Canada’s grain transportation debacle of 2018 certainly qualifies as a problem that reached the fiery stage, as literally millions of tonnes of grain that were scheduled to move late last fall and early this winter sat idle due to significant delays in the country’s rail system.
The nation’s two major rail companies — Canadian National and Canadian Pacific — struggled with capacity constraints amid growing demand to ship Western Canadian grain. Angry farmers were unable to sell as much of the 2017 crop as they wanted, crimping cash flow ahead of planting in the world’s largest canola-exporting country, which is also a major exporter of wheat and barley. As of late February, CN had met only 17% of hopper car orders while CP had supplied 50%.
This was not the first time the rail system had failed the Canadian grain industry. In 2014, following a record grain harvest the preceding fall, more than 60,000 grain cars worth of orders were canceled, and it took nearly all of 2014 to ship out the 2013 grain that was designated for export.
Railroad officials blamed the extreme cold weather and the larger-than-expected grain crop for the delay that year. Four years later, with crop production only slightly larger than what was expected and a winter that was harsh but not a major deviation from the norm, the grain industry wasn’t in the mood for excuse-making. They wanted solutions.
With some nudging from the Canadian government, which in May passed the Transportation Modernization Act that incentivizes CN and CP to improve their grain shipping efficiency, it appears the railway companies are determined to put their grain transportation failures — and the negative publicity that accompanied them — in the rearview mirror. A key provision in the new law is that the maximum revenue entitlement system — which placed a ceiling on the total revenue to be earned from moving grain by rail in any crop year — has been eliminated, giving CN and CP more incentive than ever to add railcars dedicated to grain shipment.
In recent weeks, both CN and CP have unveiled strategies that they say will enable them to ship grain more efficiently in the coming years. CP announced that it will invest more than C$500 million to purchase new high-capacity grain hopper cars over the next four years, with 500 expected to come into service before the end of 2018. Meanwhile, CN has ordered 1,000 high-cube grain hopper cars to replace aging equipment and accommodate the increasing Canadian grain yields.
While the rail companies and government deserve credit for effectively addressing the crisis in the short term, it remains to be seen whether the long-term solutions are in place. For the sake of Western Canadian grain producers, let’s hope so.
From a broader view, Canada is not the only major grain-producing country facing transportation challenges. In Brazil, where grain and oilseed production has skyrocketed in recent years, many grain transport roads are still unpaved and very few railways are available. A ray of hope in that situation is China’s announcement that it will contribute three dollars for every dollar invested by Brazil for the China-Brazil $20 billion fund for infrastructure projects. As the leading consumer of Brazilian soybeans, China has a vested interest in the success of this project.
Such news is encouraging, because while massive investments have been made around the world in recent years to increase crop yield and produce more high-tech planting and harvesting equipment, not nearly enough has been earmarked for logistical improvements to the roads, railways and waterways that must carry that larger volume of grain. Until it is, unfortunate situations like the one that occurred in Canada this past winter will continue to arise.
