The Canadian government yesterday introduced legislation aimed at forcing the country’s two largest freight railroads to move grain faster, following complaints from farmers that transit delays are costing them export business.
The Fair Rail for Grain Farmers Act would allow the government to require Canadian Pacific Railway and Canadian National Railway to move a set amount of grain or face fines. With the aim of increasing competition between the two carriers, the bill would allow Canadian Transportation Authority to extend interswitching distances in Saskatchewan, Alberta, and Manitoba by about 99 miles. The legislation would also require regulators to tighten operational requirements in service level agreements between carriers and shippers, and give authorities the power to “address non-performance by grain companies in their contracts with producers,” according to a government release.
“This legislation creates the necessary tools to help ensure Canadian shippers have access to a world-class logistics system that gets their commodities to market in a predictable and timely way,” said Agriculture Minister Gerry Ritz, who along with Transport Minister Lisa Raitt, introduced the legislation in Parliament.
The legislation mainly applies to the hauling of carloads of grain, but it could reverberate to Canadian ports, as an increasing amount of grain is transloaded into containers for exports. From a larger perspective, the proposed legislation reflects the government’s increased involvement in how CP and CN operate their networks, a trend that rail proponents argue could decrease overall network efficiency.
“CN is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control,” CN President and CEO Claude Mongeau said in a statement. “The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future.”
Mongeau also expressed disappointment with the proposed change to switching rules, which currently forces carriers to switch cargo to each other if the shipper’s loading point is within about 19 miles of where CP and CN’s lines connect. He warned the rule change could allow U.S. railroads to poach cargo business.
“Beyond causing financial harm to CN, it could drain traffic away from Canadian ports and cause the loss of jobs, reduce investment and undermine tax revenues across Canada,” Mongeau said.
He said proposed increased involvement of the Canadian Transportation Agency in arbitrating service agreements could produce inefficiencies in CN’s network. Instead of looking at the grain supply chain as a whole, including grain elevator companies’ role in delays, Ottawa is working to hit the rail industry with unnecessary regulation that will make the export of grain less flexible, Mongeau said.
“It’s a sad day for Canada when the government decides to hit one sector of the economy in order to placate a vocal constituency, instead of fostering sound commercial solutions to strengthen Canada’s transportation infrastructure,” he said.
CP CEO E. Hunter Harrison’s stance with regard to the proposed legislation is akin to that of his major competitor. He said the legislation was “not only ineffective but grossly unfair.” Increasing interswitching will double the handling of shipments, resulting in longer transit times, Harrison said in a statement.
“We are very concerned about the speed and lack of consultation by the government in making such significant changes to the rail transportation system that could result in unintended consequences for all stakeholders,” he said.
The proposed legislation comes after Canada earlier this month required CN and CP to move more than 1.1 million tons grain over a four-week period or face daily fines of up to C$100,000 (approximately US$90,000). Canadian farmers have accused the railroads of mismanaging the transport of a bumper grain crop by not deploying enough equipment and labor, and prioritizing oil loads over agriculture shipments. CN and CP have defended their service, saying the severest winter in decades forced them to slow and shorten trains. Western Canada’s grain crop of about 63 million tons is about 50 percent higher than the historical average, according to the Canadian government.
This story has been amended to include Canadian Pacific Railway's response to the legislation.