Federal Government Orders CN and CP to Move More Grain or Get Fined

In response to mounting pressure and criticism from grain farmers and provincial agriculture ministers, Transport Minister Lisa Raitt announced an Order-in-Council yesterday that orders Canadian Pacific Railway and Montreal-based Canadian National Railway to double the current volume of grain being moved by rail to at least 500,000 tonnes each week in order to unplug what’s been called the worst grain backlog in Canadian history. If the rail companies don’t comply, they would face fines of up to $100,000 per day (Edmonton Journal, Huff Post Business, Star Phoenix, 4-Traders). The OC took effect yesterday, and CN and CP have 4 weeks to ramp up shipments to meet the new volume requirement. The federal government also committed to introduce grain-handling legislation when Parliament resumes that will help ensure agricultural products get to market.

There is currently about a 61,000-car shortfall of outstanding orders for rail cars that have not been filled with grain. And, there are 43 vessels sitting idly waiting off the West Coast of B.C. for grain to arrive, plus Canada’s grain elevator system is at 95% capacity. Farmers have already lost an estimated $3.5 billion in grain sales. As Canada’s Agriculture Minister said almost 2 weeks ago, railways are the “weak link” in the supply chain.

Alberta Federation of Agriculture president Lynn Jacobson, said the federal order “will certainly help”, but he’s worried it might not be enough to open the bottleneck which has left bumper crops sitting in bins across the Prairies. Wade Sobkowich, the executive director of the Western Grain Elevator Association, called the order good news and praised the government for taking a positive and strong approach to a serious problem. Saskatchewan’s Agriculture Minister said, “What’s been lacking is the will to do it and certainly the penalties that are put in place will be very strong encouragement to them (railways) to improve their service.” Alberta’s Agriculture Minister said, “This is a really good start.” Dan Mazier, VP of Keystone Agricultural Producers, said, “Obviously, the government heard us. This is great news from a farmer’s perspective.” Others were not impressed, like Liberal MP Ralph Goodale, who called the order “far too little and it’s far too late.”

The federal government said Friday’s order was necessary “…to preserve the integrity of Canada’s transportation system and our reputation as a global player.” The federal Agriculture Minister said farmers had become increasingly frustrated by the “poor performance of railways”, which had been criticized for hauling more lucrative petroleum loads at the expense of grain loads. He said, “The railways have dropped the ball. This situation is not acceptable.” Greg Cherewyk of Pulse Canada said, rail companies have taken grain farmers for granted because they have no other choice to get their product to market.

CN and CP said they would comply with the federal order, but lashed out at the federal government for issuing the order and for indicating legislation would follow. CN CEO Claude Mongeau suggested the new legislation is ill-advised and counter-productive. He threatened that more regulation would lead to adversarial relationships within the supply chain, at a time when collaboration is essential. CP CEO Hunter Harrison (previously CN’s CEO) said adding more cars to the rail system is the wrong thing to do. CP took out full-page ads in the Globe and Mail and National Post on Thursday, in an attempt to defend CP’s handling of the grain backlog. Both CN and CP tried to partially blame the cold weather this winter for the backlog.

Many times, both Mongeau and Harrison have fought any intervention by the federal government in Canada’s rail service. They consistently have argued that the commercial framework should be left to operate on its own. On the other hand, shippers and many railroad pundits have argued that CN’s and CP’s monopoly over rail service in Canada has hurt different sectors of the national economy, while the 2 private railway companies pocket huge profits. A little over a year ago, Mongeau complained when the new Fair Rail Freight Service Act was being debated, arguing the act would stifle positive business dealings; however, shippers had been complaining about poor shipping services and pleading for the legislation to help ensure CN and CP would live up to their hauling commitments. Many have argued that CN’s rail service has declined ever since CN was privatized in 1995, where CN now holds all the cards and shippers are at their mercy.

~ by railroaded on March 8, 2014.