There are no easy answers, no quick fixes to the grain logistics backlog, but make no mistake, the primary source of the problem lies with the railways.
They haven’t supplied enough cars and locomotives to match the huge crop that needs to move. Even if they allocated more resources to grain movement, some observers say they don’t have enough trained engineers to run the additional trains.
No doubt West Coast ports have their own issues, but export terminals have lots of empty space while scores of vessels wait to load. The grain just isn’t arriving in time to meet sales commitments.
Yes, there are system and communication issues involving the entire logistics chain, but the most pressing need is to increase rail capacity and that leads to discussions about changing or removing the grain revenue cap.
Unfortunately, misconceptions abound over what the revenue cap entails and how it works.
The formula takes into account the amount of grain hauled and the average length of haul. Thus, the revenue cap is not a disincentive to move greater volumes. The cap rises in tandem with volume moved.
When the railways exceed the cap and have to pay the excess to the Western Grains Research Foundation, it’s because they set their rate per tonne a bit too high.
A volume related composite price index is also part of the annual formula. It accounts for any increase or decrease in labour, fuel and other expenses.
Cost changes move the revenue cap up and down in relation to the base year of 2000-2001, but a lot has changed since the cap was set. Many argue that with fewer elevators and more movement in large car blocks, the railways have benefited from efficiency gains and that there should be a new costing review.
Others are convinced that the only way to get better service is to let the railways charge higher rates. After all, they argue, high freight rates would be no worse than the ridiculously wide basis levels being subtracted from grain prices.
Elevator companies are paying demurrage on ships that have been waiting for weeks on end. A widening basis should be a disincentive for producers to sell, but producers have remained anxious to move grain despite dropping values. As a result, many companies have stopped buying, posting no bids for nearby months.
It’s important to note that the revenue cap does not apply to grain moving south into the U.S. and Mexico. Nor does it apply to grain moving to domestic destinations such as the Fraser Valley. And yet service outside of the revenue cap doesn’t appear to be any better.
And many other sectors also complain about rail service. For years, the Coalition of Rail Shippers involving all the main exporters fought for the right to have service level agreements with the railways. Unfortunately, the legislation fell short of what is needed to actually make a difference.
People point to the U.S. where there’s a bid system for cars as proof that paying more means you’ll get better service. However, there are big differences between the two countries. America consumes much more of its grain domestically and they also have the Mississippi River system for a great deal of their exports.
Before we volunteer to open our wallets to CN and CP, lots of questions need to be addressed. Giving the railways the ability to charge what they want is no guarantee of improved service.