Through ownership of its grain rail cars, 140-car loop track systems and the marketing services it offers to customers, GrainsConnect Canada executives are vowing the company will be one of the most efficient grain operations on the Canadian prairies.
The company, which is a partnership between Australia-based GrainCorp and Zen-Noh Grain, a subsidiary of Japanese agricultural cooperative, Zen-Noh, celebrated in early July the grand opening of the first two of four grain terminals it plans to open in western Canada. The terminals in Maymont and Reford, Saskatchewan, are in operation and construction is ongoing on terminals in Huxley and Vegreville, Alberta.
“It’s about bringing the latest technology to achieve the most efficient supply chain, offering to producers something different, not more of the same, using the latest technology and being cost competitive,” Klaus Pamminger, group general manager, grains, GrainCorp, told World Grain.
GrainsConnect will be a bridge from Canadian farmers to the Australia and Asia-based customers of GrainCorp and Zen-Noh, officials said during the grand opening celebrations.
“Both Australia and Canada are facing significant economic challenges from the Black Sea region,” Pamminger said. “Russia has become an exporter of wheat. Australia and Canada need to make sure we’re cost competitive to the customers in Asia because they have so much choice.”
It took a consolidated effort on many fronts to break into a market that is fairly mature, said Warren Stow, president of GrainsConnect, during the celebration. Grain-giant Louis Dreyfus Co. operates four elevators in Saskatchewan, including one in Wilkie, which is less than 10 miles from the GrainsConnect Reford location. Cargill also has multiple locations in the province, including a 33,000-tonne elevator in North Battleford, which is 30 miles northwest of Maymont and 34 miles northeast of Wilkie. Viterra also has a 34,840-tonne facility near North Battleford and a 7,500-tonne facility in Wilkie.
“You’re competing against companies that have been around for 50-plus years,” he said. “We worked with a lot of what I called strategic partners just to give us an opportunity to even consider competing.”
In deciding on locations for the GrainsConnect facilities, Mark Palmquist, managing director and chief executive officer of GrainCorp, told World Grain company leaders looked for places that fit the mix of wheat, barley and canola and were close to the west coast.
“We wanted to make sure we came in areas where farmers truly needed to have a new asset that also would dramatically reduce the supply chain cost,” he said. “That’s where we spent time with CN, asking them what type of capabilities they would need to create the efficiency and productivity that can genuinely change the cost structure of the supply chain.”
Both the Maymont and Reford terminals include a 2.7-km loop track that can hold 140 rail cars. They can unload a Super-B truck or load out a 100-tonne rail car in less than five minutes, Stow said. Each has the capacity to store 35,000 tonnes of grain.
So far, the fastest turnaround for a 100-car unit train was about eight-and-a-half hours at the Maymont facility, he said. Both facilities have a receiving capacity of about 625 tonnes per hour and a rail loadout capacity of 2,000 tonnes per hour.
Maymont has loaded 15 trains since December 2017 while the Wilkie facility started receiving grain in mid-March and shipped its first train in June. Most of the grain coming into the terminals are from a 100-km radius, Stow said.
The 100-car trains come into the loop with the power on and are turned over to the GrainsConnect team for loading, said Jay Roberts, a CN executive who spoke during the grand opening in Maymont. In 14 hours or less, that team is done and the train is turned back over to CN.
“This is really the high-efficiency model for Canadian grain elevators,” Roberts said. “It is the new model and our new standard. There’s a power switch right off the main line, which allows our trains to come in without the conductor having to get off. That improves safety and increases efficiency.”
In addition, GrainsConnect currently owns two complete sets of rail cars, one for each operating facility, which eliminates concerns about car availability, particularly during peak times. The company expects to take delivery of its third set of cars in September and put the fourth set on order soon, Pamminger said.
“Each facility will have their own units,” he said. “They’re always hot, always intact and they don’t freeze up.”
That type of productivity fundamentally changes the cost structure for the railroad, Palmquist said. The locomotives get much greater velocity, the crews are handling more tonnage in terms of miles.
“There are very few facilities in Canada that operate that way,” he said. “Most have to break a train up, put it back together again, take the power off and then it takes a long time to load.”
Down the road, GrainsConnect hopes to further enhance customers’ experience with the addition of digital platforms, which are already in use in Australia.
“The growers that GrainCorp deals with in Australia engage with us by many different means — e-mail, phone and also a digital platform where they can complete transactions and look for services,” Pamminger said. “It’s something we want to bring to Canada as well.”
Other future plans for GrainsConnect include expansion. Palmquist said the GrainsConnect partners believe there will be a need to go beyond the four initial terminals.
“We purposefully said let’s do those four, test the economics, make sure we are providing a greater value to the farmer and make sure we know how to run these,” he said. “From there, if there’s further need for expansion, we can certainly do that.”
That could mean building new terminals or exploring other ways to access additional supplies, whether through acquisition, partnerships or some other method. Another major question surrounds port availability in western Canada. The Port of Vancouver terminal already is handling a record volume of cargo, and demand is expected to stay strong through 2018. Industry officials have questioned the port’s ability to handle an ever-increasing amount of cargo, particularly in light of the Trans-Pacific Partnership, which is expected to bring billions of dollars more intrade.
For GrainsConnect, it’s a matter of asking which comes first: port access or the grain origination site?
“We strongly believe that we need to get the origination and get that secure,” Palmquist said. “Then the issue is export access. But again, is that an issue of saying you need to build it yourself or is there capacity available that makes more sense? The last thing we want to do is push more capacity in the marketplace if it isn’t needed. But we do need to have that access, so one way or another, we’ll be getting that done.”
The addition of soybeans to the GrainsConnect commodity mix is a possibility, especially as acreage in western Canada continues to grow.
“If the soybean crop gets to a fairly good size, we can handle it on a bulk basis,” Palmquist said. “Both Zen-Noh and GrainCorp have customers who are handling soybeans; it could be a great market. If soybeans are something that works well on a rotational basis, it will be a benefit to the wheat farmer.”
Along with exploring other opportunities in the Canadian prairies, Pamminger said GrainCorp might look to build a similar type of supply chain in Ukraine. The company now has a trading staff in place in the Eastern European nation and is looking for further opportunities in the region.
“It would be very similar to what we’re doing here,” he said. “Collecting grain from the farmer, moving it to the ports in Ukraine in the Black Sea. We need to spend more time investigating what it might look like.”
Wheat from Ukraine currently goes to markets in Indonesia, Europe and Pakistan, along with barley and canola. GrainCorp already ships to those regions and Zen-Noh is involved with feed barley in the region.
“The new thing that Ukraine could help GrainCorp with is corn,” Pamminger said. “It would allow GrainCorp to grow more into feed grains, where today it doesn’t have a strong presence.”
GrainCorp and Zen-Noh already had a strong relationship prior to the GrainsConnect partnership. Zen-Noh was a customer of GrainCorp for grains coming out of Australia.
“The relationship has only gotten stronger as we’ve gone through this project,” Pamminger said.
Zen-Noh Grain has a great responsibility for importing high quality foods, feeds and edible oils into Japan, and Canada was a missing physical supply chain it wasn’t involved in, Palmquist said. For GrainCorp, it was becoming apparent it needed a source for its customers in Asia and Middle East
“Canada was such a great fit,” Palmquist said. “Those benefits to Zen-Noh customers and our customers in Asia and the Middle East is already starting to really show, particularly this year. We have another small crop in eastern Australia and the origination coming out of Canada is going to be very important to our customers.”
Zen-Noh Grain has more than 40 years of experience in the United States, building a supply chain to Japanese end users starting with its first export facility in New Orleans, Louisiana, U.S., in 1979, and following up in 1988 with the purchase of Consolidated Grain and Barge. Today, Zen-Noh Grain has 95 facilities that handle 16 million tonnes of grain.
The company prides itself on having a very efficient system thanks to the origination it has and the control of the whole process, said John Williams, president and CEO of Zen-Noh Grain. Through this system, it is able to provide a cost-competitive and reliable source of feed grains and soybeans to parent Zen-Noh, which is the single largest compound feed manufacturer in Japan.
“It’s very critical to them (Zen-Noh) to have a reliable, dependable supply from producers from around the world because it is so expensive to store grain over there,” Williams said. “It’s exciting to join forces with GrainCorp, who has been a friend and trading partner with Zen-Noh for many years. It’s a real good marriage of two solid, global companies with the same mission and the same personalities who certainly will want to take care of their end users. That bridge to now a different group of farmers with different commodities, through this system all the way to Zen-Noh is perfect. I can’t wait until we get it fully built out and fully functional.”
The partnership is also beneficial when trade distortions flare, whether it’s a trade war with the United States or temporary embargoes due to the discovery of GMO wheat in export shipments. Japan and South Korea temporarily suspended imports of Canadian wheat in June after GMO was found in samples in Alberta. Both nations lifted the suspension a few weeks later.
This situation exemplifies how customers are becoming more discriminatory about what they want, Palmquist said.
“They want an assurance of what they’re buying, and they want to know where it’s from,” he said. “The GMO issue in wheat hurts the trust factor. We have to rebuild that trust now. Having physical control from farm gate to when you put it on the doorstep of the customer has always been important.”