Rail reform sought
October 01, 1998
by Teresa Acklin
Canadian Pacific proposes changes to grain transportation system
The role of the Canadian Wheat Board in the rail transportation of grain would be eliminated under a reform proposal of the Canadian Pacific Railway, based in Calgary, Alberta.
Canadian Pacific, the sixth-largest railroad in North America with 15,500 miles of track, on Sept. 3 unveiled a three-part formula for the reform of the Canadian grain handling and transportation system. These proposals are part of the railroad's initial recommendations to Justice Willard Estey, who is conducting a review of Canadian grain handling and transportation for the federal government.
The C.P. recommendations include:
Flexible car allocation programs to ensure that the right grain cars are delivered to port at the right time. To accomplish this, the railway recommends the elimination of the Car Allocation Policy Group, “a multi-party, multi-layered bureaucracy that hinders efficient grain car allocation.”
Direct shipper/carrier negotiations, in which shippers interact one-to-one with their carrier of choice. “This proposal would eliminate the role of intermediaries, such as the Canadian Wheat Board, in the transportation process, providing faster, more efficient supply, loading, delivery and unloading of grain cars,” the C.P. said.
Flexible price and service based on market demand, “which would encourage players in the industry to develop service options and innovations that currently aren't available to farmers.” The current maximum rate scale, the C.P. said, “creates an average-pricing system that not only hides the true costs of transporting grain, but deters efficiency building in the system by offering the same prices for grain movements of different values.” The C.P. report noted that under the Canada Transportation Act, grain that moves by rail to a port position “has an extra layer of regulation, including special provisions for allocation of cars and regulated freight rates. The bureaucracy applied to grains heading to ports is restrictive and holds the system back from performing efficiently.”
Grain and other commodities shipped to the United States or remaining in Canada (including both C.W.B. and non-C.W.B. grains) move in a more flexible and efficient commercial environment “where prices are decided through negotiation, not by a government-imposed rate known as the maximum freight rate scale,” the Canadian Pacific said.
“The opportunity to operate in a commercial system would see grain moving to port on the same footing as other commodities and domestic/U.S.-bound grain. This system would see export grain moving more efficiently in response to market demand by truck from the farm gate to the prairie elevator, processor or feed lot of choice, to the railway of choice, to the grain terminals at the ports, into the holds of ships and to the end-use customer.”
The C.P. also said that the present method under which the C.W.B. and the grain industry determine which elevators receive rail cars for C.W.B. grains based on the average tonnage handled in the previous 52 weeks “discourages competition because it protects market share on the basis of history and equity. It does not encourage efficient movements.”
“C.P. believes that a more flexible allocation method primarily based on sales is required,” the railway said. “This would provide better service in Canada and to end-use customers. It would also increase the competition in the grain handling system.”
Car allocation, the C.P. added, “should be the responsibility of the shippers and carriers. Grain companies, who own the country elevators, and the railways, who own the rail cars, should be able to deal directly with one another to negotiate service, or aggressively market their assets.”
“It means operating on a commercial basis driven by markets and sales activities,” the C.P. said. “It means eliminating the bureaucratic processes in car allocation and distribution. It means taking the third party (C.W.B.) out of inland transportation.”
Under the C.P. proposal, “the C.W.B. could concentrate on marketing. It would withdraw from its function in the centrally controlled car allocation policy group and its role in inland transportation.”
On the issue of pricing, the C.P. noted that railroad freight rates for defined grain shipments, or 74% of its 1997 volume of 19 million tonnes, cannot exceed a prescribed maximum price.
“The maximum freight rate cannot be exceeded, regardless of the many characteristics of individual grain movements or the value that certain movements provide,” the C.P. said. “The same distance-based rate is assessed no matter the type of equipment used, the time of year, the commodity moved or whether the movement originates from a highly efficient or less efficient point.
“In effect, an average price is used to pay a range of different services and operations. As a result, cross subsidization occurs. Low-cost rail movements pay for high-cost rail movements. C.P. believes we need a system of flexible pricing, where lower costs can be recognized but so can higher-cost, less efficient movements. The real costs of individual movements are hidden from shippers, and, therefore, markets become distorted.” In a Sept. 21 report to Mr. Estey, the C.W.B. said it must maintain its coordinating role in the procurement and movement of grain to maximize returns for farmers.
“There are considerable efficiencies in the current system from having one single coordinator,” the Board said. “Wheat and barley have lower rail car turnaround times than other grains and make more efficient use of port facilities. This happens because of the coordinating role the C.W. B. plays in transportation. It's in farmers' interests to maintain that critical role.”
Noting that only 26 of 811 grain delivery points are served by both the Canadian National and Canadian Pacific railroads, the C.W.B. said that “in the vast majority of cases, farmers are captive to one railway and the rates charged by that railway. A statutory rate cap is necessary to protect farmers.”