train tracks
 

Canada’s wide-ranging Transportation Modernization Act is intended to help grains and other crops move more quickly to market after a winter in which Canadian National (CN) Railway Co. and Canadian Pacific (CP) Railway Ltd. struggled to ship harvested grain in a timely manner.

It was the second time in five years that the two major railway companies failed to meet the expectations of its grain customers.

The railways said the tardy service was due to harsh winter conditions and a need for more locomotives and staff.

CN said on May 23 that it is preparing to purchase hundreds of new grain hopper cars.

The Transportation Modernization Act includes financial penalties for railways that fail to deliver promised rail cars for grain shipments on time. It also requires railways to publicly report each summer on their abilities to move that year’s grain crop, and to publish by Oct. 1 each year a winter contingency plan for keeping shipments moving regardless of bad weather.

Ghislaine Houle chief financial officer at CN
Ghislaine Houle, chief financial officer at CN

Speaking at an investment conference, Ghislaine Houle, chief financial officer at CN, said the maximum revenue entitlement system — which has placed a ceiling on the total revenue to be earned from moving grain by rail in any crop year —  has been a disincentive to invest.

With that ceiling removed, rail companies will be eager to boost their grain car fleet, he said.

“That now fixes it where if we invest in grain cars, we’ll get 100% of our investment coming to us,” he said.

Murray Hamilton an executive with CP
Murray Hamilton, an executive with CP

CP also has announced plans to make a significant investment that includes new, higher capacity railcars, replacement of old equipment and network changes that include an 8,500-foot loop system at grain elevators. Speaking at the Canadian Global Crops Symposium in April, Murray Hamilton, an executive with CP, noted that with current loop tracks, trains are 112 cars long, but with an 8,500-foot loop, trains could grow to 134 cars, which would represent a “20% increase of grain per train.”

Hamilton said CP plans to spend between $1.3 billion and $1.5 billion on capital expenditures in 2018, with about $500 million of that tied to the passage of the Transportation Modernization Act.