You are using an older browser version. Please use a supported version for the best MSN experience.

Canada Legislates Rail Shipments to Alleviate Grain Backlog

Bloomberg logoBloomberg 26-03-2014 Jen Skerritt and Theophilos Argitis

(Updates with CN comment in fifth paragraph.)

March 26 (Bloomberg) -- Canada is legislating minimum requirements for the movement of grain by the nation’s two major railways to help ease a backlog that has left as much as C$20 billion ($18 billion) of crops stuck on prairie farms.

Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt introduced the Fair Rail for Grain Farmers Act today to respond to challenges currently facing Canada’s rail shipping system. Proposed amendments to the Canada Transportation Act will let government set minimum volume requirements for the movement of grain by Canadian National Railway Co. and Canadian Pacific Railway Ltd. and impose penalties of C$100,000 per day for non-compliance.

“Over the past months, a significant backlog of grain and other commodities has impacted not only on our grain farms but Canada’s overall economy,” Ritz told reporters in Ottawa. “In order to get the largest crop yield in Canadian history moving, our government took decisive action.”

The Canadian Transportation Agency will be responsible for recommending minimum volumes to the minister of transport over the course of the summer and early fall as the size of the harvest becomes clearer, according to government documents.

Canadian National “is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control,” Chief Executive Officer Claude Mongeau said in an e-mailed statement. “The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future.”

Canadian Pacific spokesman Ed Greenberg said in an e-mail the company is reviewing the legislation before commenting further.

Improve Distribution

The federal government’s efforts to roughly double grain transport by rail should improve distribution of wheat and canola by mid-summer and free up space in farmers’ bins just in time for this year’s harvest, according to a BMO Capital Markets economic research report. The country’s rail transport volumes were down 12 percent in January from a year earlier despite the bumper crop stored on farms, the report said.

The proposed changes will help get grain moving and ensure railways have enough power and locomotives if Canadian farmers harvest another good crop in 2014, Allan Johnston, president of Johnston’s grain brokerage, said in a telephone interview from Welwyn, Saskatchewan. “Everything is full” of grain, and there is not enough capacity to move last year’s crop quickly, he said.

‘Move Forward’

“We hope this process can move forward quickly so that we have something in place in the near future,” Greg Cherewyk, chief operating officer of Pulse Canada, a Winnipeg-based industry group that represents growers, processors and traders of lentils, chickpeas and other pulse crops, said in a statement.

Record harvests and railroad logjams across Canada’s prairie provinces have made shipments difficult for grain companies and farmers. The rail-car backlog has risen to 71,500, according to Quorum Corp., the Edmonton-based company appointed by the federal government to monitor Canada’s grain transportation system.

Canadian Pacific, based in Calgary and Montreal-based Canadian National will be required to increase the volumes carried each week. Railways will each be required to ship a minimum of 500,000 metric tons of grain each week beginning April 7, according to government documents.

‘Extreme Cold’

Canadian National began increasing grain loadings as soon as “we got a meaningful break from this harsh winter’s extreme cold temperatures,” Claude Mongeau, president and chief executive officer, said in a March 24 statement. The railway has delivered an average of 4,366 grain cars to prairie elevators three weeks in a row, according to the statement.

The impact of the proposed regulations is a “mystery” as the government has not provided any clear details, opposition Liberal lawmaker Ralph Goodale said in a telephone interview. The country still has no one in charge of coordinating grain transportation to ensure grain gets to ports and customers on time, making the system is a “chaotic free-for-all,” he said.

“It seems to have been a very long wait for a very small result,” Goodale said of the proposed changes.

--With assistance from Frederic Tomesco in Montreal.

To contact the reporters on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net; Paul Badertscher at pbadertscher@bloomberg.net John Simpson

image beaconimage beaconimage beacon