Thanks Tom for posting the Wheat Grower proposal for an incentive-based revenue cap. But that was only one of several recommendations we made to the Standing Committee. In our mind, fixing the grain transportation system is going to require action in three areas:
1) Increasing rail shipping capacity dedicated to moving grain. Our revenue cap proposal was part of that. Getting oil off rail and into pipelines is another part.
2) Moving to a contractual system, where railways (and others along the supply chain) are held to account for performance. That can only happen if the Canada Transportation Act is amended in such a way as to bring balance between the negotiating position of shippers and the railways. The Act must provide for contracts (or service agreements if you prefer) with real teeth -- our preference would be for negotiated contracts between shippers and railways (and between railways and terminal operators) that are subject to arbitration, with arbitrators taking into account the imbalance in negotiating power. The gov't may have to prescribe the penalties for non-performance or at least provide "guidelines" to arbitrators as to what constitutes acceptable performance and suitable performance penalties.
3) Greater competition. Our recommendation to expand interswitching distances (see below) is designed to do that. The BNSF spur up to Northgate will help. So too will the new facility on the BNSF line at Sweetgrass. P & H also successfully applied to the Canadian Transportation Agency for interswitching access to the BNSF for its Milk River elevator. CP has appealed that decision to the Federal Court (no surprise there) but it is expected that the Agency decision will stand. Perhaps there's other places where BNSF could be "invited" to draw more grain from Canada. An expanded livestock sector and more processing would also help take traffic away from rail (although admittedly, processed product often has to move out by rail as well -- but at least it's higher value and almost always transformed in such a way as there is less volume to move).
We recognize that none of the above addresses the short-term problem. Quite frankly we don't see a lot of levers here for the gov't to pull other than to threaten the railways with tough legislation. In our view, the railways have already lost the opportunity to show they can work themselves out of this situation -- we do need much tougher legislation -- it's now only a question of degree.
Here's the release we issued on Monday that expands on some of our proposals:
The Western Canadian Wheat Growers Association has proposed four recommendations to fix the structural problems that have led to this year’s severe backlog in grain shipments. The Wheat Growers made their recommendations in a presentation today to the House of Commons Standing Committee on Agriculture and Agri-Food.
“There is no silver bullet here,” said Levi Wood, President of the Wheat Growers. “Fixing the problems in the supply chain is going to require action on several fronts.”
The Wheat Grower recommendations are geared toward increasing rail shipping capacity for grain, strengthening competition in the rail sector, and improving system logistics. Proposed measures include:
• Introduction of an incentive-based adjustment to the revenue cap.
• Expand interswitching distances under which shippers can access a competing railway.
• Strengthen the Canada Transportation Act to ensure shippers can negotiate contractual service agreements with the railways that include effective performance provisions.
• Taking steps to expand the shipment of oil by pipeline rather than by rail.
Further details on each of these recommendations is included in the attached backgrounder.
The Wheat Growers recognize the above package of measures represent medium to long-term solutions and do not specifically address the current backlog of rail shipments. The Wheat Growers look to the federal government to take whatever steps are necessary to encourage or compel the railways to immediately increase grain shipping capacity.
“We need immediate action to clear up the existing backlog of grain shipments,” says Wood. “Parliament must also tackle the structural problems that are limiting our industry’s ability to meet the needs of farmers and our customers.”
For further comment, please contact:
Levi Wood
President
306-535-2997
Backgrounder
The Western Canadian Wheat Growers Association makes the following recommendations to address structural problems in western Canada’s grain handling and transportation system:
Implementation of an Incentive-Based Revenue Cap
The Wheat Growers recommend amending the Maximum Grain Revenue Entitlement (informally known as the revenue cap) formula in such a way as to provide the railways with a greater incentive to provide additional surge capacity during the peak post-harvest shipping period. A copy of the Wheat Grower proposal is available by contacting Executive Director, Blair Rutter at 204-256-2353.
Expand Interswitching distances
Under the Canada Transportation Act, a shipper is allowed to gain access to a competing railway, at a prescribed freight rate, if an interchange is within 30 km of its shipping point. The grain trade has indicated to us that rail service has been good at the six locations which are served by both mainline railways, or at those locations (a further 22 elevators) where the interswitching provision applies. The Wheat Growers recommend this distance be expanded to 120 kilometers to encourage even greater competition for business from the two main railways.
Strengthen the Canada Transportation Act
Amend the Canada Transportation Act to better define the service obligations of the railways, in terms of car order fulfillment, car spotting, pick-up and delivery. Performance standards and penalties must be established by contract to ensure shippers, railways and terminal operators meet their obligations. While these performance standards and penalties should be negotiated, shippers and terminal operators must have access to an expedited arbitration process that adequately addresses the imbalance in their negotiating position with the railways.
Providing such contractual commitments along the supply chain will improve system accountability and help ensure farmer delivery contracts are honoured, with penalties (or storage payments) paid to farmers for non-acceptance of grain within contracted terms.
Shift oil from rail to pipelines
Increased shipments of oil by rail results in fewer locomotives, crews and line capacity dedicated to shipping grain. The Wheat Growers urge the federal and provincial governments to move quickly to approve pipeline projects, so more rail capacity can be reserved for the movement of grain, fertilizer, lumber and other goods where shipment by rail is the safest and most economical mode of transport.
1) Increasing rail shipping capacity dedicated to moving grain. Our revenue cap proposal was part of that. Getting oil off rail and into pipelines is another part.
2) Moving to a contractual system, where railways (and others along the supply chain) are held to account for performance. That can only happen if the Canada Transportation Act is amended in such a way as to bring balance between the negotiating position of shippers and the railways. The Act must provide for contracts (or service agreements if you prefer) with real teeth -- our preference would be for negotiated contracts between shippers and railways (and between railways and terminal operators) that are subject to arbitration, with arbitrators taking into account the imbalance in negotiating power. The gov't may have to prescribe the penalties for non-performance or at least provide "guidelines" to arbitrators as to what constitutes acceptable performance and suitable performance penalties.
3) Greater competition. Our recommendation to expand interswitching distances (see below) is designed to do that. The BNSF spur up to Northgate will help. So too will the new facility on the BNSF line at Sweetgrass. P & H also successfully applied to the Canadian Transportation Agency for interswitching access to the BNSF for its Milk River elevator. CP has appealed that decision to the Federal Court (no surprise there) but it is expected that the Agency decision will stand. Perhaps there's other places where BNSF could be "invited" to draw more grain from Canada. An expanded livestock sector and more processing would also help take traffic away from rail (although admittedly, processed product often has to move out by rail as well -- but at least it's higher value and almost always transformed in such a way as there is less volume to move).
We recognize that none of the above addresses the short-term problem. Quite frankly we don't see a lot of levers here for the gov't to pull other than to threaten the railways with tough legislation. In our view, the railways have already lost the opportunity to show they can work themselves out of this situation -- we do need much tougher legislation -- it's now only a question of degree.
Here's the release we issued on Monday that expands on some of our proposals:
The Western Canadian Wheat Growers Association has proposed four recommendations to fix the structural problems that have led to this year’s severe backlog in grain shipments. The Wheat Growers made their recommendations in a presentation today to the House of Commons Standing Committee on Agriculture and Agri-Food.
“There is no silver bullet here,” said Levi Wood, President of the Wheat Growers. “Fixing the problems in the supply chain is going to require action on several fronts.”
The Wheat Grower recommendations are geared toward increasing rail shipping capacity for grain, strengthening competition in the rail sector, and improving system logistics. Proposed measures include:
• Introduction of an incentive-based adjustment to the revenue cap.
• Expand interswitching distances under which shippers can access a competing railway.
• Strengthen the Canada Transportation Act to ensure shippers can negotiate contractual service agreements with the railways that include effective performance provisions.
• Taking steps to expand the shipment of oil by pipeline rather than by rail.
Further details on each of these recommendations is included in the attached backgrounder.
The Wheat Growers recognize the above package of measures represent medium to long-term solutions and do not specifically address the current backlog of rail shipments. The Wheat Growers look to the federal government to take whatever steps are necessary to encourage or compel the railways to immediately increase grain shipping capacity.
“We need immediate action to clear up the existing backlog of grain shipments,” says Wood. “Parliament must also tackle the structural problems that are limiting our industry’s ability to meet the needs of farmers and our customers.”
For further comment, please contact:
Levi Wood
President
306-535-2997
Backgrounder
The Western Canadian Wheat Growers Association makes the following recommendations to address structural problems in western Canada’s grain handling and transportation system:
Implementation of an Incentive-Based Revenue Cap
The Wheat Growers recommend amending the Maximum Grain Revenue Entitlement (informally known as the revenue cap) formula in such a way as to provide the railways with a greater incentive to provide additional surge capacity during the peak post-harvest shipping period. A copy of the Wheat Grower proposal is available by contacting Executive Director, Blair Rutter at 204-256-2353.
Expand Interswitching distances
Under the Canada Transportation Act, a shipper is allowed to gain access to a competing railway, at a prescribed freight rate, if an interchange is within 30 km of its shipping point. The grain trade has indicated to us that rail service has been good at the six locations which are served by both mainline railways, or at those locations (a further 22 elevators) where the interswitching provision applies. The Wheat Growers recommend this distance be expanded to 120 kilometers to encourage even greater competition for business from the two main railways.
Strengthen the Canada Transportation Act
Amend the Canada Transportation Act to better define the service obligations of the railways, in terms of car order fulfillment, car spotting, pick-up and delivery. Performance standards and penalties must be established by contract to ensure shippers, railways and terminal operators meet their obligations. While these performance standards and penalties should be negotiated, shippers and terminal operators must have access to an expedited arbitration process that adequately addresses the imbalance in their negotiating position with the railways.
Providing such contractual commitments along the supply chain will improve system accountability and help ensure farmer delivery contracts are honoured, with penalties (or storage payments) paid to farmers for non-acceptance of grain within contracted terms.
Shift oil from rail to pipelines
Increased shipments of oil by rail results in fewer locomotives, crews and line capacity dedicated to shipping grain. The Wheat Growers urge the federal and provincial governments to move quickly to approve pipeline projects, so more rail capacity can be reserved for the movement of grain, fertilizer, lumber and other goods where shipment by rail is the safest and most economical mode of transport.