Monday, July 28, 2014

CN, CP: Bring on the harvest

Written by  William C. Vantuono, Editor-in-Chief
Canada’s 2014-2015 grain harvest will soon be under way, and both CN and Canadian Pacific say they are well-prepared to accommodate the new harvest with a steady throughput rate in synch with the grain supply chain, and are able to address the excess carryover from last year’s record crop by as early as next spring.

“CN posted a record performance in the 2013-2014 crop-year just ending—our movement of Western Canadian grain was a full 25% greater than past average performance,” said President and CEO Claude Mongeau. “We can be proud of our performance and for making good on the commitments we gave the federal government a month before the order-in-council requiring railways to move specific grain volumes took effect last March. By virtue of normal commercial incentives, the grain handling and transportation system is now fully back in sync and ready to accommodate the upcoming harvest. This positive development is very encouraging and calls for careful balance from the federal government in how it pursues the regulatory agenda it announced in haste in the midst of a very difficult winter.”

“Canadian Pacific remains focused on working closely with our customers across the network as we move forward to this fall’s harvest period,” said CEO E. Hunter Harrison. “Our railway moved record volumes of Canadian grain from last harvest and we are committed to have the resources in place for this fall. CP’s operating plan going into the fall is focused on ongoing improvement in the velocity of our trains and effective utilization of our railcar fleet in order to deliver more cars each week. This is a continuous process that CP officials are engaged in as part of ramping up service for shippers this fall. This is a complex supply chain issue involving not just the railways, and CP is collaborating with all stakeholders in Canada’s grain handling and transportation system to be in a strong position to respond to grain shippers.”

Mongeau said CN transported record grain volumes last fall until extreme cold weather affected the rail industry's ability to move grain efficiently between mid-December and early March. In February, CN promised the federal government it would ramp back up to record performance as soon as the weather eased, “and we did just that,” he said. “The weather clearly challenged our operations, but the our winter grain shipments ultimately turned out to be only 2% below normal winter volumes.

CN’s run rate of spotting approximately 5,500 grain hopper cars per week since April 2014 has exceeded unconstrained orders placed by its customers, and its wait-list has declined significantly in the past few months due to a high level of order cancellations, and now represents a normal level of only one week of shipments.

“According to Agriculture Canada, the carry-over from the crop-year just ending will be about 18 million tonnes, only 5.5 million tonnes higher than an average carry-over,” said Mongeau. “Given a late-planted crop this spring, the supply chain will have another five or so weeks to deplete stocks further by five to six million tonnes prior to the harvest starting in full gear. All this means there should be sufficient storage capacity available in the system. Looking forward, given Agriculture Canada's latest 2014-2015 crop forecast of 59 million tones—slightly higher than a trend-line average crop—the current throughput level for the rail industry should be sufficient to eliminate all the excess carry-over of grain by as early as next spring.”

“End-to-end balance has been restored to the grain supply chain through hard work and normal commercial incentives,” Mongeau noted. “As there is no structural problem to fix, the government of Canada should limit the scope of new rail regulations, and instead focus on encouraging true supply chain collaboration. We urge the federal government to adopt such a commercial approach and are ready to play a key role in the grain handling and transportation system for the benefit of Canadian grain growers.”