While farmers were seeing bumper crops last season, railway companies were reducing the number of railcars being used.
Farmers are sitting on a payload and unaware shipping would be slowed. While the decision by Canadian Pacific (CP) and Canadian National (CN) railways helped their bottom line, the marketplace is taking a hit.
Transport has been slow enough that more than half — 45 million tons — of the 76 million tons of grain produced in Western Canada is still in storage.
Advocating to increase grain loads is Wade Subkowich, executive director, Western Grain Elevators Association.
“The railways assume the grain is going to move eventually, so they’re not concerned with the negative effects that untimely movement may have on the operations of grain companies and farmers,” stated Subkowich.
But storage in the prairies is almost at its maximum while at the port, sellers are desperate to sell grain. Companies are offering low prices on the mainland for grain they cannot store. “The prices are artificially low because the railways are creating a false supply and demand situation because of the lack of capacity.”
This also affects grain sellers who are facing daily demurrage charges for failing to load grain in time; approximately $12,000 to $25,000 a day per vessel, says Subkowich. Contract extension penalties are being paid to oversees customers as well.
Farmers are sitting on grain at risk of degradation and a shortage of cash to invest in product for the next season.
Railway representatives claim cold weather and the large quantity of grain was unexpected, says Subkowich, but he questions some of that reasoning after his association and others informed railways of the bumper crop.
As for cold weather, Subkowich feels CN and CP did not account for a cold winter season.
Wheat board separate issue from transportation
Subkowich says he does not feel the recent dismantling of the Canadian Wheat Board affected farmers this year. The board was involved in logistics for wheat and barley and groups such as the grain elevators association was involved in the logistics of all non-board grains, he explained.
“The two logistics sometimes tripped over each other and now what we have is the companies manage the pipeline…So we believe if we had two logistics that the problem would be amplified,” said Subkowich.
He feels railway transportation of grains was an issue for the wheat board in recent years.
Subkowich has heard some concerns from producers over the railways and grain elevator associations conspiring together but “that couldn’t be further from the truth.”
“We need to move this grain and we’ve been at this for years…We’ve been on the public record over and over again that we need legislative back stops so that we don’t end up in these same situations,” he explained.
Order in council from the federal government
The issue has caused the federal government to step in and set legislation for the two railway companies to increase shipping or pay fines. CP and CN each must provide 500,000 — approximately 5,500 rail cars — tons of capacity, per week, and if they don’t comply, a penalty of $100,000 per day will be applied.
This may be too little, too late. Subkowich expects large amounts of grain being stored for some time. “We’re still going to have about 25 million tons left.”
With only two railway companies handling grain transport, Subkowich does not feel grain producers have many options. “A lot of people refer to the rails as a duopoly.”
Farmers have the choice of dealing with either Canadian Pacific Railway (CP) or Canadian National Railway (CN). In some cases only one company will stop at a grain elevator, explained Subkowich. “You don’t have a choice. You’re beholden to a monopoly.”