepared to deal with spikes in demand. That’s what happened last year. Not only was grain demand high, but oil, mining, lumber and shipping containers were putting historically high levels of pressure on the railroad.
“They got caught with their hands in the cookie jar and everybody realized that they cut things too fine,” said Ron Bennett with the Canadian Federation of Agriculture.
Bad weather probably didn’t have all that much to do with it
In their comments before the federal Agriculture Committee last month , railroad executives continually cited unusually cold weather as having been a contributor to the backlog. Trains have to run slower and lighter when it’s -25 degrees, so a cold snap does reduce a railroad’s hauling ability. However, analysis by Quorum has found that there were aren’t that many more -25 days this winter. In Edmonton, there were 24 days during which railroads had to take cold weather precautions — compared to a five year average of 19 days. Critics have also pointed out that railroads have been running trains over the wintertime Rocky Mountains since the Age of Steam and should probably be pretty good at it by now. As Canadian Federation of Agriculture president Ron Bennett said before parliamentarians last month, “the excuses of winter weather and unexpected yields don’t pass the smell test.”
This exact same thing happened four years ago
The current chaos is all déjà vu for Canadian grain farmers. In 2013, farmers brought in a record-breaking crop, only to find most of it stranded on their farms, with railways cancelling more than 60,000 grain cars worth of orders. It ultimately took most of 2014 to ship out all the Canadian export grain grown in 2013, with the Alberta Federation of Agriculture estimating that the backlog cost them $8 billion. Demurrage fees alone were more than $30 million. At the time, railroads offered the explanation that they had been blindsided by poor weather and larger-than-expected grain yields.
An oil pipeline probably wouldn’t help all that much
Last week, Alberta Premier Rachel Notley said that if Canada just started building more oil pipelines, we wouldn’t be in this mess. It’s a fair point; pipelines are generally very good at getting oil cars off the tracks. However, there isn’t all that many oil cars on the westbound routes favoured by grain. While there is no shortage of angry farmers posting social media photos of oil trains chugging west through grain country, Hemmes suspects they might be seeing trainloads of canola oil. “There’s very little (crude) oil traffic that goes to the West Coast in rail right now, but there’s a fair bit of canola oil — and the cars look exactly the same,” he said.
Maybe I wouldn t mind this garbage so much if there was a single grain car in sight? #skag #railproblems #grainbacklog pic.twitter.com/vzrRXDaZUH
It’s probably going to happen again
Last week, the Senate passed C-39, a bill that will, among other things, impose penalties upon railroads if they fail to deliver grain. The Senate even tacked on some stricter amendments designed to allow the Canadian Transportation Agency to investigate looming backlogs before it’s too late. But considering this is the second time in four years that grain farmers have been hammered by an epic backlog, growers aren’t completely assured that it’s enough to stop another cockup. For one thing, the large 2017 harvest wasn’t all that unusual. The supply of 80.5 million tonnes is the second-largest on record, to be sure, but it’s expected to be the norm as a result of increasingly productive farms, rather than some miracle grain-growing year. As a result, next season the burden on railroads is set to be just as heavy as last year. “Even with Bill C-49, you mark my words it will happen again,” said Stephen Vandervalk, a mixed grain farmer near Fort Macleod, Alberta.
It’s not just grain
Grain elevators aren’t the only thing next to railroad tracks that are full to bursting these days. Lumber yards are piled with unmoved product. Port facilities are packed with unshipped containers. It’s so bad that, while the House of Commons is still waiting to pass the amended C-49 passed, other industries are now asking Ottawa to further take the boots to the railroads for their own backlogs.
“The impact of unreliable, and inadequate, rail service extends far beyond grain producers in northern B.C.,” Bruce Ralston, B.C.’s Minister of Jobs, Trade and Technology, said in a statement last week directed at federal transport minister Marc Garneau.
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