Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 12 - Evidence - Meeting of May 14, 2014
OTTAWA, Wednesday, May 14, 2014
The Standing Senate Committee on Agriculture and Forestry met this day at
1:09 p.m. to continue the study of Bill C-30, An Act to amend the Canada Grain
Act and the Canada Transportation Act and to provide for other measures.
Senator Percy Mockler (Chair) in the chair.
The Chair: Honourable senators, I call to order this meeting of the
Standing Senate Committee on Agriculture and Forestry.
I welcome you to this meeting of the Standing Senate Committee on Agriculture
and Forestry. My name is Percy Mockler, senator for New Brunswick and chair of
the committee. I would like to ask all senators to introduce themselves before
we officially introduce the witnesses. We will start with the deputy chair.
Senator Mercer: Thank you, Mr. Chair. My name is Senator Terry Mercer.
I'm from Nova Scotia, and I apologize for my tardiness.
Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, in New
Senator Tardif: Good afternoon. Claudette Tardif from the province of
Senator Maltais: Ghislain Maltais from Quebec.
Senator Oh: Victor Oh, Ontario.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Beyak: Senator Lynn Beyak, Ontario.
Senator Plett: I'm Senator Don Plett. I'm from Manitoba and proud to
be the sponsor of this legislation.
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
The Chair: Thank you, senators.
To the witnesses, thank you very much for accepting our invitation.
Today, we are continuing the study of Bill C-30, an Act to amend the Canadian
Grain Act and the Canada Transportation Act and to provide for other measures.
Bill C-30 is the fair rail for grain farmers act.
For the first panel, honourable senators, we welcome, representing the Inland
Terminal Association of Canada, Mr. Perry Pellerin, Manager, GNB Grain Source
By video conference, we have, from the Quorum Corporation: Mr. Mark Hemmes,
President, and Mr. Bruce McFadden, Director of Research and Analysis, Grain
To the witnesses, thank you for accepting our invitation to share your
comments and opinions on Bill C-30, the fair rail for grain farmers act.
Following the presentations from the witnesses, a question and answer session
will take place, and each senator will be given five minutes to ask questions
before the chair will recognize another senator.
Afterwards, we will continue with additional questions, should the senators
We will now begin the presentations. I am informed by the clerk that the
first presenter will be Mr. Pellerin, to be followed by Mr. Hemmes.
Perry Pellerin, Manager, GNP Grain Source LTD, Inland Terminal Association
of Canada: Thank you for the opportunity to present the views of
farmer-owned inland term nationals. ITAC, the Inland Terminal Association of
Canada, represents the interests of seven terminal companies in Saskatchewan and
Alberta, companies that are at least 50 per cent farmer owned. The terminals
typically handle about 2.5 million tonnes of grains, oil seeds and specialty
crops each year and also have cleaning and drying capability. The seven ITAC
members include: South West Terminal, near Gull Lake, Saskatchewan; Gardiner Dam
Terminal, near Strongfield, Saskatchewan; CMI Terminal, near Naicam,
Saskatchewan; Prairie West Terminal, in the Dodsland/ Plenty Area of
Saskatchewan; North West Terminal at Unity, Saskatchewan; Great Sandhills
Terminal, near Leader, Saskatchewan; and Providence Grain Solutions, based out
of Fort Saskatchewan, in Alberta. We believe farmer-owned terminals provide
competitive choices for farmers both for our shareholders and non-shareholders.
We welcome the proposed continuation of minimum volume requirements for CN
and CP Rail. However, the broad approach may have unintended negative
While the measure has provided that much-needed focus on grain transportation
issues, it has not resolved the issue that continues to challenge the
independent terminal. The allocation process that allocates cars based on
historic shipping is not fair and impacts competition in the country. To
restrict a company to 0.6 per cent of the total car supply hampers that
company's ability to compete, just by space constraints and their ability to
consistently buy grain.
In real numbers, prior to the legislation, that same company would receive
about 18 cars a week based on the railway allocating 3,000 cars. Currently, with
a 5,000 car weekly program, they receive 30 cars. That, combined with
substandard performance on cars that they are actually allocated, results in a
difficult operating ratio for the independent.
The independent terminal is, in effect, a high throughput facility that had
all the opportunity to grow and flourish in this new open market but instead has
been hampered by poor performance and an inadequate allocation process. We have
seen two of our facilities sold this past winter and suspect that we may see a
few more this spring.
In reaction to the volume requirements, the railways have focused on what we
would call the low-lying fruit, so to speak, for example, spotting the majority
of the cars in close proximity to the port or along the main line. This is not a
positive outcome for the independent or the receiver who is now seeing train
arrivals out of the sequence in which they were ordered. Again, we are sure this
is not the intended result of the legislation.
There is no transparency in the system. As an independent shipper, it is
difficult to determine where the railway efficiencies begin and the fair and
equitable treatment of all shippers ends. Basic requirements of good
communication and timely information have been all but forgotten. The railways'
desire to develop ways of getting things done has been replaced by validating
ways why they cannot.
The immediate issue is the changing of the interswitching zone from 100 to
160 kilometres. One of the downsides of that could be that the facilities
outside that 160 kilometres will be more isolated than they currently are. The
mechanics of the interswitching will determine if it will achieve the desired
results. The size, rate structure and accessibility to interchange will
determine its value. Obviously, we need the railways to have the desire to make
it work, rather than to focus on why it does not.
As well, fines that might conceivably be imposed against the railways by the
Canadian Transportation Agency are payable to the Receiver General. If fines
were paid, instead, to the grain companies suffering a lack of service, that
could facilitate possible payments to farmer customers who may not be able to
deliver grain due to the backlog.
Attaining a service level agreement is an adversarial process that requires a
great deal of time and energy, with a significant level of cost. The purpose of
such agreements should be to determine an acceptable level of service, with
consequences for non-performance on all sides. Instead, it has taken on the life
of a modified version of a level of service complaint, with all of the
theatrical events often associated with that process. Yet again, this is not as
intended and, eventually, not practicable for the independent or any small
shipper, for that matter.
The commitment to collect more data from the railways, with all of the other
players in the logistical chain, is more than welcome. This is vital to the
system improvements. However, we must be sure that the data that we collect
reflects the true picture. Record unloads or higher car velocity do not always
translate into the right cars arriving at the right time for all shippers.
In conclusion, it is ITAC's view that while immediate improvement in grain
movement is important, and we do appreciate the efforts of the government and
past legislation, we still feel we have a lot of work to do. It is vital that we
make these changes and then hopefully we'll move the industry along to the path
of sustainable, long-term solutions. Thank you.
The Chair: We will go now to the next presenter, Mr. Mark Hemmes,
President, Quorum Corporation, by video conference from Alberta
Mark Hemmes, President, Quorum Corporation: I appreciate the
invitation to appear before you today. My name is Mark Hemmes and I represent
Quorum Corporation. Our company has been under contract with the federal
government since 2001 as the grain monitor. In that capacity, we are charged
with monitoring the performance of the grain handling and transportation system
in Western Canada. We report to the Ministers of Agriculture and Agri-food
Canada and Transport Canada. Our reports are submitted quarterly but we also
report on an ad hoc basis when situations dictate, the current situation being a
good example. In order to understand all aspects of the issues facing the
industry, we maintain constant contact with stakeholders in all parts of the
supply chain. My remarks today are going to be based on those extensive
communications as well as statistics and measures that we developed as part of
the grain monitoring program. I'll focus on the current status of the grain
handling and transportation today.
Last September, the preliminary forecast for this past crop year showed that
it would be an exceptional one with Statistics Canada issuing a preliminary
forecast for a crop of about 65 million tonnes. At that time, grain companies
were already advising the railways that they were going to see a higher than
normal crop and that they would be looking to ship substantially more grain.
Despite this, the railways advised the industry that they were planning to move
only about the same volume as they had the previous year. But, they said that
they would attempt to supply 5,000 to 5,500 cars a week each or 10,000 to 11,000
cars a week in total.
The full impact of the size of the crop did not become apparent until
November, when Statistics Canada issued their November survey and stated that it
was going to be more than 75 million tonnes.
With regard to the performance of the system, by week seven of this crop
year, which was in mid-September, the country elevator system was filling with
the fall harvest and near to its working capacity. From that time until week 33,
half a year later, the stocks in the country system did not fall below about 95
per cent of the working capacity of the country elevator network. For all
intents and purposes, the elevator system was full for that entire period.
Conversely, port terminals experienced the opposite situation over that
period with inventories at historically low levels. Consequently, port terminals
had a very difficult time filling the arriving vessels because of a lack of
grain at the port.
Throughout this year, we've been closely monitoring the situation and
watching the railways and the railcar allocation: the unloads at port; the
vessel loading at port; and the lineup of vessels waiting for grain, with
particular focus on the West Coast.
With regard to the overall performance of the system, one of the key numbers
we look at is the unloads at port. As we stated, the system ran well until about
the end of October. In those first 12 weeks we saw the West Coast unloads about
7 per cent higher than last year. Thunder Bay was down about 13 per cent, so the
Western Canada total was about 2 per cent higher than last year by the end of
October. But from the end of October until the end of March, 18 weeks, we saw
considerable and consistent degradation in performance with unloads trailing the
previous year by 8 per cent and the total Western Canada unload performance down
12 per cent.
When comparing allocation versus unloads in the West Coast, we have seen an
estimated weekly shortfall of car supply between 15 per cent and 25 per cent.
It's apparent that railways were not supplying the cars that they had committed
to the grain companies. The consequences were low terminal stock levels,
slowdown in vessel loading and vessel lineups of historical proportion — at one
point as high as 38 vessels at Vancouver and 17 vessels at Prince Rupert.
It's important to note that in the period since the implementation of the
order-in-council, though, we've seen a significant turnaround. Unloads at the
West Coast from week 31 to 39 — these last eight weeks — are up about 22 per
cent; Thunder Bay is up 5 per cent; and the total for Western Canada ports is up
20 per cent. We're also seeing a reduction in the stocks in the country, freeing
up space for the producers to deliver grain, and available stocks in the ports
are increasing. While vessel lineups on the West Coast remain abnormally high,
they're down significantly, currently at about 24 vessels at Vancouver and 7
vessels at Prince Rupert. In terms of the levels of shipments from the Western
ports, the West Coast is even with last year's movement at this time, and
overall we're still about 3 per cent lower than what we were last year.
In summary, I don't believe that there is any one event that you can point to
that would be responsible for the problems, but I'm going to make three points
for you to consider. There is a big issue of under-commitment by the railways to
the grain companies, which has led the grain companies to make sales and charter
ocean vessels that the system was not capable of loading. This led to
extraordinarily long wait times on vessels, out-of-contract penalties,
complaints from shippers about rail service and rail liability, and severe
anchorage congestion at the ports on the West Coast. Most of these costs will
get passed back to the producer.
The railways faced significant operational difficulties this winter and had a
hard time working their way through it. It was well into last March when they
actually got back up on their feet.
I would also point to the fact that this year's bumper crop has not been a
challenge for the grain system yet. It will only start to challenge it in the
next few weeks. Right now, the system is basically working to keep up to where
we were last year, and it will start to move the extra tonnage in the coming
The dynamic that has emerged through this crop year is once again focused
communication. I would point that out as well. The government has demonstrated
that it is serious about the GHTS performance, improving and establishing better
and sustainable mechanisms.
I would say that there is no doubt that the order-in-council has made a
difference in the railway's approach to the movement of grain. While we've seen
a remarkable increase in the volumes moving to port, we've also heard of some of
the challenges faced by smaller shippers in the country that may not have a
mainline location or the capability of loading full train-load volumes that the
railways are focusing on now to ensure that volume targets are met, as Perry
pointed out. Also suffering are the lucrative markets in the U.S., which
railways have steered away from because servicing them also involves small-lot
In closing, I would say that you can call all of these unintended
consequences, but they, in addition to the issues faced this winter, all serve
to harm Canada's international reputation as a consistent and reliable supplier
Thank you for your time. I'd be pleased to answer any questions.
The Chair: Thank you very much, Mr. Hemmes. We will move to questions.
Senator Mercer: I thank all three of you for being here today. I
Mr. Pellerin, you indicated that some of your smaller facilities were sold
this winter: To whom?
Mr. Pellerin: Actually, Lethbridge Inland Terminal sold to Viterra,
who purchased it about the end of February. Prairie West Terminal Ltd. is having
a vote next week, but we expect its sale to go through to the Wheat Board.
Senator Mercer: To the Wheat Board. So we're seeing the smaller people
being sold to the larger of those two that you indicated.
Mr. Pellerin: You're seeing that our facilities, as I mentioned, are
basically farmer-owned, the majority of them. Several of them are 100 per cent
farmer-owned. They're made up of farmer-run boards.
This new world of marketing has been a challenge for them. I think they were
willing to take that on, but when you combine that with the uncertainty of what
we've seen in the rail service, it's overwhelming for some of them. Some of the
bigger fellows are going to take advantage of that; they know we're on the ropes
and a little scared, and it's a good time to come and maybe say to some of the
farmer boards, ''Hey, I can relieve that pressure.''
Senator Mercer: Again, I don't want to go back to the debate about the
Wheat Board, but one of the things I'm observing — and you'll correct me if I am
wrong — is that when we switched from the single desk to the open market, we
didn't bring along another plan of how individual farmers and suppliers acted on
their own in a market where they weren't under the umbrella of a larger
organization like the Wheat Board. Of course, they're now competing with the
much larger people, head to head.
Mr. Pellerin: If you look at it from the independent point of view,
the debate about the Wheat Board was done. We've moved on from that. We felt
that we could actually deal in the open market. We thought we could look after
It became complicated in that it's hard to compete in the driveway when the
fellow across the street is getting train after train and we don't get any
service. It puts us in a real bind. Then, when we did get a train, if it took 14
days to get to Vancouver, it was capital tied up. For an independent, that is
Senator Mercer: I was curious about your comment about people outside
the new 160-kilometre circle for interswitching. You said that they would be
more isolated. I thought the new boundaries were an advantage to people in that
they would have been isolated before, but are they not closer to a source now?
Mr. Pellerin: I wish we would have had this in place five years ago. I
think it would have helped. I think it's going to increase competition within
that zone, but if you're outside that zone — let's say, for example, the folks
in northern Alberta, or, better yet, I represent Great Sandhills Terminal in
Leader, Saskatchewan, which would be outside that zone. Really, that grain has
nowhere to go. So if you're the railway, you might focus more on those places
that will now be competitive.
Where the grain is trapped, be it at Leader, Saskatchewan — northern Alberta
would be another place I would be concerned about, and the Rycroft area and
Grande Prairie — they're going to be more isolated. So what incentive is there
for the railway to go after that grain while they're competitive in other areas?
Senator Mercer: Mr. Hemmes, you've been the grain monitor since 2001.
You have a perspective here that would be interesting for us to hear. How does
the system of 2013 and 2014 compare with previous grain handling and
transportation in your history?
Mr. Hemmes: In the last 13 years, it has changed significantly. First
off, you see a significant reduction in the number of elevators; they have gone
from about a thousand elevators down to 392. You see that the size of the car
blocks the railways have been handling has increased from roughly 18 to 25 cars
to well over 75 cars on average.
All in all, I would say the system is far, far more efficient than it was 13
years ago. The volumes the railways and the system are handling have increased
significantly, as well, on average.
In the post-single desk period, the system has actually become more efficient
in many ways. So I would say that we've got a better system today than we did
before. That said, I think now we've got some issues insofar as railway capacity
Senator Plett: Mr. Pellerin, you mentioned that fines are paid to the
government rather than to the shipper. The way I understand it, for the
mandatory volume requirements — in fact, there's an amendment made to the bill,
and the new clause allows for problems like demurrage — those costs are awarded
to the shipper by the railways; is that correct? Would you comment on that? How
do you feel about that amendment?
Mr. Pellerin: Actually, I apologize for that. That is correct. That is
something we're definitely in favour of.
As mentioned, when you're an independent facility, our line of credit is not
always what our competitors' would be. We can be exposed to some severe costs. I
know at one of our facilities, we were facing a demurrage bill of $75,000 a day
while we waited for product. The ability to recoup those losses from the railway
for poor performance is critical to our operation.
Senator Plett: So that's certainly going in the right direction?
Mr. Pellerin: A hundred per cent.
Senator Plett: For me personally, the interchanging is something
great. I'm from Manitoba. We're going to be hearing from OmniTRAX later today.
They are telling us that they can now get into northern parts. I understand
you're talking about some areas in Saskatchewan and Alberta that are isolated,
but certainly in the province of Manitoba, they are getting into the northern
section of the farming country they weren't able to access before. We've gone
from having to 14 elevators being accessed in an area to 150 elevators.
Aside from the fact there will always be some issues and some isolation, that
does go an awful long way to helping a lot of the people who were isolated
Mr. Pellerin: Yes. If you look at a map of southern Manitoba — and
when I say ''southern,'' I mean going up as far as Dauphin, almost — and
southern Alberta, especially with the access now of BNSF coming out of the
United States, I think those are huge advantages.
Even in Saskatchewan, with the situation with OmniTRAX, the other piece of
this will be the rate structure. Even within the old 30-kilometre interswitching
zone that we used to have, the railways would make that almost impossible to do
financially. It's important that we keep our eye on the ball there about what
that rate structure will be in those interswitching zones, but anything we can
do to improve and create competition is definitely a plus; there is no doubt
Senator Plett: Certainly Dauphin is well within the area now. I am
looking at our map here, and Dauphin is well served. Being from southern
Manitoba, I would consider Dauphin maybe central to the northern part of
Mr. Pellerin: I always have to be careful there. The folks at Kenora
and that area don't consider themselves central.
Senator Plett: I certainly appreciate that.
I would like to ask our friends from Quorum Corporation a question or two. As
Senator Mercer already said, you have been in charge of the grain monitoring
there for quite some time. I would like to hear a little bit about the ports and
whether you feel that the ports would be able to handle everything that can be
thrown at them with this new legislation. You did talk about there still being a
lot of backup at some of the ports. I will ask a few questions all at once, if I
You said the backlog in some ports is still very high. One of my questions
would be: What is normal when you say it's still high, and how do we get to
Then you said we had bumper crops this year. Correct me if I am wrong in how
I understood you, but you said that with the backlog, we still aren't feeling
the effects of this. So I'm wondering when we will feel the effects and what
happens if we have another bumper crop next year? Are we moving in the right
direction to deal with that? When will we feel the effects of this?
There are three or four questions. I hope you can shed light on all of those.
Mr. Hemmes: Starting with the first question about the ports and their
capability to handle things, the proof has been in the performance over the last
few weeks. In fact, week 39, the last week that we tracked, which was the week
before last, Vancouver actually set a record in unloads. They unloaded 4,867.
Prince Rupert had the second best week they ever had. Total West Coast unloads
were 6,740. That is the best week we've ever seen in history on the West Coast.
The proof is in the pudding. I think the port terminals can handle that.
I made some phone calls this morning. There were times in the last couple of
weeks where they ran out of cars, so that tells me that they can even handle
more than what they have done to date. I don't have a concern there.
Insofar as the backlog is concerned, I point to that fact because what we've
done so far this year has only been able to pretty much move the amount of grain
that we moved last year, or actually a little bit less. What that says to me is
that we're just pushing the way forward. As we move into this spring period and
the summer, we're going to have to hightail it to move enough grain to clear
space in the bins because we're going to run into a problem.
I think the minister yesterday mentioned the fact that we're looking at a
record carry-out this year already. No matter what we do, we're going to have a
big carry-out. If we have even a normal sized crop we're pretty much back to the
same position we were in last fall where we're looking to move significant
amounts of grain.
The question to the railways has to be: Are they prepared to keep moving high
volumes of grain through this summer and fall period and into next winter?
The other thing that a lot of people in the industry are concerned about is
their ability to bounce back from the inevitable disruptions they're going to
have as we go into the winter period, because railroading in the winter is
tough. They've got to be able to recover very quickly.
Does that answer the questions?
Senator Plett: I think it does.
If I could throw one more one at you, it might be speculation your part. If
you don't want to speculate, I appreciate that. We will have the railways here,
but I would like to get your perspective on this. All of us have been reading
reports in the media where the railways have gone to other products — i.e.
potash, oil, so on — and this was one of the problems that helped mitigate all
of the issues here.
Would you, in your observation, have seen that as being a problem? Of course,
the railways are saying no, they have never substituted any other products for
grains. It was simply the harsh winter and so on that created the problems.
I would like to get your perspective on it, and it's certainly a question
that we will be asking the railways.
Mr. Hemmes: I would say that I do not believe that oil was an issue.
When you look at their total contingent of oil, on average it's about 2 per cent
per year of what their total movement is compared to grain, which for CN is
about 18 per cent and for CP it's about 22. In terms of that, I don't think
that's an effect.
The other thing is that oil proportionately moves mostly south and a little
bit east. Grain moves west and east, so they're not in competition with each
other for crew resources at any rate, and they don't use the same kind of car
equipment. I don't see that as being a part of it.
When you talk about potash, it suffered this year as well. I think the people
at Canpotex had said at one meeting I was at that they were behind by as much as
400,000 tonnes this year. It's not just the grain industry that's hurting
because of the railway performance; it's other commodities as well.
You can blame winter, but I don't know necessarily that that's the whole
issue because winter has come every year that I've been alive in Canada, and it
Senator Tardif: Thank you for being here today and for your
Mr. Pellerin, I would like to come back to some of the comments you've made
and to your remark about unintended consequences. You indicated that the
railways could be concentrated on low-lying fruit. How can we make sure that the
railways will be doing more than concentrating on the low-lying fruit?
Mr. Pellerin: I think it ties in a little bit to the last question
about the poor capacity. A couple of the inland terminals are also owners of
Alliance Grain Terminal in Vancouver. I participate in the logistics of going to
that port. To the previous question, one of the things that will become
important is that the railways pay attention to what is required.
If we're going to move this type of volume consistently right through to next
year, we need to have the right cars arrive at the right time to match the
vessel arrivals. One of the reasons you're seeing, at least in my opinion, good
unloads right now in Vancouver is that we still have 28 vessels sitting there.
At some point we should be more current, and then the timely arrival of grain
will be critical. If the grain that is needed is in central Saskatchewan, we
have to go get it and the railway has to understand that.
I think we need not only a commitment from them to put the resources in
place, but a commitment also to put the right grain at the right place at the
Senator Tardif: Is there a way of regulating how grain traffic is
distributed in specific corridors?
Mr. Pellerin: I want to be careful. Our understanding of how we
thought the system was going to work last spring was that it would be regulated
a little bit by the receiver's ability to unload. So if you had a facility that
could unload 800 cars a week, it made sense to have that facility say, ''Here
are the 800 cars I need, and as long as the railway performs, you keep bringing
them to me and we'll be fine.''
What the railways switched to, once the crop seemed to be so big, was this
historic percentage. To me it didn't make sense. We had cases in the fall
Alliance Grain Terminal only had 250 cars under load. We had lots of capacity,
but because we weren't receiving the allocation in the country, we couldn't
utilize that capacity.
The system of how we allocate cars, at least in my opinion, would be that we
have to be more sensitive to the receiver, and the needs of the receiver and our
customers. Hopefully that answers the question.
Senator Tardif: Do you see that this bill proposes a long-term
solution to this whole issue of grain transportation in Canada?
Mr. Pellerin: I'll tell you what I think this bill has done. I've been
in this business for — that will tell you how old I am — 37 years. The fact that
I am here today, and Mark Hemmes is here today, in front of you folks and we're
talking about grain tells me this bill has been a positive thing. We need to
continue that. We still have some work to do, because one thing about this new
market is that I think there's lots of opportunity for growth. The crop size is
not going to get smaller unless some catastrophic drought or event happens.
So I think the fact that we are talking about and working towards a longer
term solution is very positive, and I think the legislation has gotten
everybody's attention. Finally, we are collectively standing up to the railways
and saying, ''That's enough; we have to be better.'' I think this has been a
positive approach. It has been painful but positive.
Senator Tardif: Do you think the bill goes far enough?
Mr. Pellerin: I want to be careful because I don't want to get run
I think it still has a little room. Obviously, I still have some fears for
the smaller shipper, not only the independent terminals I represent but even
maybe some of the small guys.
Mark alluded to it a little bit; I think our next biggest issue is
communication. We have a very difficult time getting information from the
railways and trying to understand what they want to do. The message to you folks
might be different from the message I receive. That is our next challenge. I'm
not sure you can legislate communication — that's a difficult thing — but I see
that's where our next biggest challenge is.
But I think that compared to where we were, we have made tremendous strides
here in the last little while.
Senator Tardif: Mr. Hemmes, would you care to comment?
Mr. Hemmes: Perry's point is really important because part of the
issue that we've seen is that communication between shippers and railways is not
the greatest; there are problems in the processes and in the communication. I
think if those two groups were able to sit down and have a discussion as equals,
we would go a lot further in solving some of the problems. One of the issues
that has challenged us to this point is the fact that they do not talk to each
other as equals because of issues like market power.
Senator Dagenais: Thank you, Mr. Chair. I want to come back to the
issue raised by Senator Tardif. She pointed out that one of the objectives of
the bill we are studying today is to find long-term solutions to the grain
transportation problem. I understand the need to exercise caution, as well. You
also mentioned to my colleagues that the communication problem should be
resolved. Would you be prepared to consider other solutions? We know that the
bill before us today is part of a long-term perspective. Could other measures be
implemented to improve the situation, since we know that grain transportation is
becoming increasingly important?
Mr. Pellerin: In my opinion, we are looking at service agreements, and
service agreements could go a long way in making all sides accountable for
performance. If you don't perform, there has to be a penalty. I think we have to
get to those.
As I mentioned, the unfortunate part of that is we can't make them so
cumbersome and awkward, like we did with the level of service complaint, that it
is out of reach for a smaller shipper or an independent person. We need to do
some work on that yet. We need to make sure that process is what I believed it
was intended to be, which is more user-friendly.
I fear that it's getting bogged down and almost everybody's lawyering up and
all that stuff, and it's not a good thing for anybody. If we look at history,
I've often been asked why there wasn't more level of service complaints. One of
the reasons for that is the cost and the time it takes. When you're taking on a
railway, you're taking on the school bully. It is a very difficult thing to do.
Hopefully, service agreements will not follow that same path.
I don't know if that answered your question.
Senator Robichaud: Mr. Pellerin, you said you feel there is a weakness
in the distribution of cars. Before, you were receiving 18 cars per week and now
you're receiving 30, and that's going to cause you serious problems. How many
cars do you need to service your area?
Mr. Pellerin: As Mark mentioned, we sat down with the railways and
gave them a number and said for each of these locations or a group of
independents, this is how many cars per week we would need. I think part of that
number is the fact that not only do we need a certain number — we give them a
number for the collective group that I represent. It is not all ITAC members,
but for the group I represent, we give them a number of about 225 cars per week.
The key component to that is it had to be consistently at 225. We can't have a
situation like this winter where we had weeks with 75 cars, and I had to try to
distribute amongst seven elevators. You have to phone these guys and say, ''It
looks like 10 apiece.'' You can't stay in business that way; it's unsustainable.
We have told the railways that we're willing to commit to a consistent
number, and if we don't perform, we understand there might be a penalty. There's
a cost for the railway to get power and crews and people, we understand that;
but we have to get a consistent service, and our request is not a lot more than
their own numbers say we should get.
For example, if they're doing 5,000 cars per week, the group I represent gets
about 200 cars. Really, all we asked for was about 225. We just asked for
consistency. That week 7 period right through to now, if we had gotten 225 cars
per week, I think we would have been in pretty good shape. But when we only get
70 or 60 or less than that as a group, we have no hope for success. At times, we
had facilities that would be a thousand cars behind. We just can't stay in
business that way; it doesn't work.
Senator Robichaud: So this is going to have a direct impact on your
farmer members, isn't it?
Mr. Pellerin: It does. We had facilities this January where we had
what we call a no-bid situation. In other words, if you were a producer and came
to the elevator and said, ''I would like to sell my canola,'' we would say,
''I'm sorry, we can't buy it.''
Not only did we not have room to take it into the facility, we weren't
planning any other sales because we were so far behind that we couldn't afford
to take any further risk on. We were already paying demurrage, so we were
thinking it was going to be July before we got caught up. We can't afford to
make any other sales, so we told the producer, ''Hey, there's nothing we can do
to help you.''
Senator Robichaud: Were those your regular customers? What happened to
them? Did they go to somebody else?
Mr. Pellerin: Unfortunately, some were shareholders. In some
locations, they were board of directors where the CEO had to tell them,
''Unfortunately, we can't take your grain.'' They were forced either to find
another facility that was able to do that — and unfortunately it might have been
one of our larger competitors — or they were in a tough position where they had
to sit on it and may still be sitting on it.
Where it becomes complicated for them is right now they're trying to put a
new crop in the ground that requires inputs and seed and all that other stuff. I
think some of our customers were feeling a financial crunch last year.
Senator Robichaud: I have a question for the teleconference
To Mr. Hemmes and your partner, you monitor grain and grain transportation
and everything that relates to that. You mentioned that at one time, Statistics
Canada determined that the crop would be 65 million tonnes. Then in November,
they came out with a new number of 75 million tonnes. Now, surely when you heard
that, you knew there was a very serious problem on the horizon. When were the
authorities made aware of this very situation that was just waiting to happen?
Mr. Hemmes: They were aware of it then, at that point in time, when it
was 65 million tonnes. A normal crop would be about 55 million tonnes. It went
to 65, and there was another 10 million to deal with. At that point in time, the
railways had said that they were going to deliver between 5,000 and 5,500 cars a
week each. For the period running right up until the end of October, they were
pretty close to that. It was about the end of October when everything started to
The crisis didn't really raise its head until early December, when it was
apparent that a combination of the extra 10 million tonnes on top of that and
the fact that the railways were not performing was becoming a challenge.
We were in discussions with people in both Agriculture Canada and Transport
Canada, telling them that this was a looming crisis. As we got closer to
Christmas, it became really apparent. As Perry said, that was about the point in
time when the export basis was really starting to widen with the grain companies
sending that signal.
I would also point out that it wasn't just the small ITAC elevators that went
''no bid'' through that period. The larger grain companies were going no bid as
well, because they didn't have any space for grain or any tolerance to sell.
Pretty much the sales program started to shut down right around Christmas as
well. They just realized that there was no point in trying to sell because the
vessels were backed up at the port, and we were in trouble.
Senator Robichaud: When was the crisis point of that troubling
situation? Did you say in January, or December?
Mr. Hemmes: I would say the magnitude of the problem started to reveal
itself in early December.
I should also point out that I don't think there was anybody in the industry
who even for a second believed that the railways were going to be able to move
this entire crop. I've asked CEOs of major grain companies the very same
question: ''Did you ever, at any point in time, expect that we were going to
move the crop?'' The answer, without exception, is an unequivocal ''no.''
Everybody knew that this was going to be a year with a big carry-out.
What they were hoping for, and I think you will find Minister Ritz — I don't
want to put words in his mouth, but everybody had the same expectation that we
would take a big chunk out of it this year. Until the OIC came into place, I
don't think that we would have taken a big chunk out of it, in any other
Senator Robichaud: But how do you explain the time when it was evident
that there was a crisis to the time when the measure was put in to move the
grain? There were a few months there.
Mr. Hemmes: There were ongoing discussions between the government and
the railways and the industry where attempts were made to come up with a plan. I
would say that after those discussions kind of went nowhere, that's when they
made the choice.
Again, I can't speak to what the government's intentions were through that
period of time, but I did attend some meetings where the minister made very
earnest attempts to get the parties together and move forward with a different
Senator Oh: Thank you, witnesses. So far we have heard that the system
has improved and is more efficient, but what is the reason? Is it communications
problems? They must have foreseen that there was a bumper crop coming and there
was lots to move. Even without the bumper crop coming, the system should still
be flowing to the port in Vancouver or Prince Rupert. Why are there vessels
still waiting for grain to come? I think communication is a big problem here
between the farmers or the grain company and the railways. Can you explain that?
Mr. Pellerin: I think in the big picture, communication is probably
the biggest problem we're having. As Mark mentioned, we head into the end of
October, November, and we're starting to see, hey, we're in big trouble here.
But when you're talking to the railways, it takes a month to get them to answer
the phone, never mind trying to resolve an issue this big. Often we hear stories
about government being slow moving, but I think when you negotiate or try to
work with the railways, that's slow moving. I think that's our biggest issue. It
just takes that long. I think the railways were hoping maybe it's not going to
be that bad a winter or maybe something was going to fall out of the sky to save
it, and it didn't. It wasn't until we got to December when everybody
collectively said, ''That's enough; we're in serious trouble,'' and then action
had to be taken. There was no more room for dialogue. Something had to be done,
and I think that's what the government did.
Senator Oh: But you still have to have the normal flow and trucks
going to the port.
Mr. Pellerin: I used to work for the railway. In my 22 years at CN,
and I know Mark was there, I have never seen 69 vessels in Vancouver, and I've
never seen 17 vessels in Prince Rupert.
To me, we knew that the situation was bad. The situation got terrible and we
had to take this kind of action. With that many vessels backed up, we are going
to be well into summer before we have any hope of getting caught up. As Mark
mentioned, we are just keeping our head above water with what they're doing
today. If we ever have another bumper crop — I don't think we're out of it yet.
Even as was mentioned, if we have close to a 28 million tonne carry-out, if we
have an average crop, we have challenges next year.
It's pretty safe to say the railway is well aware of what those challenges
are now. As Mark mentioned, I do believe winter is going to come again, so
they've got to be ready next year. They have no excuse not to be ready, and we
have to expect that of them.
Other commodities were mentioned earlier. We all have the right to move our
product. I'm not fighting the potash guy or the oil guy. I think we all have the
right to move what is required.
The Chair: In the spirit of cooperation, before we look at the second
panel, we have four minutes left, so on a second round we have Senator Plett and
Senator Mercer, each for two minutes.
Senator Plett: Also in light of the spirit of cooperation, I'll ask
one very quick questions of Mr. Pellerin. You said, sir, you need 200 cars a
Mr. Pellerin: I think it was about 225. I want to be careful. I don't
want to negotiate.
Senator Plett: Well, for the record, I say you deserve 250.
My question to you is, you're obviously not the largest player here, so in
comparison, what would Viterra require?
Mr. Pellerin: If I told you 150, would you be okay with that? You know
what; I don't see or have any knowledge of their sales book. It would be very
unfair for me to even suggest a number because that would be awkward. I'd
probably get into more trouble than it was worth.
Senator Plett: You would agree that, in comparison to the Viterras and
the Cargills of the world, you are not a larger player, if you compare yourself?
Mr. Pellerin: No, we're not. I think the independents collectively
might be what you would consider smaller shippers. But we do handle 2.5 million
tonnes in a normal crop year. If you want to work that number out, you can look
at what they would handle, and I will let you know that.
Senator Mercer: I want to go to two very important points. You said
that in early October we're in big trouble. Someone else said in early September
that we're in a crisis situation, and the words ''serious, serious trouble''
were used to underscore all of these things. Early December, end of October, and
we don't see any action from the government until March. Would we be in better
shape if the government had reacted in January as opposed to waiting until
March, given that they would have to absorb the information from December and
Mr. Pellerin: You know what, in my personal experience of dealing with
the railways, you can have a lot of meetings with them and they can show you a
lot of numbers, tell you a lot of things that would make you believe they've got
a handle on what's going to change or happen, and you would think there's some
I could see, be it an individual, government or anyone, being misled by the
fact of having a meeting or meetings with the railways and thinking this is
going to get better. I actually play the ponies a little bit. In hindsight, if I
knew who was going to win the race, betting would be easier.
In this case, the railways can be very convincing. They're powerful
organizations, and when they tell you it's going to get better, I can see people
understanding that or wanting to believe it.
Senator Mercer: Unfortunately, they not only own the horses, they own
The issue that is underlined here is to talk about communication and the
failure of the service level agreements that are supposed to be in place between
shippers and the railways. They are not working. There are no agreements in
place. From what we've heard thus far, the railways are not cooperating in
having service agreements, but you mentioned earlier that the cost of entering
these service level agreements was prohibitive. What is the cost, from your
perspective? You're a smaller operator in this big sea of grain and rail
Mr. Pellerin: Well, we've heard numbers that for an individual shipper
you're probably looking at 75,000 to 100,000 at least to get a service
Senator Mercer: Wow.
Senator Robichaud: Could we find ourselves in the same situation this
time next year, even with this legislation? It depends on the crop.
Mr. Pellerin: If we do, I would be the most disappointed person in the
Senator Robichaud: We would be, too.
Mr. Pellerin: There are so many people who are now clued in to the
issues and are asking all the right questions, as you folks have today. If we're
the same or worse next spring, I would be embarrassed as a Canadian. I wouldn't
find that acceptable.
I do think that this process and the legislation are helping. We are heading
in the right direction, so we just have to keep our foot on the gas.
The Chair: Mr. Pellerin, Mr. Hemmes and Mr. McFadden, thank you for
sharing your comments and thoughts.
Honourable senators, we are having some technical difficulties with the video
conference. That said, we will commence because of the factor of time, and when
they come on board, we will then move to linking with them immediately.
Honourable senators, the next panel is Mr. Merv Tweed, President of OmniTRAX.
We were supposed to have, by video conference, Mr. Ken Eshpeter, Chairman and
CEO of the Battle River Railroad.
We ask Mr. Tweed to make his presentation, to be followed by questions from
Mr. Tweed, for the record, I would like, as chair, to recognize that you were
the former Chair of the House of Commons Standing Committee on Agriculture and
Agri-Food. I believe it's the first time that we have a former chair before our
Merv Tweed, President, OmniTRAX: Thank you very much, and good
afternoon. I'm just going to give you a quick overview, and then I have a couple
of points aimed directly at the legislation.
OmniTRAX Canada is the owner of the Carlton Trail Railway in Saskatchewan and
the Hudson Bay Railway in Manitoba, and we own a small piece of the Kettle Falls
Railway in British Columbia, connecting down into Oregon.
We do operate North America-wide. We have 17 railways that we operate — short
lines. We are the largest independent owner of short-line railways in North
America, and, as recently as yesterday, we announced the purchase of the
Brownsville port and rail in Texas.
So we continue to grow. In recent years, with some assistance from the
federal government, we had some port revitalization, basically upgrades to some
of our facilities. I think there's one point I will make right now so that I
One of the upgrades that we did gave us the capacity to double our loading
and unloading facilities at the port, which is very important when you're
talking about cycle times on railways. In days gone by, that cycle time would be
anywhere from 17 to 22 days, simply because of the delays in the transferring of
product. We now can cycle in and out in 6.5 to 7 days. So it's made a marked
improvement in our ability to service the communities that we represent.
We do provide freight services as well. We provide marine services to the
Hudson Bay area, and we also operate VIA Rail services for VIA in the North.
Our location in Churchill gives us a shipping advantage to Rotterdam of 2.75
days, to Liverpool of 2.68 and to Oslo of 2.85. So we are positioned to move
product into other parts of the world in a very timely fashion.
As for the issue we're talking about today, as far as the legislation goes,
last year, OmniTRAX, through the Port of Churchill, did 640,000 metric tonnes of
grain, which is about 7,000 railcars. October was our busiest time of the year.
We did almost a third of our loading time in the month of October. For us, our
season begins usually mid-July, and if we're lucky, we can get to November 15.
So we have to put a lot of business into a 4.5-month cycle.
With the introduction of the bill, we certainly see that there's good support
for it. For us, the mileage number takes us to a community called Hudson Bay.
It's a fairly large grain producing area. Straight south of that is another
community called Kenora, which is a huge grain-producing area. If I were to make
any suggestions, one of them to our advantage would be to extend it to that. I'm
not sure you're prepared or wanting to do that, but I think our biggest concern
is — and I think you're probably going to hear this from a lot of the short-line
rail — car capacity and car availability.
Obviously, with the pressure that's been put on CN and CP to deliver X amount
of cars every week — and with them having to do that — they look at everyone
else's operations, and basically they're regulated to deliver that much. Who
suffers or who may be shortchanged in the interim is a concern of ours, and it's
something that we're working with CN to address. I spoke to them as recently as
today. I'm convinced that we can come to a resolution, but it is one of the
biggest concerns that we have.
In previous years, we would have two basic exporters, Richardson
International out of Winnipeg, and the Wheat Board. With the changes in the
Wheat Board, we've actually grown. Last year, we had five shippers. This year,
we are looking at eight. So we are growing the market and we are growing the
Last year's total was 650,000 metric tonnes. We feel that with the changes
that we've made and the improvements that we've made to our rail delivery
system, our objective is a million.
We know that's not the answer to all of the problems in the grain industry,
but we believe it's a part of the solution. We're working very hard with CN to
make the cars available to us in a timely fashion so that we can hit those
One of the things that changed with last year's crop being so large, our rail
line normally starts in May, and we start moving product up to the port to ship
in July. That has changed the whole cycle. There is so much grain on the market
that everybody is shipping every day, trying to get it out to the market.
We're moving right now because of temperature and climate. We have leased 50
cars, and we're moving them on a regular basis. Our port will be full probably
in the next 20 days. Part of the allocation system in the rail system is that
the cars we're getting allocated in May, June and July really don't work for us
simply because we don't have the ships coming in because of the ice conditions,
and our elevator capacity is full.
So part of our proposal is to say put those cars back into the main system,
which will help relieve some of the pressure in other parts of the country. Give
us the allotted amount of cars, but start in July, August, September and
October. Again, if we can accomplish that, then we can have a very productive
grain delivery season.
Also, as was stated in your opening comments, I grew up in a rural community.
I know what farmers go through when they can't move their product and I know
what they're going through right now. I've held meetings all across northern
Saskatchewan and Manitoba, and everybody is feeling the pinch. Everybody fears
they're not going to get the car allocation they need to move the product.
Partly it's because of the demands being placed on the two major companies but
also just the glut that's on the market.
I won't go much further, and I'll open it up to questions, but I do want to
say that we moved 275 tonnes in one month last year — the month of October — and
that was a record year for us. I was brand new in my first month on the job, and
my first question to our ownership was, ''Why do we only work 16 hours a day
when we've got the capacity to work 24 hours and when we've got the capacity to
move that much more grain?''
This year we'll be implementing that and moving to a 24-hour a day. We've
started the process of training our people to be prepared for that. If anybody
has been to Churchill, it's a different part of the world, and there are a lot
of challenges at any time of the year with weather and conditions. But we
believe just by taking that one simple step, we can increase our capacity by
another 250,000 or 300,000 tonnes. It helps us, obviously — we're not going to
deny that — but I think it will also help CN and CP and other movers of grain to
alleviate some of the challenges.
As I said in my opening comments, one of the challenges we've always had is
cycle times. I can assure you that is an issue we have addressed and are
continuing to address. We understand that if we're longer than what we say we
can do, it does cause problems for CN. Although we're not directly involved in
the grain movement, in particular after November, in fairness to CN and CP, this
year was a very challenging year, not only with a surplus of grain and cars, it
was a terrible year for weather. We had more challenges this winter probably
than we've ever had on record.
I'm not letting anybody off the hook, but I have travelled enough to know
that sometimes when something gets lost and you can't find it, it isn't
necessarily the carrier that's lost it; it's somewhere else in that supply
system. We have to be cautious about bringing forward too many regulations
without looking further down the road to see what the outcomes are expected to
be. Every time there's an action, there is a reaction somewhere else, and it
isn't necessarily always in a positive way. I'm sure you're hearing from some of
those groups today, because they are frustrated, and we're frustrated. Right
now, we have eight shippers talking to us that will not confirm or commit to us
if we're not able to guarantee that we can supply the cars, and I can't blame
The Chair: Thank you, Mr. Tweed.
Next to present is Mr. Eshpeter, Chairman and CEO of the Battle River
Railroad. We will ask questions afterward.
Ken Eshpeter, Chairman and CEO, Battle River Railroad: Thank you, Mr.
Chair. I'm the Chairman and CEO of the Battle River Railway New Generation
Co-operative. We chose the cooperative business model when we purchased the
railway because it encompasses the crop model and an ethic our shareholders
When the Battle River Railway New Generation Co-Op was incorporated as a
certified railway in June 2010, we adopted as our motto ''a local railway
providing user-friendly service.'' Our goal was to maintain and enhance 60 miles
of former CN branch line with grain movement and other rail business as it
Federal legislation had made it possible for our co-op to purchase the former
Alliance sub from CN, which we are grateful for. But now that we are owners and
operators, we find we have very little leverage. We are of the strong opinion
that when federal legislation makes it possible for two large oligopolies to
control the total rail system, some entity must be prepared to be the referee.
There are a number of obstacles preventing the Battle River Railway from
creating a vibrant and viable short line, but I will dwell on two major
obstacles: car allocation and tariffing; in other words, what we are obliged to
charge our customers as well as what our interchange partner, CN, is looking to
charge our customers.
A short line is totally at the mercy of its interchange partner — in our
instance, CN — for car allocation. This winter, car allocations have fallen
miserably behind. To give you an example, we at Battle River Railway have orders
in place for shipping weeks 31, 32 and 33, which are the first three weeks of
March. We were to receive 50 cars per week for each of those weeks. We are now
entering week 42 and we still have no indication when or how the backlog for
those cars will be cleared up.
There is one other thing I might say. The Battle River Railway, as other
short lines on the Prairies, is unique. We are farmers and we also own the
railway, so when I speak, I'm usually wearing more than one hat. From a railway
operations perspective, my goals or objectives, if I were purely a railway,
might be slightly different than if I were a railway operator as well as a
farmer. So I am a farmer and have that vested interest, and I'm also trying to
move my own grain on our own short line.
Now, when the federal government implemented its performance requirements
this spring, the problem of car allocation for short lines was actually made
even worse. Big rail merely sent more cars to big and near-to-port shippers to
give the illusion of increased volumes of shipment. Short lines have suffered.
Saskatchewan has suffered, because the majority of the Saskatchewan terminals
and inland grain allocation facilities are farther from ports.
The legislation should have read that CN and CP were obliged to try to move
more grain but also to distribute that movement in a normal pattern. Otherwise,
there are major winners and major losers. The car allocation system needs to be
more transparent and reliable for all players in the grain loading business to
be able to perform their service.
Also, the opportunity for smaller grain players to be able to grow their
business is crucial. It appears that big rail is recently allocating cars based
on past business volumes. At a time when many issues have surfaced in rail
movement that make it difficult for the rail people to accommodate the service
they talk of, the opportunity for a small player to grow is seriously curtailed.
The second major issue facing short lines is tariffing. The tariffing issue
is not nearly so critical in grain traffic, but it is hugely important to a
short line in order to attract other business. You're all aware that oil has
been moving on rail lately. At Battle River, we are in proximity to be able to
offer a service to leaders in the oil business to move their product.
Monitoring, or at least creating an appeal mechanism, must be put in place to
give short lines the opportunity to attract new business.
I will give an example. We at the Battle River Railway feel that we should be
partners with CN. It would seem if you buy a former CN sub, we should
automatically be a partner. We can offer the most competitive rates imaginable
to attract new business, but if CN does not cooperate by offering a competitive
freight rate from the interchange point to the final destination, the short line
has no way to attract new business.
I am trying to make the point that giving groups like the Battle River
Railway an opportunity to purchase a short line is just part of the overarching
issue of providing a service in the country. The other part is trying to make it
possible for the short line to play the transportation and accumulation game.
That concludes my presentation. I would field questions if questions were
Senator Mercer: Thank you, gentlemen, for being here.
Mr. Tweed, when does the ice come out and when are you able to move?
Mr. Tweed: Traditionally, our first shipping would be between July 12
Senator Mercer: You talked about the increase of capacity at
Churchill. Give us some numbers here.
Mr. Tweed: Basically, by changing our transloading system from our
port to not only from the grain cars but also to the vessels, we've been able to
cut our times in half. I'll use October simply because it was a good month for
us. We did 310,000 metric tonnes, and that was attributed to a steady supply of
grain cars coming in and basically working about 17 hours a day.
Senator Mercer: And switching from 16 to 24 hours will —
Mr. Tweed: We're hoping it will add another 30 per cent.
Senator Mercer: What is the status of the rail bed coming up to
Mr. Tweed: Actually, that's always a question that people ask. Thanks
to the federal and provincial governments, and through OmniTRAX, we have
invested $110 million in the tracks in the last eight or nine years. We have one
75-mile stretch, the last 75 miles, over tundra, and it always is a challenge,
but I'm proud to say we're in our third year without any main-line runoffs or
any incidents where there has been any damage caused. We believe it has improved
to a point where we continue to invest anywhere from $6 to $10 million per year
just in maintenance.
Senator Mercer: Hopefully that's not because it's still frozen.
To our friends at Battle River Railway, the cooperative model is an
interesting one. You talked about more transparency, but you also talked about
the lack of cooperation with CN. Do you see an overall plan — perhaps Mr. Tweed
can comment on this as well — for the movement of grain products and other farm
products at all? We've made some major changes here, but we're in a situation
where we have a bit of a crisis going on now. Is anybody coming up with a plan
that's going to solve this problem not just this year but in the long term?
Mr. Eshpeter: We're not aware of any plan. We haven't been asked, as a
short liner, to submit any ideas about how this confusion or lack of service can
be remedied. We have some ideas. A whole number of issues here need to be
Mr. Tweed: For us, if we get the service agreement allocation of cars
that we are supposed to, and if we can start them moving in July instead of May,
again, we're not the answer, but it's a solution that we're putting forward in
order to move more grain and in order to grow the business. We've made
investments, as I said, in a new loading facility at The Pas. The company has
leased cars. We're moving product up there right now to prepare us for the
season. A bigger picture plan would be ideal, but right now everybody seems to
be acting very independently of each other.
Senator Mercer: That was a discussion of the future. Can you look back
for us for a moment, recognizing the fact that we've got a huge crop this year?
I'm not one who thinks that we wish for the same size crop next year. I want a
bigger crop next year. I would like this to be the baseline for the future.
Looking backwards, has the service deteriorated or improved in the last couple
Mr. Eshpeter: It's a little bit difficult to say because with the
elimination of the Canadian Wheat single desk, we didn't see a lot of these
transportation issues. Now that it has become kind of a free-for-all, we are
thrown right in the middle of car allocation and trying to get good service from
our partner, CN.
We do know that as a result of the Canadian Wheat Board single desk not being
out there for farmers, the basis that we can offer to move grain has gotten more
favourable for us. Farmers in our area are seeking the Battle River Railway out
as a means to move their grain, but when we can't get appropriate car
allocations to do that, we are really hampered in terms of trying to expand our
Senator Mercer: In the past, the Wheat Board helped solve some of
these problems that you're having now, again recognizing that there is a much
Mr. Eshpeter: Absolutely. The Canadian Wheat Board, in conjunction
with the Canadian Grain Commission, was very instrumental in determining the
allocation of cars and where those cars went. They were involved with what you
would call the orderly marketing of our system. We don't have such a beast any
more. We need to get all the players and the industry together to determine how
we're going to orderly market these commodities.
Senator Mercer: Thank you both.
Senator Plett: I need to at least get my plug in as well. We wanted to
have some farmers come out and be witnesses here today. They're all out there
enjoying the freedom they have in marketing their grain, so the individual
farmers haven't been able to make it. It's great to see that the Western
Canadian farmers have freedom to go and plant 2 million more acres of wheat the
last year than they did the previous years.
You both have talked about the allocation of cars. Correct me if I am wrong,
but I think you said that you moved about 7,000 carloads last year. A couple of
questions: How many carloads would you be able to move if you were given the
allocation that you would like to see as a result of this legislation, and with
the interswitching and so on? How much could you increase?
Mr. Tweed: Again, service agreements are important and we believe in
that. Part of our solution or proposal is that we would not even need our
allocated amount, as far as the agreement. What we would need is the timing of
the delivery of the cars. We could probably do very well with 10,000 cars this
Senator Plett: Ten thousand? What happens to the Port of Churchill if
CN gets their back up here and doesn't allocate the cars that you need? What
would be the negative impact on the Port of Churchill?
Mr. Tweed: Well, senator, you know that I'm always a positive person.
I'm convinced that we'll hammer out a deal with CN. It has been a challenge, but
I understand they have been regulated or mandated to deliver and they're trying
to do that.
We employ about 300 people. More than half of them are First Nations, Metis,
Inuit, and I would say that without the allocation of cars, we would have to
take a hard look at whether the port would open this year.
Senator Plett: For those of us from Manitoba that have fought hard for
that port, that would be a devastating thing not just for Manitoba generally,
but certainly for First Nations people and so on. Hopefully the railway will
I have one last question for you, Mr. Tweed. With the interswitching that we
have, can you give us an overview on how much farther you have been able to go
out and pick up the grain as a result of the access to elevators? As well, will
the interswitching allow for a larger capacity of grain to be brought in from
south of the border — you said you own some railways there — into the Port of
Vancouver and so on?
Mr. Tweed: I think the big challenge with the allocation and the
interchange — and I think our other witness would agree — is that without the
allocation, the interswitching has no value because we would still rely on CN to
provide those cars at that interswitch.
We recognize the limitation that's on it now gets us to Hudson Bay, and we
recognize that that's a big grain growing producing area. We've discussed, on
our Carlton Trail in Saskatchewan, where we would actually put producer loading
facilities to engulf the product that's out there. But it's kind of like saying
the kids don't go to school if the school bus doesn't come by and pick them up.
That's the dilemma, and I suspect that's the dilemma that all the short lines
As I said earlier, when you introduce regulation, sometimes there's an
outside effect that you're not prepared for or not thinking about. And with the
gun to CN and CP to deliver X amount of cars every week, that's what they're
going to do. I respect them for doing that but in the same breath, it impacts
some of our smaller players and we're part of that.
Senator Plett: Let me ask both of you a question. I think this is
relevant since you're both talking about the allocation of cars. What we have
seen, and I think you've alluded to, is that the railways are starting to
collect what they would consider easy grain. However, as those elevators are
emptying out and they have to reach to other areas, they will be reaching to
short lines and elevators farther away. The mandatory volume requirements are
forcing the railways to do this as they will need to make their quotas. They
won't be able to make their quotas if they just continue to go after the easy
stuff. They will have to reach out further, and would that not force them to
allocate cars to you? I would like to hear from both of you on that matter.
Mr. Tweed: I think eventually that will happen, if we only have an
average crop next year. For us only, because of our limited time — getting cars
in late fall, October into November and December, when they still can move grain
everywhere else in Canada — we lose our ability to do that. Ours is very
time-constrained in the sense of July to mid-November. That's our season, and we
need to make it then.
Senator Plett: Because of the Port of Churchill. How about for our
friend from Battle River Railroad? I don't think you would have the same
challenges that Mr. Tweed is talking about, so how would that affect you?
Mr. Eshpeter: It's an interesting phenomenon you speak of because in a
year that we just experienced where we have a lot of grain on the Prairies, CN
always seems to think that winter is a new phenomenon. If you are a farmer or in
the grain loading business, you have to appreciate that CN is always caught off
guard when winter comes, and this year was even worse than normal.
The gentleman that posed the question is absolutely right. Over time, the
cars will be allocated to those areas where the grain has still not been picked
up. But if you have a big year and there is going to be grain left in
significant volumes on the Prairies, it's going to be in those places that are
serviced last because there is no formula that would suggest everyone should be
Senator Plett: CN is coming next, so if this winter will ever pass, in
parts of our country, we will assure them that it will be coming again.
Mr. Eshpeter: That would be very nice.
The Chair: Thank you. I noticed that that was not a question.
Senator Tardif: My question is to either or both of you. Do you feel
that this bill will give short lines access to fair contractual agreements with
the two railways?
Mr. Tweed: I think those are two different issues. We believe in
having contract agreements, and having access to those switching rights are
totally different in the sense that I know the major companies don't want that
to happen. Maybe it will enhance the negotiating on the contract side, but I
don't think they're relevant together.
Senator Tardif: Ken, did you want to comment on that?
Mr. Eshpeter: Could you repeat the question, please?
Senator Tardif: You both mentioned the importance of car allocation
and access to cars, so do you feel that this bill will give short lines access
to fair contractual negotiations and arrangements with the two railways?
Mr. Eshpeter: I'm not that familiar with all of the details of the
bill we're discussing. I am hoping that someone who is doing research and having
input into the creation of the bill would have been aware of some of these
issues that short lines face, but not having actually read the bill, I'm just
hoping at this stage.
Senator Tardif: Thank you for that.
Do you feel an opportunity was lost in the fact that no mention is made in
the bill in regards to short lines and producer cars to perhaps provide farmers
with more alternatives for transportation of their grain?
Mr. Eshpeter: I will speak to that. I can easily do that. Producer
cars are a vital service to actual farmers on the Prairies. The opportunity for
farmers to access them is a hugely important issue.
To give you an example, last year we moved 720 cars of grain on our line, and
since deregulation and the situation whereby every farmer and every grain
company has to find a way to find its own customers, we have, on our books,
2,000 cars. Had cars been available this year, we probably could have moved
There is a tremendous need for this opportunity for farmers to access
producer cars, so if they're not mentioned in the act to any extent, that's a
Mr. Tweed: I would say that the intent, when the bill was introduced,
was to address that issue in the sense of allowing train companies to go farther
out and bring the product in. But, to me, it's not so much about the switching;
it's about the product availability of cars.
If we get the cars, we can get the product, no matter how far we are allowed
to go, but if we don't have the car allocation, again, we just lose all ability
to go to market.
I think the intent, though, was for that.
Senator Tardif: It's not in the bill, so I was wondering if that would
be an amendment that should be in the bill with regard to the whole short-line
Mr. Tweed: I expect you won't hear that next.
Senator Tardif: Probably not.
Senator Maltais: I have a short question, Mr. Chair. Mr. Tweed, is
your company a railway owner?
Mr. Tweed: Yes, we are.
Senator Maltais: Did you build them all or did you buy them from
existing rail lines?
Mr. Tweed: We bought them from CN in 1995, 1996. The railway is
100-plus years old.
Senator Maltais: Mr. Tweed, have those railways been subsidized by the
federal government in the past?
Mr. Tweed: Yes.
Senator Robichaud: Mr. Tweed, you said that you tried to come to some
kind of understanding or agreement whereby some cars allocated into a period
would be used not by yourself but by others so that you could use those cars in
the period where you can transport and deliver grain. That couldn't work out?
Mr. Tweed: What happens is that in the shipping months of May and June
we get an allocation of so many cars. Because we can't ship the product to the
port and then out, we tend to plug the elevator, and we wouldn't be able to use
that many cars.
We're suggesting that instead of front-ending us with X amount of cars, move
them back into the system. Let them be used, and then in late July, August,
September, October, move them back into our system where we actually can cycle
them back through on a regular basis and build our volume. I guess, at the end
of the day, more grain moves out of the country.
Senator Robichaud: But why can't you get that kind of a deal?
Mr. Tweed: It's all part of negotiation. Again, I know that CN and CP
are obligated to meet a certain target every week. They're mandated do that and
they'll be fined if they don't. So the challenge is for them to achieve those
obligations first and then look at the secondary markets.
We just feel that because we have such a short season, we need the right
volume, but we just need it at a certain time. Any time throughout the rest of
the year, we'd be happy to see them go back into the main system.
Senator Robichaud: Are there provisions in this bill that prevent them
from doing that?
Mr. Tweed: No, it's a negotiation.
Senator Robichaud: It's negotiation.
Mr. Tweed: Yes.
To be fair, historically, we would take those grain cars in May, simply
because we would build up our volumes at the port to be ready for the shipping
season. What has happened is that we're full, like a lot of elevators, and they
have no place to move it. Once we start shipping, with the 24-hour shift, it
will be a busy time, if we get the cars.
Senator Robichaud: But you're full at the port.
Mr. Tweed: We will be full in probably another 10 days. We're moving
product up there now.
Senator Robichaud: But you'll still be allocated those cars even
though you're full.
Mr. Tweed: Yes. That's the challenge. We have to show our position and
make out point clear, but I also understand that when you obligate a company to
do something, that's what they're going to do first because they face severe
fines if they don't. So our challenge is to get in front of them and just make
sure that we get it when we need it.
Senator Robichaud: Quite a challenge.
Mr. Tweed: It is.
Senator Robichaud: Mr. Eshpeter, you mentioned an appeal mechanism
that is not present now. Is that appeal mechanism in relation to car allocation?
Is that what you're saying?
Mr. Eshpeter: Not specifically. I was talking more about tariffing,
but it wouldn't be a bad thing, perhaps, to have an appeal mechanism regarding
car allocation also.
The whole industry is really in an interesting or maybe even peculiar
position in that we are creating ways for municipalities and farm groups to get
involved in short-lining, but then we're expecting those groups to compete with
the main players. That's really difficult. So if something comes up whereby a
short line is unable to compete in that environment, there should be some way
that we could appeal to an appeal group that would understand the situation and
make it possible for the small player to play.
If the small player isn't given an opportunity to play, don't give him an
opportunity at all because we're just going to lose a bunch of money by buying
track that we're not going to be able to use.
Senator Robichaud: But that could be done at a later date, then,
Mr. Eshpeter: Setting up the appeal, you mean?
Senator Robichaud: Yes.
Mr. Eshpeter: Which?
Senator Robichaud: Not through this bill.
Mr. Eshpeter: It's never too late because we have nothing now.
The Chair: Thank you, Senator Robichaud.
Senator Dagenais: My question is for our two witnesses. The Canada
Transportation Act promotes competitive access to other rail services. In the
past, interswitching was limited to 30 kilometres. Correct me if I am wrong, but
the interswitching limit is now set at 160 kilometres. What do you think the
maximum interswitching distance would be to allow a shipper to have competitive
access to another railway company? Can you give an example of a situation where
a shipper would prefer to have competitive access to other railway companies?
Both witnesses can answer the question.
The Chair: Mr. Eshpeter, do you want to comment on that question?
Mr. Eshpeter: Who would you like to address it first?
The Chair: The chair is asking you, sir, if you want to comment on
Mr. Eshpeter: Yes, I would, gladly. Thank you very much for bringing
that up because we, at Battle River Railway, are in a unique position in that we
are a former CN branch line, but we are only three miles away from an
interswitching situation with CP. We on the Battle River Railway would feel that
this new regulation about extending the boundaries for the opportunity to
interswitch will have a potentially major advantage for the Battle River
Railway. We don't know yet how this is going to happen, so we're quite
interested in finding out how it will happen from a logistical and practical
perspective; but we think it has a lot of potential.
A hundred and sixty kilometres seems like a pretty reasonable amount of
space, and we're happy with that. I can't speak for other short lines.
Everybody's in a unique situation.
The Chair: Thank you. We will conclude with Mr. Tweed on the same
Mr. Tweed: Obviously, whenever you open it up, the further away you go
the more attractive it is to a short line, for sure.
Looking at the map, the new regulation would take us to Hudson Bay.
Kenora-Saskatchewan for us would be ideal. We would be prepared to power it to
provide the engines. Again, we want to work with our partners, and that would
probably be a difficult challenge for them and for us to achieve. It's a good
The Chair: Mr. Tweed and Mr. Eshpeter, thank you for accepting our
invitation to share your comments and opinions with us.
We will now hear from the third panel on Bill C-30, the proposed fair rail
for grain farmers act.
That said, honourable senators, joining us is Claude Mongeau, President and
CEO of Canadian National.
We also have Robert Taylor, Assistant Vice-President, North America Advocacy,
I have been informed that Mr. Mongeau will make the first presentation to be
followed by Mr. Taylor. I will then ask senators to move to questions.
Mr. Mongeau, you have the floor.
Claude Mongeau, President and CEO, Canadian National: Thank you, Mr.
Chair and honourable senators. I have a short presentation that I plan to go
over and then I'll take questions.
Let me start off by saying that it's obvious this year we are facing what I
would call a perfect storm. I'll give you the contour of why I believe it is a
perfect storm. We are definitely dealing with a difficult situation. The amount
of expectation in the grain-growing sector and in Western Canada in general is
huge. The capability of the whole supply chain, not just the railroads, is not
sufficient to meet all the needs and expectations. As is often the case,
unfortunately more so in grain than in any other commodity, we quickly get to
advocacy and finger-pointing. Unfortunately this year, the finger-pointing went
very high up, all the way to the Government of Canada, which decided to single
out the railroads and come forward with a bill that is largely targeted at
railroads for reasons that I believe lack balance and perspective. Before I
elaborate on that, let me first give you a few key facts.
In a world of advocacy, you hear a lot of people making a lot of
interpretations. Let me tell you what this difficult grain crop situation is not
about. It is not about a competing demand with crude oil movement. We move only
2 per cent of our carloads with crude oil. Every one of those carloads has been
well planned for. We know the loading facility. We've hired the crews. We've
bought the locomotives. If we didn't have the customers, we wouldn't have the
assets. We have the customers and the assets and are moving 2 per cent of our
overall volume in crude.
It is easy to make railroads look bad on crude oil these days, but it's not
at all part of the problem. We're doing good stuff for Canada's energy market in
The other aspect is you heard other commenters earlier talk about big bad
rail — could have been just as easy to say even in the Senate meeting. The
notion that we do only what matters to us, for instance we flat line, don't have
any surge in capacity and take it when we want on our terms with every week the
same, no difference, is not the problem.
In fact, you see on the first chart that I gave you that we surge
dramatically in most years. Typically, the difference between the movement of
grain we move in the fall and in the summer is simple. There's an 80 per cent
difference. We normally have way too many assets most of the year, and we have
enough assets to surge during the fall period.
Of course, as you'll see in a minute, we don't have enough to surge to the
level of a 100-year crop, but we do surge all the time. We do try to follow the
demand of the market to the best of our ability. That's what our shareholders'
interests call for. The more grain we can move and the most efficient we are,
the better for us.
If it's not about a self-serving strategy, and if it's not about crude oil,
then what is this difficult situation all about? It is first and foremost, on
the second page, about a 100-year crop. I won't dwell on the statistics, but it
is what it is. We have never, ever produced as much grain in Canada, and not by
a small margin but by a huge margin. The crop at 76 million tonnes is a full 30
per cent bigger than ever in the history of Canada. Now, you say 30 per cent is
a big number. It's huge. But all of the excess production doesn't change
domestic consumption. So everything that is excess wants to move to export. The
actual export program, which is what calls on rail, is a full 50 per cent bigger
than an average year.
Percentages mean nothing. Fifty per cent is a huge number, but 50 per cent is
22 million tonnes of product. For CN — my colleague at CP carries the other half
— that is half of 22 million tonnes. That is 10 million tonnes-plus of grain
that we have to find a way to move, and we found out about the crop only very
late in the process, as late as September. The Minister of Agriculture — the
same minister who wrote the bill, mad at the railroads — his own department, at
the end of the December, was still calling for 61 million tonnes. We ended up
with 76 million tonnes. We moved 61 million tonnes, no sweat. We did it two
times in the last 10 years. We don't move 76 million tonnes under any
circumstances. Even if the railroads were levitating, we couldn't, because the
supply chain, railroads and grain elevator companies, are not designed to move
that much grain.
Ten million tonnes is twice as much as all the potash we move. It is more
than all the lumber we export out of Canada. It's almost as much as all the coal
that we export from Canada.
If you assume we do a reasonable job and we have the right assets, plus or
minus, to be able to surge, to deal with normal volatility, which we do, we
would have enough assets to go from 57 million tonnes to maybe 61, 62, 63, and
do a good job.
But if you have 76 million tonnes, the only way we could find out would be to
displace other commodities, and that's assuming that we have the other parts of
the supply chain able to ramp up with us, which, as I will show you later, is
not the case.
The railroads are not defining the supply chain capability. The railroads
have been blamed this year for falling short during the winter, but we do not
define supply chain capacity, and we can only be as good as the collective
ability of rail and grain elevators.
This leads me to the second issue, which is a very real one. It makes up the
perfect storm. We faced the worst winter in decades. When I did this slide, I
said decades. Today, I can say in a century. You have to go back to 1893 in
Western Canada to find a colder winter. The shape of those curves shows you the
extent of the difference between a normal winter, which is always difficult, and
this year's winter, which was a winter of a lifetime.
Unlike what some people said earlier, we have absolutely full knowledge that
winter comes every year, and we do a very good job at it most of the time, but
we do have issues that are related to coal, which creates structural
capabilities which are far more complicated to deal with than just saying winter
comes every year.
With air brakes, when it's minus 25 degrees, we cannot pull air through our
trains and move them safely, which means we have to shorten our trains. If it's
cold every day for the full year, we may need as much as 30 to 50 per cent more
trains. Of course, we don't have 30 to 50 per cent more locomotives, we don't
have 30 to 50 per cent more crews, and we don't have 30 to 50 per cent more line
capacity. So we don't have the capacity to meet all the demand — not for grain,
not for potash, not for intermodal, not for crude oil, not for any of the
Other commodity sectors understand that. They don't go to Ottawa complaining,
and we don't have royal commissions, and we don't have finger-pointing. We have
honest, balanced discussion about the adversity that we face. Every year, we try
to get better at it, but winter will not go away. The one thing we will change
in the future is that we will be much more prescriptive about what it is we
cannot do in winter so that people don't make the wrong assumptions and then
blame us afterward.
So it's a hundred-year crop in a hundred-year winter.
Let's look quickly, because I want to leave time for my colleague, in terms
of what we did for grain. The story is not at all what you hear, not from the
Minister of Agriculture and not from grain stakeholders. The story of the facts
is the following: I told you this crop became known as a hundred-year crop
fairly late. In the first five weeks, the grain elevator companies used us far
less than in any prior year. We had all sorts of capacity. We could have moved
5,000 cars a week. They only called on us for a few thousand. We could have
moved 10,000 more cars if they had had the insight to actually start moving. Now
they're blaming us. At the time, they could have actually used us and we would
have moved the grain. Remember this number, 10,000 carloads.
Right when it became clear an order shot up that we had a big crop, we moved
to a record spotting level. In fact, from week six to the beginning of winter,
we moved 27 per cent more grain than on an average grain year. We moved more
grain than ever in our history. We established eight weeks of records in a
period of 15 — record performance. We surged. We did everything one would
expect. In fact, at the time, even the Minister of Agriculture was saying we
were doing a decent job.
Then the winter of a lifetime, of a century, and right there on the chart you
see it. The first week of December, our performance got crippled, not just for
grain but for potash, for intermodal, for crude oil, for every commodity. We
were not able to move the equivalent of an average for a prolonged period of 12
weeks. In total, the shortfall for the winter is 10,000 carloads. We lost 10,000
carloads because of a crippling winter. They lost 10,000 carloads because they
were sleeping on the switch. We're even.
Since then, it's not the government order; it's the fact that winter broke
away. We are moving a new record. We're moving 41 per cent more than average. We
have established since week 31 to week 40 another eight weeks of record
performance in our history. We have never moved more grain.
Importantly, we are moving as much grain as the elevator companies are able
to unload. They are telling us to slow down in Prince Rupert. They're not
unloading because they're almost full in some terminals in Vancouver, and
they're full to the neck in Thunder Bay. We have icebreaker problems because the
icebreakers are not able to open the channel, or they just have lately.
We have moved more grain year-to-date than ever in our history. We moved a
record crop for Churchill in the fall. I heard the love earlier from Merv Tweed:
A record crop for Churchill this last fall. We are moving a record amount of
grain. We were impacted by a tough winter.
The next page shows you the real problem, and it tells the story of the
Battle River Railroad, in a way. We have far more orders than what the supply
chain is able to do. I'm telling you, we are moving as much as grain elevators
are able to unload. We are establishing new records. The bar that you see there,
the light blue bar, is the best in the history of CN performance for the last 10
years. We are consistently improving on that, but the orders are as much as
38,000 above the best performance we ever did.
An order is an expectation for more cars. It doesn't mean it's possible. When
it's not possible, we have to ration, and we do that very fairly. We do that on
the basis of the historical use of our services. That's the way the Canadian
Wheat Board would have wanted us to do it, and that's the way the Canadian Grain
Commission used to do it. We're doing it because that's what makes sense. We're
doing it in all territories with all customers, by customers, by type of group.
We have moved more producer cars than ever in our history so far, and that
includes the Battle River Railroad.
Quickly, advocacy doesn't move grain. Fourteen thousand cars are what the
grain industry is saying they can do. They have difficulty doing 10,000 to
11,000 as we speak. We are going to have to get to a point where we understand
I will let my colleague continue and answer the question on why this
legislation is not the right way to go when you ask me questions. That will save
time, Mr. Chairman.
The Chair: Thank you very much. We will ask Mr. Taylor to make his
Robert Taylor, Assistant Vice President, North America Advocacy, Canadian
Pacific: Good afternoon, Mr. Chairman. You're going to see a lot of
consistency with my comments and my colleague's.
Today I want to focus on supply chain capacity, how CP, despite exceptional
weather, has performed this crop year, and why interswitching and other elements
of Bill C-30 are not compelling solutions.
Specific to supply chain capacity, I'm not here to debate the new normal in
crop sizes but would be remiss not to emphasize the fact that this crop is 37
per cent above the five-year average and is an exportable surplus. That means
the amount of grain we have to move went from 33 to 34 million tonnes, to
something like 55, 56 million tonnes. That's a Westshore terminal, a double
Neptune terminal. This is an incredible crop.
From a capacity perspective, to look at just one component of the supply
chain, i.e. rail, is completely unrealistic. This is a multi-component supply
I would like to talk about our performance as well. As my colleague pointed
out, there was a 9 million tonne carry-in to this crop year, which is highly
unfortunate. There was capacity in June, July and August to move grain. In
August, we at CP had 4,000 railcars parked; a real opportunity missed. That
number for CP equates to the impact of the winter in terms of our fluidity.
To give a sense of our performance over that same period from September to
November — and I use September because we didn't have grain to move in August —
we actually moved 20 per cent more grain at CP than the five-year average, and
14 per cent more than last year. Last year was a record in terms of grain
movements in Canada.
In December and January we got hit by extreme weather and there is no doubt
that the weather was extreme. I'm not going to go through all of the statistics
and metrics, but one important one: I think this year Thunder Bay was the latest
opening ever — four weeks delayed at Thunder Bay. Thunder Bay is a very
important gateway for CP. It's a very short cycle time for us. So a
four-week-later opening at Thunder Bay gives you a sense of the extreme
temperatures in the upper plains and the prairies this year. Minus 25 degrees
Celsius is a real tipping point for rail operations, so a 30 to 50 per cent
reduction in our capacity, largely because of safety, shorter trains and reduced
velocity, because capacity is very much driven by velocity. This is a
significant impact on our ability to operate in a fluid fashion, and it's not
only seen at CP. If you look at Chicago, the upper Midwest, this is really a
North American phenomenon this winter.
To put our performance in perspective, even with the extreme winter
conditions, from September to April we moved 10 per cent more grain at CP this
year than last year, which was a record.
There is one point I would like to make. Even in the face of this extreme
weather, our employees worked tirelessly 24-7/365 to move grain. That is
something that is not being matched by other partners in the supply chain. We
would like to see more deployment of 24-7 in terms of port elevation and country
elevation as well. A lot of the port elevation operates five, seven, or do not
operate a true 24-7/365 operation.
In terms of expanded interswitching — and I will pull this up quickly because
I know you want to ask questions — we do not see that being a remedy here. It's
exactly the wrong thing to do. Extended interswitching will lead to multiple
handlings of grain shipments and will slow down the supply chain, negatively
impacting transit times.
In summary, if the supply chain is to do better we need to find a
collaborative approach in the near term and in the longer term create capacity
in the grain supply chain. This is how we will ultimately benefit the farming
community and the Canadian economy.
The Chair: Thank you very much, Mr. Mongeau and Mr. Taylor.
Senator Plett: Thank you, gentlemen, for appearing here. I think we
could have given you a two-hour time slot and we wouldn't exhaust the questions.
As you said, Mr. Mongeau, there has been a lot of finger-pointing here in the
last couple of days, and probably by everybody that has been at the table so
far. There's an old saying my mother used to have that if I pointed my finger at
somebody, three fingers or four fingers were pointed back at me.
Quorum Corporation was quite supportive of the comment that you made that oil
has not been the issue here. I asked the question. We have read that in the
newspapers. Your answer was consistent with what you was said here today, and
the gentleman here from Quorum said it exactly the way you did. He did not
believe oil played into it in any way. But he did disagree with the comment that
you made about the overloads at the ports. He said the ports were able to handle
whatever you could ship them. Clearly, railways are a huge part of our logistics
chain. It's just simply a fact of the matter, and farmers depend on you to
deliver their crops to market. We understand that this is no small task.
You have said previously that ''it is now time for grain elevator companies
to step up to the capacity they claim to have.'' To me, this is a little bit
concerning because I think we need to collaboratively work together, and it's
critical for all players in the supply chain to work together and take
responsibility for their own gaps in performance. I guess this is where I refer
to the finger-pointing coming from your company. It is critical for the Canadian
economy as a whole, for our international reputation as a reliable supplier, and
especially for our grain farmers.
My question, sir, is CN prepared to work constructively with grain companies
and implement service level agreements? That will be a question for both because
I understand that neither CN nor CP have signed a service level agreement with a
shipper. If that is the case, could you explain why not, and are you prepared to
Mr. Mongeau: First, the facts are that we have service level
agreements with the majority of the tonnage that moves through. We have service
level agreements, supply chain collaboration agreements with the largest grain
companies. Most of these service agreements, for instance, eliminate the
charging of demurrage. So between the advocacy on reciprocal penalty and lack of
service agreement and reality, there is a big difference. The truth is we
already have some, and we are already dealing with those that we have on issues
such as reciprocal penalties and demurrage.
We are absolutely willing and ready. It's our mantra at CN to step up to the
plate in a constructive manner. We tried to do this with the Minister of
Agriculture. We did that with each of our customers independently on a
commercial basis. But during the winter there was a tsunami of finger-pointing,
looking for the culprit, and we lost total control of the agenda, I'm afraid to
say, because it was more important to find the culprit than it was to look at
the facts. The facts are the ones that I told you. We have moved more grain than
ever in our history. We have allocated the grain cars that we did fairly, so
everybody got more grain cars than ever in their history. If winter had been
easier, we would have done even better. By the time the year is over, we will
shatter the record for a crop year by some 10 to 15 per cent. That's a sure
thing with 12 weeks to go.
Mr. Taylor: We have commercial agreements in place with the vast
majority of our customers. We have commercial agreements in place with the grain
companies. I think there is a lack of understanding about what reciprocity
really means, and if we're going to allocate railcars, locomotives and crews, I
think the onus is on a customer to have some clarity in the traffic offering. I
can't knock on my competitor's door and expect him to eat steel and spit out a
locomotive tomorrow. If he has some guidance on a traffic offering, then he can
give some additional guidance, on a reciprocal basis, on what he can do. If a
customer would actually give us a firm commitment and if that commitment had
some granularity in terms of an origin, a destination, a car type, then we could
step up to the plate.
There is a lack of understanding by some, not by all. I think that in the
commercial world it's better understood in terms of what reciprocity really
looks like. We cannot have these assets that have 40-year lives that are very
expensive — we're extremely capital intensive. At CP, we will spend $1.2 billion
to 1.4 billion this year, again, in ''cap ex,'' on revenue of $6 billion. We
have to use these assets effectively. We can't sign an agreement that is just
one-sided, where the onus is only on the railway and there is no onus on a
customer in terms of tendering traffic.
Senator Plett: We clearly have a situation that was unique this year.
I don't think anybody has ever disputed the fact. We all felt that the winter
was harsh and long. My wife wrote to me from Winnipeg this morning and said that
there was snow on the ground. In some areas, the winter isn't over, even though
it's probably not detrimental to rail traffic any more.
We talk about climate change all the time. We have a friend and senator who
talks about global warming. It didn't feel like that was anywhere in sight last
year, but certainly there is climate change. Winters are colder. We have
changes. Yet, we will have crop increases. Maybe it was a record crop, but we
have been increasing by, I think, 3 per cent a year for the last number of
years. That will continue. Those of us in Western Canada, in the Prairie
provinces, are hoping that these bumper crops will be there again next year. We
certainly don't hope the winter will be there, but there is a chance that it
Given that, we have two scenarios. One is that we don't have a harsh winter;
then, I take it that we don't have a problem. You can handle the grain if we
don't have a harsh winter. If we have a harsh winter, we will, if we have the
same type of crops, be in a predicament. A government can come along and say,
''You have to move a million tonnes a week.'' If that is physically impossible,
you won't move a million tonnes a week, but what are you doing to possibly
assure Western Canadian farmers that you are doing something about the issues,
i.e., air brakes that you can't operate at minus 25 and so on? What are you
doing to possibly assure them that, if we have that harsh winter again, you will
be able to meet the requirements?
Mr. Mongeau: There are two parts to your question. On the winter, we
can improve the way we deal with adversity year after year, just like everybody
does. The fundamental, crippling impact on capacity that comes with cold weather
is not a problem that is easily fixed and it's not a problem that CN or CP
controls. It's a North American rail industry problem. All the cars that move in
free flow across North America are based on the same technology that's impeded
Typically, in Canada, it's for six weeks. For most of the other railroads,
it's for two weeks. No other railroad has an incentive — I'm not even sure that
it would be economical for CN, even with six or seven weeks of winter — to
change over the entire technology to be able to address a very short period,
which, in most years, creates a bumpy ride but doesn't create, like this year, a
crippling impact on capacity.
We would need to have half a million cars in the North American rail industry
changed over to a new technology — new locomotives, new breaking system. You
would have to come with us to San Antonio, Texas, to convince our colleagues to
make billions of dollars of investments to change the technology that we have.
That's why I say that winter comes every year; it's not going to change. We can
improve at the margin, but the impact of winter on railroads is a structural
On the crop size, it all depends on what we are trying to shoot for. We want
more growth. We want bigger crops. The question is: Are we prepared, together,
to invest to face a hundred-year crop, and are we prepared to put the assets
behind it? Is the Government of Canada willing to buy 10,000 hopper cars in case
we have another 100-year crop next year? If we don't, what do we do with the
cars for the next nine years?
The Chair: Mr. Taylor, do you want to add anything?
Mr. Taylor: It's important to understand the efficiency of the system.
We're moving a tonne of grain from Winnipeg to Vancouver to an export position
for, say, $35, $36, $37 a tonne. So we move product for cents a tonne mile. It's
not FedEx moving an envelope for $14, and the guy is sitting around the corner
waiting for you to call. If people want to have additional surge capacity and
want fleet renewal, then we're going to have a dialogue on who is going to pay
for it. You have to remember that it's also a regulated revenue regime. We have
revenue regulation in Canadian export grain, and I think that these are all
elements of an educated dialogue.
Senator Plett: I'll be very brief with my last question, Mr. Mongeau.
I'm from Manitoba and this question relates to Manitoba. Will CN be able to
allocate the proper amount of cars to OmniTRAX in order that the Port of
Churchill will not adversely suffer, with the port having to close and people
being laid off?
Mr. Mongeau: Thank you for the question. We just did an all-time
record for Churchill, so between an all-time record and job loss, there is a
difference between facts and advocacy. We will do our very best to continue this
year to give them the record.
Every time we send cars towards Churchill, that means there will be fewer
cars available for other grain farmers because the cycle times are much longer.
We will have to find the balance, but you have to decide whether you want more
grain moved for farmers or more grain for the railroad that you like that is a
little bit less efficient?
Senator Plett: I like the Port of Churchill.
The Chair: Mr. Mongeau, you've made your statement, and we appreciate
Senator Plett, you've had your answer to your question.
Senator Mercer: Would you like me to talk about the Port of Halifax?
Mr. Mongeau, you said that you found out late about the problem. I guess my
question is: How come? We heard earlier from other witnesses that they
identified the problem in October. I would have thought that, for a customer as
large as the grain shippers in Western Canada, you would have someone monitoring
what's going on there and trying to anticipate the needs, trying to forecast how
many cars are going to be required. What was missing in responding to the crisis
that we faced?
Mr. Mongeau: People have very selective memories, I would say,
because, in actual fact, not only did they not know but also they did not move
crop for the better part of all of August and the beginning of September. They
did not know for sure. Otherwise, they would have moved crop, or they were
playing fire. That's number one.
Number two, the time frame within which we need to know to add not just cars
but also locomotives and crews is six to eight months in advance. So, in effect,
if we want to decide how much capacity we will have next fall, independent of
where the crop will be — it's not even seeded — we need to make a determination
now because it takes six to eight months to hire and train a crew. It takes
about 12 months right now, sometimes nine, to bring on a locomotive. Cars,
depending on whether they are available or not, can be from five to six months.
You need six to eight months lead time. You need to place your bet in the winter
or fall, prior to the crop being seeded. That's why we typically do it on an
average trend yield, with the ability to move up or down but not to address 22
million more tonnes like we did this year. But they did not know themselves,
otherwise they would have moved. Even if we had done so, we could have only done
what we did this year — line up resources for the spring. Six to eight months
later, we've added a thousand cars, the locomotives and crews to be able to flex
to where we are today at 5,500 to 5,600 cars per week, which is an all-time
Mr. Taylor: I don't have a lot to add to that, really. There are
considerable time lags and you have to ensure that you can utilize those very
expensive assets at a high level. Last year, for example, we started parking
cars in May. I can't opine on it, but where the crop comes in next year is
anybody's guess. In a typical crop year, we have a high fall peak, by May, we
start parking cars, by August we have a significant portion of our fleet parked,
and then the crop comes in and we start moving again.
Senator Mercer: I would suspect that this August you'll still be
moving this year's crop.
Mr. Taylor: Yes, we will.
Senator Mercer: You won't have as many cars parked.
Mr. Taylor: No, we will not have cars parked.
Senator Mercer: I have a problem that is related to you because you're
a victim. Somebody said a moment ago that the ports could handle the load when
you get there. You've got to convince me that Vancouver and Prince Rupert can
handle those. We've heard from Churchill that they have increased capacity and
are anxious to increase it, and good luck to them. But the Port of Vancouver has
consistently not been able to handle it. A witness told us earlier that before
the order-in-council, there were 38 ships waiting in Vancouver and 17 in Prince
Rupert. That dropped after the order to 24 and 7. Any ship waiting is one too
many for me. If you get the product there, they should be able to get the ships
out of there. Is the problem with shipping grain, as with many other products,
the Port of Vancouver?
Mr. Mongeau: Let me just briefly talk about Prince Rupert, where there
are five ships with tonnage at the port. They need cars effectively for six days
of unloading. In supply chain terms, we're in perfect balance. Six days is not
an issue. We are in perfect balance with Prince Rupert and there are five ships
at berth. Prince Rupert is asking us to make sure that we balance things. They
don't want it faster. We are at the perfect speed. We are on top of them.
At Vancouver, we're on top the same way. At Thunder Bay, they're full.
Churchill can't do anything at the moment. We are on top of every port at the
moment, to the point that the western grain elevator advocacy thinks we should
be sending it to the U.S., Mexico, wherever. The truth is not going with their
advocacy; it's where they want us to send the cars. That's okay, as long as
people understand that when you send the car towards Mexico, you will take three
cars to move the same tonnage as you can send to Thunder Bay. There are no more
cars. We just have to decide whether we want to move tonnes to help farmers or
we want to spread the volume to fit with the advocacy of the grain elevator
companies that are trying to say they have more capacity than they have in
Mark my words: By the time the facts come out, the true supply chain capacity
is somewhere in the vicinity of 11,000 cars on a weekly basis — both railroads.
We have been doing that for the last five years. We are on top of the grain
Senator Mercer: We are all frustrated by the situation this year and
obviously the large crop. I've been confused about why the lack of coordination
in the allocation of cars is happening. What was the situation in the past? Let
us go back a year or two. Was there a better method for the allocation of cars?
Mr. Mongeau: I would say a greater role was played by the Canadian
Wheat Board in levelling traffic on an annual basis. There was a different
marketing strategy that involved pooled grain and more ability for delivery into
the farming country elevator system. That's part of the issue in terms of the
pain out there as a lot of farmers have been left out that have no cash. That's
a problem. It's not just a railroad problem; it's a railroad problem in grain
The way we allocate cars, the way the actual efficiency of the supply chain
works, the fact that we have a more commercial system with fewer players, and
the way we allocate ourselves is not too different from the Canadian Wheat
Board; so there's no change. It would have been difficult under any scenario. It
was very emotional and advocacy driven this year. I think the gain is as much
about putting the onus on the backs of the railroads as it is to convince the
government to do what it did: Change the rules to get more regulatory leverage.
Senator Mercer: You talked about a service level agreement and about
trying to talk to the government. You said that the Minister of Agriculture,
instead of talking about service level agreements wanted to talk about pointing
fingers at the railroad. I don't necessarily remember that.
Mr. Taylor, you talked about commercial agreements. I'm confused. We're used
to dealing with the term ''service level agreement,'' which was the language in
Bill C-52, I believe it was. You said ''commercial agreements.'' Is that the
same as service level agreements?
Mr. Taylor: Absolutely. ''Service level agreement'' was actually
coined by the Rail Freight Service Review panel a few years ago. The CTA really
contemplates commercial agreements and confidential contracts. There is a new
remedy and there has been a constant layering on of remedies in the CTA over the
last number of years that allow a tariff shipper to avail of an imposed
confidential contract, which people call a ''service level agreement.'' All of
these agreements are really confidential contracts or commercial agreements, and
people use different nomenclature.
Senator Mercer: We heard from a witness earlier today, when I asked a
question, who indicated that service level agreements were costly. I asked what
he meant by ''costly.'' He said it could cost up to $100,000 to conclude a
service level agreement with the railroad. Since we've had service level
agreements in the legislation now for a couple of years, have you looked at the
efficiency of how you're reaching those agreements with your shippers? You're
dealing from a position of strength. A small shipper has only one railroad to
deal with when negotiating a service level agreement. Do you look at the fact
that it's costing your suppliers a lot of money to reach these agreements with
Mr. Mongeau: I have two comments. The first is that we have had as
much if not more difficulty serving other commodity sectors as we've had with
grain. Did you hear any other commodity sector complain the way we saw with
What we hear in grain is a confluence of regulatory lawyers and grain
advocacy. We don't have any small customers in grain. We don't serve farmers. We
serve grain elevator companies. The largest three grain elevator companies
control 65 per cent to 70 per cent of the market. We have very few, very large
asset-based customers, and they are very sophisticated. They are very good at
putting themselves on the side of farmers and pointing the finger at the
railroads and asking the government to provide them with regulatory leverage;
but they're no different than any large customer. There is no impediment to
doing commercial agreements with them apart from the intricacies of grain. The
revenue cap is not conducive to reciprocity. It's a pay-as-you-go system. It's
not easy. In other sectors it works; but in grain it's more difficult for
historical and structural reasons.
Mr. Taylor: Policy-makers have to keep in mind in terms of rail that
it's a bus route; it's not a taxi service. We move one tonne of potash from
Saskatchewan to export position at Neptune for about $20. We move one tonne of
grain for $35 because we're a bus route. If you have arbitrators willy-nilly
imposing service on the bus route to the benefit of one customer and the
detriment of another, you're going to seriously erode the efficiency of this
system. Although you'd never know it over the last three or four months, but we
have some of the best railways in the world here in Canada. You need to be very
careful in terms of imposing service to the benefit of one customer and the
detriment of another.
Senator Mercer: Mr. Mongeau, I think you're absolutely right: There
are too many lawyers involved.
Senator Maltais: Mr. Taylor, does CP own its railway tracks?
Mr. Taylor: Yes, we own our own tracks.
Senator Maltais: Is it true that they have been funded by the federal
Mr. Taylor: No, CP has always —
Senator Maltais: Never?
Mr. Taylor: No.
Senator Maltais: Mr. Mongeau, do you own your railway tracks?
Mr. Mongeau: Absolutely.
Senator Maltais: Has the federal government ever provided any funding
for the construction of that railway?
Mr. Mongeau: CN was a crown corporation for a long time. The answer to
your question is a bit more complex. Since 1995, CN has been a private company,
but it has not received any funding in 20 years.
Senator Maltais: Going back to 1873, in the case of the Grand Trunk
Railway Company, the Government of Canada funded the railway tracks you
currently own. That is not what the problem is.
I listened carefully to your arguments. Today, I expected the two presidents
of the only Canadian railway companies to propose some solutions. Your main
argument is that it is cold and that there is too much wheat. That is God's
fault, as he controls the two problems. But yours are the only two railway
companies in Canada. You are currently facing the problem, and if you do not
resolve it, fines will be issued under the legislation. Complaining is
pointless. You should take the necessary steps to resolve the issue because,
given the free trade agreements we have negotiated with other countries, the
situation will become increasingly problematic. Moreover, it is our luck that
global warming is taking place. Every year, the climate will change and weather
will become colder. You should get used to that. I expected to hear a solution
to the problem.
Mr. Mongeau: We have plenty of solutions. We have to find ways to work
together in a commercial manner. This is what I have been saying since the
beginning of the winter. That approach would entail better alignment, better
coordination, and investments that help increase the capacity of the whole
supply chain. That is our approach and our preference. Unfortunately, we are
here to tell you about what has happened already. The government decided to
implement regulations. We are here to defend ourselves. You have heard from
other witnesses, and we are defending ourselves to help you understand that the
legislation you are putting forward may not be the best way to deal with the
situation. However, we are focused on proposing solutions, and we are aware of
Senator Maltais: Why have you waited so long? The minister decided to
impose legislation in response to an existing problem.
The Chair: Mr. Taylor, do you have anything to add?
Mr. Taylor: Nothing to add, no.
Senator Tardif: Today we've heard a lot of people speak about the
problem of car allocation. I think the biggest fear that we have heard today
from the presenters is that they would not get the required car allocation. I'm
trying to understand: What are the criteria you use for the rationing of cars?
How do you assure yourselves that it's done fairly?
Mr. Taylor: We sit down with customers at the beginning of the crop
year and look at historical averages, their capacity and whether they have
deployed new capacity. We also look at their efficiency. Then we notionally
allocate cars in that manner.
My competitor alluded to the revenue capping impediment. What we do in the
U.S., and if we didn't have a maximum revenue entitlement regime in Canada, we
could have a car auction, which would allow for better alignment between car
allocation and customers' needs. If you had a vessel waiting for grain in
Vancouver, maybe you would pay demurrage minus $10 to get access to that car.
In the grain space — and again my competitor has already talked about this —
we need more commercial. That is part of the solution versus more of these
regulatory interventions. That's basically how we allocate cars, and we have put
forward a solution on how we could do it better.
Mr. Mongeau: It's on the basis of a fairly strict allocation using the
history of market share of the grain elevator companies using our services. It's
no different than what the grain commission used to do. It's not without
unintended consequences, but we effectively say, ''You used us last year for 4.5
per cent or 8.9 per cent. There's far more orders than what we can do. We will
do as much as we can and give you 4.5 per cent or 8.9 per cent.'' In that
regard, everybody's getting fair treatment.
The producer cars, like the Battle River Railroad, have many more orders, but
they have the equivalent share of producer cars. In fact, in the case of
producer cars, we increased our allocation a little bit because the demand is so
large. By and large, though, we do it on the basis of history.
Senator Tardif: And that was one of the complaints we heard.
Mr. Mongeau: How would you do it differently?
Senator Tardif: That it was unjust to do it on a historical basis.
Mr. Mongeau: You will have to help me who I give it to, because there
are many mouths to feed, and they all want more and all have a good reason to
We have 38,000 orders more than the best performance ever in the industry. I
mean, how do you allocate fairly? You have to have a metric.
Senator Tardif: Well, I think this is a concern of the short liners.
They're concerned that they're growing. They're thriving. They want to open up
new markets, but they're handicapped. Again, it's how far you are willing to go
to work with these companies.
Mr. Mongeau: You will have to help me, senator, with who I take it
from. We have a level of service complaint at the moment. I'll give you an
One of the few customers got higher allocation because they brought on more
capacity. They have grown year over year. They are one of the few handful that
got a little bit more, yet they want even more. So if I give them more, or if
you decided to give them more or the CTA decides to give them more, you also
have to have the other question: Who do I give less to? Is it Churchill? Is it
Battle River? Is it another customer?
In a world of rationing, you have to have a fair system.
Senator Tardif: And when do people decide to buy new cars? Is it not a
possibility to just build more?
Mr. Taylor: Our fleet is getting old. We have 6,000 Government of
Canada's that were bought back in the day when we had the government subsidizing
movements of grain to the tune of $700 million a year. So a new car, a car that
has higher cube capacity and that can be loaded at a higher level and also is
shorter, so you can put more into a siding, is a win-win, but then we have this
revenue cap regime.
Senator Tardif: Can you explain that a little bit?
Mr. Taylor: Our revenue is set by the government. So the maximum
revenue we can earn from the movement of regulated grain in Canada, and that is
grain to an export position, is set every year by the Canadian Transportation
Agency. It's the only element of rail transportation that has actual revenue
regulation, and it's an impediment. It's especially an impediment when you get
into the characteristics of this crop year, when you have a demand that's way
beyond supply-chain capacity and this push for more capacity in the longer term.
It was a regime that was developed when — I don't know, but I will guess a
little bit on the figure — canola might have been about $200, not $450. I'll
just throw out a few facts: In the last 14 years, commodity prices in Canada are
up 160 per cent; rail rates are up 24 per cent.
So if you cap revenue and the commodity prices keep going like this, maybe
it's time to have a dialogue about how you unlock that revenue restriction to
deploy a new capacity.
Mr. Mongeau: In the U.S., the grain companies are part of the equation
to make commitments on the number of cars so that there's balance. In Canada, we
have a pay-as-you-go system with a revenue cap. I want more cars if they're
going to be free. That's a no-brainer. So we should go to the government and
say, ''You buy more cars; they want them for free,'' or we have to have a system
that is different, like potash. In Canada, it's a very volatile system. They own
the cars. They make their own bets, and we make bets on locomotives and crews.
It's not as easy as saying, ''Go find the cars.'' We did that. It takes eight
months. We have added more than 1,000 cars, which is more than 10 per cent of
our fleet, since last fall.
Senator Dagenais: Mr. Mongeau, I have read your document and would
tell you that, if I were the Minister of Agriculture, I would be none too
pleased. I see on page 6 that you say the legislation draws on fantasies. I do
not know whether you are referring to the bill. Further on, the document states
that the regulations have all the ingredients to damage the economy, investments
and jobs, and that they turn back the clock 50 years because of a record crop
and the winter of a lifetime.
The minister appeared before our committee yesterday, and I mentioned that
you or CP were saying that the bill was an intrusion into railway companies'
I understand that the two parties are not on the same wavelength and that
what matters to you, as president of a railway company, is the return on your
The question is very simple. Can a certain level of cooperation be expected
in the wake of this bill? You will say yes, and we will see it. Producers are
saying the crop yield may be high again, and that is what we are hoping for. We
want to see high crop yields.
Mr. Mongeau: As much as possible.
Senator Dagenais: All the better if there is too much grain and if
there are not enough cars for the transportation. I understand that you cannot
stock cars if the grain yield is insufficient. The bill will be introduced and
passed. Can we expect your respective companies to cooperate?
Mr. Mongeau: As long as we are invited to the discussion, senator, we
are entirely open to collaboration.
Senator Dagenais: We will invite you, do not worry.
Mr. Mongeau: Yes. We want to take a commercial approach. I have
already sent to Minister Ritz in more detail everything I wrote on this page,
and I also mentioned it during the speeches delivered in Winnipeg. The minister
has lost the balance and the perspective in this file. The measures he put
forward are out of touch. This will not help move more grain. It will undermine
the commercial relations between clients and railways. We are already seeing
this, even though the legislation has not yet been adopted. The agency has
already received three service complaints. As for commercial decisions on car
allocations, the Transportation Safety Board in Ottawa will decide. If you
believe using a government control mode to decide how to manage railway
infrastructure is a good system, this legislation is a step in the right
direction. However, if, like me, you feel that commercial forces — incentives,
collaboration and coordination — constitute a better approach, this is a bad
bill, since it encourages shippers to complain to Ottawa and adds competitive
mechanisms I think are ill-advised. Interswitching is one of those mechanisms.
The door is being opened to American railways stealing railway traffic from
Canadian railways and shifting it to U.S. ports at interswitching rates that do
not provide us with compensation. That is akin to opening up to competition
without compensation, for the benefit of U.S. railways. CN and CP do not seem to
be doing a good enough job. If we are operating at full capacity with the grain
we have, we will not be able to help clients by interswitching to make up for
the other company's problems. Traffic being allowed to shift towards the United
States and create jobs in American ports does not serve Canadians' interests. I
mean every word I have said, and I can back up every one of my statements.
Unfortunately, we are lacking time, but railways have not had enough of a say in
this file. We are heard from for eight minutes at the very end of the
discussion, with the bill about to be passed.
The Chair: I would like to ask our witnesses to try to use
Senator Robichaud: I was reassured by your confirmation that you know
Canada has winters. A number of witnesses have told us that CN and CP do not
seem to believe that we have winters. We have also been told that there are some
major communication problems among the various players and that is was nearly
impossible to talk to the railway companies. People call you, but no one calls
them back. I am telling you what I have heard and giving you an opportunity to
set the record straight.
What does this communication problem stem from? You may be engaging in
conversation without understanding each other.
Mr. Mongeau: I have met twice with each of the grain companies' chief
information officers over the past few months, at their offices, in western
Canada or the United States. Our collaboration is very good. CN's mantra is to
be a supply chain. When someone wants to give a dog a bad name and hang him, and
convince the government that the law should be changed, they say that railways
are showing favoritism toward oil, that they are inflexible and do not listen.
Many things are said, but ultimately, we have to stick to the facts. As of now,
we have never moved as much grain. We are prepared to make investments; we are
focussed on coming up with solutions. We want to have a commercial system that
encourages people to talk to one another instead of settling their disagreements
in Ottawa. That is in the public interest, and we subscribe to such an approach.
I cannot protect myself from the exaggerated actions of those who want to put
the blame on us. So many lies are being told; it is very disappointing.
Senator Robichaud: But you still end up with the blame on you?
Mr. Mongeau: Yes, there is no doubt that the blame is on us.
Senator Oh: Thank you, gentlemen. After listening to all the
witnesses, I would say the finger is pointing at you. You claim that you have
moved more grain to the ports since September of last year than at any time, but
we're having a lot of problems. The ships are waiting for the shipments. You
claim that the grain elevators are not allocating more cars from you. There is a
lot of communication breakdown. The farmer doesn't know that there's going to be
a 100 per cent bumper crop coming. One plus one is two, and I think the whole
supply chain probably needs a complete overhaul. Would you comment on that?
Mr. Mongeau: I would say we need a complete attitude overall. We need
to bring people around the table. We need to share facts in better time than we
have to date, and we need to find commercial solutions. I have been advocating
for that since September and unfortunately we were holding our own through the
fall, but when winter came and with the problems that we faced, we lost
perspective and balance. We went to a mode of putting the monkey on the back of
the railroads and coming forward with bills, which in my view make us take a
It's the unfortunate reality. I wish I could have changed it, but we are
still prepared today. And if there's one good piece in that legislation, it's
that it has a sunset in two years. So hopefully we have two years for better
minds to prevail and more collaboration to show its fruits.
The Chair: Thank you, Mr. Mongeau.
Senators, due to the time, plus waiting for the last panel, the chair will
say that was the last question.
I will hear Senator Robichaud's comment.
Senator Robichaud: I want to bring up something you said, Mr. Mongeau.
You claimed that, at some point, a system was being established to transport
grain toward American ports. That is a source of concern for me.
Mr. Mongeau: If you look at page 8 of my document, for CN and CP, it
would be very inefficient to go across and interswitch traffic between them and
us. The two companies have more traffic than they can handle. So interswitching
would not benefit the traffic between CN and CP. However, BN is located 160
kilometres south of Winnipeg, and if BN was to take over the traffic, it would
be sent to American ports, and there would be no Canadian jobs related to the
railway and no Canadian jobs in the ports. That may be okay if the
interswitching rate compensated for the railways, but the current rates do not
provide us with compensation, and what is even worse, in the context of the
revenue cap legislation, we are not even paid for our interswitching activities.
The Chair: Thank you very much, Mr. Mongeau, President and CEO of the
Canadian National, and Mr. Taylor, from CP.
Thank you for sharing your comments and making your statements. There is no
doubt what you have brought forward will be in our Hansard, and many people will
Honourable senators, the fourth panel of the day is here to continue our
study on Bill C-30, the proposed fair rail for grain farmers act.
And, the Fair Rail for Grain Farmers Act.
At this time I will introduce Mr. Art Enns, Executive Member of the Grain
Growers of Canada. Our second witness will be Mr. Rick White, Chief Executive
Officer, Canadian Canola Growers Association.
To both, thank you very much for accepting our invitation and sharing your
opinions and comments on Bill C-30. The chair will recognize, for the first
presentation, Mr. Enns, to be followed by Mr. White and then by questions by the
Art Enns, Executive Member, Grain Growers of Canada: Mr. Chair and
committee members, thank you for inviting me to speak today on Bill C-30 as
President of the Prairie Oat Growers Association and a member of the executive
of Grain Growers of Canada. I'm also a farmer from Manitoba.
I would like to begin by expressing our appreciation and support for the
steps taken by the government to get grain moving again. The government is
listening to our concerns, and this legislation, in building on the
order-in-council provision, is moving us toward a rail system that is more
balanced and accountable. We thank them for that.
Through this legislation and its subsequent regulations, we hope to achieve
accountability between railways and shippers to improve the supply chain through
service level agreements with reciprocal penalties; meaningful delivery
contracts between grain companies and farmers, bringing certainty to the grain
sector; increased competition through interswitching to improve rail service
performance — we support an increase to 160 kilometres — and better transparency
through increased reporting, helping to maximize network efficiencies for all
players in the supply chain.
I think we're all familiar with the issues that have brought us to this
point. It's not just about farmers sitting with backlogs of grain in our bins.
We are also losing out on good prices. In our crop, oats, we are seeing farmers
being offered only half of trading prices at a time when millers need oats
desperately, all because we cannot get grain to market.
While oats remain 20 per cent behind last year's exports, we are 70 per cent
behind our available product. The past two months have seen some improvement in
movement to the United States, and we're happy for that. However, we still hear
that Australia and other suppliers are positioning themselves as more reliable
exporters. We find ourselves losing markets that we spent years building. This
Remedies to date have largely focused on the West Coast ports, to the
detriment of other corridors, especially the southern corridor. It's very
important that government use the expanded role of the grain monitor to track
railway allocations against demand by corridor and destination on a weekly
All crops and designations expect fair and equitable service. To achieve it
means all players working together. As such, we have asked the government to
consider the following: setting minimum volumes for movement by corridor and
getting the input of commodity groups when setting corridor minimums since we
are well placed to understand long-term demand and immediate production
It has been suggested that these matters could also be addressed in Bill
C-30's regulations. We would welcome this. It presses the need to get this
legislation passed and its regulatory package in place as soon as possible, in
time for the start of the crop year on August 1, 2014.
Grain growers also want to emphasize the need for certainty past 2016, when
the provisions of Bill C-30 may sunset.
Producers, shippers, handlers and railways need a planning horizon of at
least one year. Therefore, we would like to express the need for the Canadian
Transportation Agency to immediately begin the capacity planning exercise for
the 2014-15 season.
Equally, the review of the Canada Transportation Act needs to be undertaken
as soon as possible, and we are encouraged by the government's plan to expedite
the rail portion of the review.
The legislation represents another important step in clearing the backlog and
addressing Canada's rail freight system deficiencies, but more work needs to be
We in the agriculture sector are united in our belief that the steps taken by
the government to date need to be part of the long-term solution to address the
transportation problems commodities, including grain, are facing.
Long-term change is needed in this system as we face growing demands on
railways across all corridors and commodities. The ability to move product
affects every sector of Canada's economy, including mining, forestry,
agriculture and petroleum. We need to work together to find equitable solutions
for all parties dependent on rail transportation in Canada. We need a
transportation system that can meet the needs of all commodities and all
Canadians, right down to consumers when they buy their morning cereal.
We thank all parties for their efforts to expedite passage of the bill and
stand ready to focus on next steps as soon as it gains Royal Assent.
Thank you. We will entertain questions later.
The Chair: Thank you, Mr. Enns.
Mr. White, would you make your presentation, please?
Rick White, Chief Executive Officer, Canadian Canola Growers Association:
Good afternoon, Mr. Chair and members of this committee. Thank you for inviting
me here today to speak with you about Bill C-30.
The Canadian Canola Growers Association is a national association that
represents the voice of Canada's 43,000 canola growers. With over 90 per cent of
Canadian canola ultimately destined for export markets, canola farmers rely on
Canada's railways to help to get our products to customers and to keep those
products competitive within the global oilseed market. Predictable, timely and
efficient rail service is critical for our $19 billion canola industry.
Furthermore, with rising demand for our products, supply chains and rail
logistics will be even more important as our industry strives to reach our new
2025 goal of 26 million tonnes of canola production.
This crop year, canola farmers harvested a record 18 million tonnes of
canola. With relatively high prices, farmers were feeling optimistic, but they
haven't seen the benefits of this bumper crop due to a breakdown of grain
movement by rail from country elevator to terminal. Farmers have lost marketing
opportunities and now face cash flow challenges as their canola continues to sit
in their grain bins. We are also seeing unprecedented carry-out stocks that will
impact the markets for several years to come. Throughout this crisis, the
government has shown commitment to resolving both short and long-term rate
service problems. There is now money for better monitoring. The order-in-council
got grain moving at mandated levels, and now we have Bill C-30.
We are encouraged that these efforts appear to be paying off as performance
has improved incrementally over the last several weeks. CCGA supports the
proposed changes to the Canada Transportation Act in Bill C-30. The amendment
introduced by the government is a step towards making the logistics system more
commercially responsible. The proposed extended interswitching limit is a
positive action that has the potential to inject increased commercial
competition across the west for all shippers. We do believe attention must be
paid to the impacts on corridors to ensure that product is moving to where the
market needs it to go, rather than the most expedient path to fulfill statutory
or regulatory volume obligations. Hopefully, this can be addressed in
While CCGA fully supports Bill C-30 and is looking forward to it coming into
force, we see it as an enabling framework, and the true measure of its success
will depend to a large extent upon what is contained within the associated
regulations. We are committed to working with the government through the
regulatory process and beyond.
While we recognize that Bill C-30 is an important bridge to the statutory
review of the CTA and long-term improvements in the movement of grain, in order
to fundamentally rebalance the commercial relationship between shippers and
railways, we intend to continue to press for more action in two key areas.
First, a proper definition of adequate and suitable service in the common
carrier obligations contained in the Canada Transportation Act is required.
Railway service obligations must meet the transportation needs of the shipper.
Defining service as that which meets the shipper's needs would inherently
address the capacity issue in a way that is not specified by government edict
and would clarify that the service provider is statutorily compelled to do what
they need to in order to carry the traffic presented to them.
Second, there must be explicit provision for the element of reciprocal
penalties in service level agreements.
Service level agreements that include the mandatory element of reciprocal
penalties for non-performance when service obligations are breached will
increase the accountability between parties in the supply chain and hold them
financially responsible to each other.
Ideally, this will also allow for penalties to flow through to producers who
currently contract their grain companies and receive no consideration when there
is a service failure between the grain companies and railways.
We and the shipping community as a whole continue to support the six
amendments presented to the government in 2010 by the Coalition of Rail
Shippers. They remain central to effecting meaningful change in the service
level agreement mechanism.
In closing, the experience this year has clearly demonstrated that the
railways operate in a privileged position where their statutory common carrier
obligations can be skirted, punishing Canadian agricultural producers, other
shippers and ultimately the national economy. It is time to rebalance the
commercial relationships within the supply chain and increase accountability
through meaningful and effective contracts on service and performance. Bill C-30
presents us an opportunity to do just that. We are committed to working with the
government to make sure we capture this opportunity for the benefit of our
growers, supply chain participants and all commodities.
We appreciate the opportunity to address the committee, and we look forward
to taking your questions.
The Chair: Thank you, Mr. White. We will go to questions.
Senator Mercer: Thank you both for being here. I appreciate that.
Mr. Enns, you said the government is listening to your concerns, but you go
on to talk about some of the problems. Whose fault is this crisis? Everybody has
been accused of finger-pointing here today, so let's continue. Point your
finger. Who is to blame?
Mr. Enns: I think you can call it a perfect storm. A number of things
aggravated the situation. We had a record crop and record demand for our
products. Our elevator companies went out and sold record amounts of grain. Yes,
we had a very bad winter, so transportation failed us.
One of the things I see happening in our rail system is that we don't seem to
be building as our economy is increasing. More demand is happening and there are
more requirements for our service. I look across the lines and see Burlington
Northern Railroad. They're investing over $1 billion in infrastructure and new
equipment just in North Dakota and South Dakota. I haven't seen those kinds of
numbers coming out of our railways here. Those are just two small states no
bigger than Manitoba and Saskatchewan together. That's where I look and say, I
don't know; I don't want to finger point. I'm just saying that I'm looking for
solutions. We need to work together.
Senator Robichaud: You say that Burlington Northern is in the States.
Mr. Enns: Yes.
Senator Robichaud: It operates mainly in the United States, I should
say. They are buying new equipment. Are they receiving the same compensation for
transporting grains as the Canadian railways receive in Canada?
Mr. Enns: I would suspect their structure is different, but I am not
totally familiar. They have a railcar bidding system, and their infrastructure
They were running behind in sales this year and are rising to the demand of
what their customers need. I talked to one of their operational managers and he
said that they were behind and would be one of the railways affected in the
interchange because they could run into Canada with the 160-kilometre exchange.
He said that right now they're not looking for new business. They're trying to
supplement and make sure they service their customers. He said they're providing
more equipment to make sure they can do it. Obviously, they're seeing a return
on their investment out there.
Senator Mercer: Mr. White, this year we had a record crop of 18
million tonnes of canola, and you're talking about 26 million tonnes by 2025.
That's a very aggressive target. I hope you make it — it's important. You said
that farmers have lost marketing opportunities and now face severe cash flow
challenges as their canola continues to sit in the grain bins. How many of your
members have taken advantage of the government's $100,000 maximum interest-free
Mr. White: Thank you for the question. We administer the cash advance
program on behalf of the federal government. We just finished issuing on the
last program, which ended on March 1 this year. We issued almost 13,000 advances
under that program for a total of $1.6 billion. That is just as busy going into
April with the new spring program. We are already at over $300 million to almost
4,000 producers in the first month of operation. There is a cash flow problem
out there largely because of lack of delivery opportunity because the railways
aren't moving enough grain.
Senator Mercer: When we had the single desk, did we always have the
same cash flow problems? Wasn't it a little more even in that money was flowing
to farmers earlier, even before the grain was shipped?
Mr. White: No. I think right now we just have to get the sales on the
books. Whether the Wheat Board was in this or not, they would not be able to pay
farmers when farmers couldn't deliver. It's not an issue in my mind whether the
Wheat Board was here or not. In fact, under the Wheat Board system, the cash
flow was even less because farmers got paid for only a portion of their grain.
Senator Mercer: You said in your presentation about Bill C-30 that you
see it as an enabling framework. I'm not sure I understand. We have already
heard from witnesses over the last couple of days that there is really no
overall plan, no big picture plan as to how we're going to manage this from year
to year. This is proposed legislation has a sunset clause, but nobody is sitting
down and creating the big plan by meeting with organizations such as the
Canadian Canola Growers Association, with farmers, with the railroads and with
short-line railroads to discuss the complicated problems that a large crop like
this has brought.
As I've said over the last couple of days, I hope this is not an unusual
crop. I hope this is the baseline that it will grow from and that next year's
problems may even be greater if we don't find a way to respond and organize
ourselves in a fashion that will properly service suppliers and compensate
railroads. As well, everybody keeps forgetting that the ports have to operate
efficiently at the other end to get the grain out of the country and into the
hands of our customers.
Mr. White: We see Bill C-30 as bridging legislation to enable the
government to do things that they wouldn't normally get involved in due to
responding to the crisis at hand. This enabling legislation allows us a path
forward to deal with the short-term emergency problem that faces us and get us
to the CTA 2015 review where we can start talking about the longer-term fix, one
of which I mentioned is fixing the definition in the act regarding ''adequate
and suitable.'' What is that? The definition needs to focus on the needs of the
shippers, not on the needs of the railways. If we can get clarity on that, then
the railways will be statutorily obliged to size their capacity according to the
market demand facing them. This problem wouldn't be nearly as bad today if we
had had that definition fixed before now.
Senator Mercer: Indeed, I was going through my notes from my speech on
bill C-30 in the chamber yesterday. I thought maybe you were quoting me when you
talked about proper definition of ''adequate and suitable'' service carrier
obligations contained in the Canada Transportation Act. You're right on. This is
an important thing. It was an opportunity missed before in Bill C-52; and it's
an opportunity being missed this time. We've got to get down to doing this.
The Chair: Is there a question?
Senator Mercer: There will be a couple of questions.
You went on to talk about the SLAs, but you didn't talk about the difficulty
some people have expressed to us about the cost of negotiating those agreements
with the railways. You're a big organization dealing from a position of
strength. The smaller supplier negotiating a service agreement with the
railroads will have a heck of a lot more difficulty dealing with the exorbitant
Mr. White: I guess I should clarify. The SLAs are the actual
contractual arrangements between the railway and the shipper of record. As an
association, we are not a shipper of record. However, we are interested in how
that SLA provision works, because without that being a real commercial agreement
that has repercussions for both parties to perform, then those SLAs are not
worth the paper they are written on, in our view.
So you have to get a normal standard contractual arrangement in place. A
normal standard contractual arrangement includes reciprocal penalties for both
parties should one or the other not perform in fulfilling their duties. We do
not come at this from a negotiating perspective; we're looking at this more from
a policy perspective.
Senator Mercer: For future reference, it would be very helpful if your
association monitored the SLAs that your members have negotiated with railroads:
the cost, the time it has taken, and how it has been managed. That has little to
do with Bill C-30 today but rather in the future — especially when we get to
reviewing the Canada Transportation Act, which you talked about being in 2015. I
understand there is a push to start the rail side of this a little earlier with
the Canada Transportation Act.
Senator Dagenais: I want to thank our two guests. In your document,
you said that predictable, timely and efficient rail service is critical for
your industry. You are highly dependent on that service. You mention further on
that you have harvested 18 million tonnes of canola, and if the trend continues,
you may reach 26 million tonnes by 2025. We can assume that the production will
continue to increase. That said, owing to railway services, some farmers have
lost marketing opportunities and even faced cash flow difficulties. Further on
you say that, ''railway service obligations must meet the transportation needs
of the shipper.'' So here is my question for the two witnesses: are you
currently satisfied with railway transportation?
Mr. White: Currently, no, we are not satisfied with the rail
transportation service. They are meeting the minimum order-in-council level of
approximately 5,500 cars weekly per railway. That's about a million tonnes a
week. But the railways need to do better than that.
In the future of new, larger crops, they need new and larger capacity to plan
to move these crops, because the trend line on production in Western Canada is
increasing at least 3 per cent a year, year after year, year in and year out.
They need to start responding to that new reality and not be focusing on the
last five-year average. We want them to focus on the trend going forward and the
demand on their system coming up in the new year so that this kind of situation
doesn't happen again.
Mr. Enns: I agree with Rick. Our own industry depends on the milling
industry in the U.S. They basically import almost 90 per cent of their
requirements from Western Canada. This winter, they were relying on roughly
about a hundred cars a week that they needed to fill their mills, and for a time
period this winter, the railways weren't running in there at all. So when you
have a hundred cars going in and then, all of a sudden, nothing going in because
they did not have them, that really causes a hardship. We heard the railway say
it takes longer to move cars into the U.S. than it does to the ports.
We need to have a functional system; it just can't go on like this.
I will tell you of an incident of a line manager who told me about the
frustration. He had oats in his terminal 600 miles from the mills in
Minneapolis. He had a contract that he needed to fill over there. He had to go
to northern Europe to buy oats, ship them to Houston, and bring them back up to
the mills that were 600 miles from his terminal. He says, ''If that isn't a
dysfunctional system, please tell me what is.''
Senator Robichaud: Both witnesses can answer my question. Were you
consulted before Bill C-30 was drafted?
Mr. White: We were certainly involved in communicating with the
government officials about what we thought needed to be in new legislation. We
weren't consulted on what they were actually writing during the writing process
— that would be unusual — but we did have our input upfront.
We did have our response to what was initially drafted. Our response to what
was initially drafted resulted in a new amendment, which we thought was
important to include, and we fully supported that amendment that was added to
the original Bill C-30 as it first came out. So, yes, I guess we were consulted
during the proper process.
Mr. Enns: We were also very involved in the lobbying to get this bill
moving. Almost from the start, we were asking for some specific changes, because
we definitely felt the southern corridor was not getting the attention it
should. The southern corridor does not only encompass oats; it takes malt barley
and pulses all the way down to Mexico, so it's an important route. So when the
legislation changed to include possible minimum tonnage on corridor
restrictions, that was a real huge benefit to groups like oats and smaller
So we've been working very closely with it. Like Rick said, we weren't
privileged to all details of the bill, but we were definitely in contact with
the minister's office, asking for certain requisites in the bill.
Senator Robichaud: I understood the first line you said you were
actively lobbying for this legislation. I have no problem with that.
Mr. White you said:
In closing, the experience this year has clearly demonstrated that the
railways operate in a privileged position, where statutory common carrier
obligations can be skirted, punishing Canadian agricultural producers, other
shippers and ultimately the national economy.
Would you elaborate a bit on that, please?
Mr. White: Sure. In our view, the statutory obligations of the
railways have not been met; they have not provided this year suitable and
adequate accommodation to move all the traffic offered to it. That is what the
current CTA requires, and the railways were not anywhere near fulfilling that
obligation, in our view.
So we're saying they must be in a privileged position to be able to skirt
their statutory obligations. As a result of not moving nearly as much as they
should have been, that in effect punishes agricultural producers, because right
now we are looking at a 22- or 23-million tonne carry-out at least at the end of
this crop year. That is certainly not acceptable, and that is certainly not, in
our view, fulfilling their statutory obligation to provide suitable and adequate
accommodation for the movement of all the traffic that we offered to them.
Senator Robichaud: There you go, saying ''suitable and adequate,''
which you yourself define, but CN has said that they have transported much more
grain this year than they did in previous years. So who defines ''adequate''
Mr. White: That's why we would like to see clarity in the act.
Defining ''suitable and adequate'' to mean meeting the needs and demands of the
marketplace, i.e., the shipper and what has been offered to the railways to
Senator Robichaud: Did you suggest an amendment to that effect to this
Mr. White: No. We support the bill in its current form, but we will be
continuing to work with the government to address the ''suitable and adequate
accommodation'' definition in the act under the 2015 review of the CTA. So we
have a plan to work to get that in, but now is not the time to put it in.
Senator Robichaud: Mr. Enns, do you agree with that?
Mr. Enns: Yes, I do.
Senator Mercer: I just want to go to what Mr. White said.
You weren't anxious for amendments now, but you did say in your presentation:
We, and the shipping community as a whole, continue to support the six
amendments presented to the Government in 2010 by the Coalition of Rail
Shippers. They remain essential to effecting meaningful change in the
Service Level Agreement mechanism.
Why would we do it now if you said you don't want to do it now? You said you
support it, but you don't want to do it.
Mr. White: It is certainly required. It's not that we don't want to do
it. It's that we do not want to delay this bill. There are too many good pieces
in it, and we need it now, as quickly as we can get Royal Assent on it. We need
it now. I can't express how important it is to take what we've got and use it,
and we will continue to push for these larger pieces in the 2015 review of the
Senator Mercer: Even with all its flaws.
Mr. White: I would say shortcomings, yes.
Senator Oh: Thank you, gentlemen. First of all, I would like to thank
you for supporting this important piece of legislation, Bill C-30. It is
important to help you quickly move out all the grain, to start your cash flows
again, and most importantly, to protect your market share. As you mentioned,
Australia is stepping up, so your market share on delivery of your product is
Would you agree that this is the time that we take this opportunity to do a
complete overhaul on our supply chain, to look into it to prevent other things
happening like what happened this year?
Mr. Enns: I think you're right. There are a lot of changes that need
to be made all the way down.
One of the key things I see is that we need to be viewed as a reliable
supplier of whatever grains we are. You go to international conferences, and you
always keep hearing that Canada cannot be relied on to be a regular customer.
Then our competition, like Australia and some of the other countries, say,
''Come to us; we are reliable.''
That is the key. We need to be reliable. You know yourself that if somebody
gives you reliable service, you're not going to move away from him for any
reason. There's usually a reason you move. That's why it's so critical that we
maintain what we have.
Are there other fixes we need? Absolutely, but right now we need to get back
and be viewed as a reliable source, because we do have some of the best export
products in the world. We have good products we grow right across Canada, but we
do have issues with reliability.
Mr. White: Some of these things, like regulations, we can get at
fairly quickly, as soon as the bill has passed.
Senator Oh: Thank you. We will do our best.
Senator Tardif: The representatives from the two major railways that
we heard this afternoon said that part of the problem was that the grain
companies were sleeping at the switch, so there were cars that were being
unused. They had cars available in September, August. They were not being used.
Mr. Enns: I think you have to be careful how you interpret ''cars
available.'' Our crop in Western Canada was late this year. We seeded late in
springtime, so the crop wasn't really coming in until September, October, and it
takes a while for farmers to start delivering. So the delivery period was
delayed this year.
Even though the cars were available and the rail had capacity, the grain
hadn't come off the fields yet to be put into market position to sell. That was
one of the areas.
Senator Tardif: Any comment from yourself? Would you agree?
Mr. White: Yes, I absolutely agree. There was a bit of a delay.
However, saying that cars were available in August and September, obviously
there was not nearly enough capacity put on by the railways to accommodate the
crop that ultimately started coming off the field and into the system. Yes,
maybe cars were available, but the railways failed to plan for a large crop.
They failed to plan for winter, and the whole system broke down.
Senator Tardif: Can I ask you, are grain companies considered to be
shippers according to the act?
Mr. White: Yes.
Senator Tardif: So you would be a shipper as well. Do you feel that
there is transparency in the bill in the sense that the price offered to
producers, would they know? There's quite a difference, is there not? What is
the spread between the price paid to the farmer and the export price?
Mr. White: That spread in the industry is called the ''basis,'' and
that basis is a competitive spread. That's the price signal that the elevator
companies use to entice producers to deliver their product to them or to
''disincent'' them to deliver because the system is plugged.
Right now, basis-level spreads are tremendously wide, meaning it would be
very expensive for a farmer to deliver if they had the opportunity. That is the
market signal saying, ''We don't want your grain in the system because the
system is still plugged, so please don't deliver. If you do, we're going to
charge you big time for it.''
Senator Tardif: I've been told that producers are getting about 48 per
cent, and last year it was about 87 per cent; is that correct?
Mr. White: I don't have the details on that. It could be correct, but
I can't verify the accuracy of that.
Senator Tardif: It's also been said that grain companies are getting a
lot of the money, it's not going into the hands of the producer, and that this
act will provide compensation for the shippers, the grain companies, but not
necessarily to the producer. Do you think that is fair and equitable?
Mr. White: There's also a provision in the bill to allow the Canadian
Grain Commission to award and work with farmers to get compensation out of grain
companies for contracts that the grain companies sign with the farmers but did
not uphold their end on. There is some thought put into that and some
legislation that is being contemplated to provide that as an avenue.
Senator Tardif: When you say ''contemplated,'' that means further down
Mr. White: No. I think it comes into effect with the rest of it, but
it will take some time for the industry and the grain commission to figure out
exactly how that mechanism will work.
Senator Tardif: Mr. Enns, any comment?
Mr. Enns: I think, in fairness, the grain companies have incurred some
huge costs having those ships waiting in the harbour in Vancouver and paying the
demurrage. That has fallen on the grain companies over here. So to say they've
been pocketing the windfall over here, they've had some unexpected expenses,
I talked to a top executive who has been scrambling the same way. He said,
''You guys have been yelling at us for not taking your grain,'' from the
farmers' perspective, but said, ''We've also had the same people yelling at us
for not fulfilling our contracts with the wheat made for the export market.''
I think everybody has been hit hard this year. To say someone has had
windfall profits on this thing, I don't have the proof, but I would really
question it. In a situation like this, there usually aren't too many winners.
Senator Tardif: Thank you.
The Chair: Thank you to the witnesses for sharing your opinions and
thoughts and comments with us.
Before we conclude today, I remind all members that the committee will
continue to hear witnesses with regard to Bill C-30, the proposed fair rail for
grain farmers act, on Thursday, May 15, from 8 a.m. to 10 a.m. and then in the
afternoon from 2 p.m. to 3 p.m.