CN on Grain: Government Doesn’t Know How to Bake

Written by William C. Vantuono, Editor-in-Chief
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While stressing that “there are tremendous opportunities to grow Canada’s grain supply chain” as it “invests in its network and increases supply chain performance through collaboration with customers and a fact-based approach to improve end-to-end efficiency,” CN says that new regulations “based on incomplete data and anecdotal evidence will only end up stifling investment and constraining supply chain capacity, effectively putting a cap on the industry’s growth potential. Canada deserves systems that measure and report on the entire supply chain.”

The Government of Canada’s 2023 budget contemplates establishment of a Transportation Supply Chain Office, which it claims will “work in collaboration with industry to respond to disruptions and better coordinate action to increase the capacity, efficiency, and reliability of Canada’s transportation supply chain infrastructure.” However, CN notes, “it is important to look at the current state of supply chain data and reporting what’s available, what’s not, and what’s needed. After review, a clear gap emerges. Today’s government focuses almost exclusively on a single link in the entire end-to-end supply chain: rail transportation. If Canada hopes to improve how supply chains work, we need to change how we measure and report on data. A balanced approach that considers all parts of the supply chain will help decision makers better understand what is going on when problems arise and why.”

Weekly shipments of grain and processed grain products from western Canada on CN vs. maximum end-to-end sustainable supply chain capacity guidance. CN chart (as of March 24, 2023).

Data reporting from the grain industry, funded in part by Agriculture and Agri-Food Canada, “lays the blame at the feet of railways when it comes to hopper car order fulfillment,” CN says. “That’s like blaming farmers for slow seeding progress but leaving out the fact it poured rain all week. The same thing happens to railways when it rains in Vancouver. Grain terminals plug because they can’t load grain to vessels, hopper car unloads fall because the terminal can’t take more cars, and the railways get blamed. Even members of the agricultural community in Western Canada are concerned about this one-sided approach. Government and industry need to correct our measuring systems. All the links in the chain need to be working together to deliver results. It is time we measured performance in a new way.”

CN-supplied hopper car order fulfillment 2022-23 crop year to-date. CN chart (as of March 24, 2023).

CN offers two grain reports: a weekly Western Canadian Grain Report, produced since the 2016-17 crop year, and a monthly Grain Plan update. Both summarize the major events affecting the supply chain. “Unlike industry and government data, these reports get into the ‘why’ of what’s going on in the supply chain,” CN says. “Our reporting includes a dashboard (below) to illustrate how the end-to-end supply chain is doing and ties it back to all the conditions required to achieve the maximum supply chain capacity described in our Grain Plan. Detail is also included as to the underlying cause of good or bad performance for each of the supply chain components. If you don’t have all the ingredients in place to bake the cake, so to speak, maximum end-to-end supply chain capacity cannot be consistently achieved.”

CN’s grain dashboard illustrates pinch points for grain movement in the current crop year. Red and yellow show problems at grain terminals, especially at West Coast grain terminals. The toughest going was around grain shipment weeks 13-15 when persistent rainfall brought export terminal operations in the Port of Vancouver to a crawl. At one point, CN had nearly 20 grain trains held back on the prairies or along the route to Vancouver because advancing more trains would only create more congestion at the Port. Those rain delays also meant grain cars weren’t getting emptied and cycled back to get new loads. “Decision makers looking for solutions to supply chain problems are missing the big picture if they just look at hopper car order fulfillment,” CN notes.

The Government of Canada’s latest solution to the issues affecting the grain supply chain is to impose extended interswitching (“reciprocal switching” in the U.S.) on Canada’s railways. “Extended interswitching reduces capacity and efficiency and adds cost—the exact opposite of what Canadian supply chains need,” CN says. “Shuffling cars back and forth between rail carriers adds to transit times as each car requires more handling. Rail yard space and other resources consumed by the additional handling will create congestion, especially during peak period grain movement, meaning less grain moves. But more importantly as the efficiency of the rail network declines, costs go up across all rail traffic segments, including consumer goods, and that means more costs for consumers already facing high inflation.”

“These negatives prompt the question as to why new rail regulations are needed,” CN concludes. “Canadian rail rates are already among the lowest of major market-based economies in the world. Rail service this past winter was strong. And existing regulations have already been through a thorough review, the 500-page Emerson Report, a review completed the most recent time extended interswitching was experimented with.” This report “recommended less regulation, not more, as the best way to improve supply chains. Emerson recommended an end to the extended interswitching provisions of the time, as they stifled private infrastructure investment, and further recommended the gradual elimination of the market-distorting Maximum Revenue Entitlement (MRE). Instead, today the MRE is still in place and government is trying to bring back extended interswitching. Yet at the same time, government still hasn’t regulated an end to the decades-old challenge that prevents grain companies from loading ships in the rain.”

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