Ottawa gives railways grain-moving quota

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The federal government is taking new steps to clear the grain backlog in Western Canada, requiring railways to move a minimum amount of the crop each week and warning it will fine those that fall short.

Canadian Pacific Railway Ltd. and Canadian National Railway Co. face penalties of $100,000 a day for failing to move a combined one million tonnes of grain every week, more than double the volume being currently shipped by rail, Transport Minister Lisa Raitt said in Winnipeg on Friday.

Ottawa's move, which is in force for 90 days, follows months of complaints of poor service by grain handling companies and farmers, who are struggling to get a record crop to market amid a shortage of rail cars.

"This issue affects more than just farmers – it affects trade and Canada's ability to supply our markets around the world," Ms. Raitt said.

The 2013 crop of wheat, canola, barley and other grains was about 40 per cent bigger than the previous year's due to good weather and improved growing methods. But farmers and the companies that buy and ship their grain have been frustrated in their attempts to cash in on the big harvest at a time when prices are relatively strong. Elevators are at capacity waiting for hopper cars and refusing to take more grain, leaving some farmers with full storage bins and no cash flow. Ships hired by international buyers are lined up on the West Coast awaiting grain trains, and there have been reports of some buying U.S. commodities to avoid the expensive delays.

The railways say the massive crop and extreme cold made normal operations impossible. Trains are shorter in winter to ensure they can stop safely, and switches and equipment are more prone to break down.

Agriculture Minister Gerry Ritz said there could be legislation coming to ensure the efficient movement of crops, but did not elaborate.

"The railways have dropped the ball," said Mr. Ritz, whose government is better known for reducing regulations, not imposing them on companies.

Ed Greenberg, a CP spokesman, said the company is disappointed with the government's "unfortunate" order and believes railways are being blamed for the shortcomings of the entire supply chain.

"Nobody knew it was there until it was off the field," CN spokesman Jim Feeny said of the 76-million-tonne harvest.

Groups representing grain farmers and traders that have been pushing Ottawa to take action welcomed the news.

"It shows that the government is going to hold the railways accountable for moving grain. And that's what we need," said Wade Sobkowich of the Western Grain Elevator Association, which represents grain shippers including Richardson International Ltd. and Parrish and Heimbecker Ltd.

But he said even if the railways were able to sustain the required level of service, there would still be 25 million tonnes of grain in storage when the new crop is harvested in the fall.

Mr. Sobkowich said years of cost-cutting by railways has hurt the companies that rely on them to get their goods to buyers.

"We had a continued [rail car] shortfall throughout the peak shipping period, starting in September, and we never got rid of that shortfall," Mr. Sobkowich said in an interview.

"We know that there's winter. They know that there's winter. But you can't blame it on the winter. They have had a large part of the year and many years to make sure they have adequate measures in place to account for the winters, and that means an investment in surge capacity," Mr. Sobkowich said. "They don't feel the need to invest because they know they're going to move the grain anyway."

CP has been restructuring and cutting costs under chief executive officer Hunter Harrison, idling 400 locomotives and 2,700 cars and eliminating 4,200 jobs since 2012. The company has said it is becoming more efficient, and that the cuts have not affected its ability to move goods.

CN said it has been investing in labour and locomotives, and last year spent $100-million to expand cargo-handling capacity in the west.

The new rules give the railways four weeks to begin moving more than 5,500 rail cars each from the grain elevators. In the fall, CN and CP were moving a weekly total of 9,300 cars.

CN has recently been delivering 3,530 empty cars a week for loading, and was planning to resume a "more normal" service level of more than 4,000 cars as temperatures rise.

"We know that we can deliver 5,500 cars a week to elevators on CN lines … but only if every member of the supply chain works together," CN's Mr. Feeny said.

To reach the target, Mr. Feeny said the grain companies must begin pushing a lot of grain through Thunder Bay and the St. Lawrence Seaway, in addition to the crop sold at ports in Vancouver and Prince Rupert, B.C.