:
Good morning, everyone.
[English]
This morning, pursuant to Standing Order 108, the committee proceeds to a briefing on the provisions for the transport of grain during winter 2018-19 to find out what it looks like for the coming year.
With us this morning from CN, we have Mr. Sean Finn, Executive Vice-President and Chief Legal Officer, Corporate Services, and Mr. Michael Cory, Chief Operating Officer and Executive Vice-President.
We also have, via video conference, from the Canadian Pacific Railway, Joan Hardy, Vice-President, Sales and Marketing, Grain and Fertilizers.
We'll start with opening statements.
Mr. Finn, you have up to seven minutes, if you want to give us the latest.
I would like to thank you very much for giving me the opportunity to testify before the committee this morning.
There have been several positive developments in the past nine months, since we last appeared before you in March. We value the fact that you have invited us to present to you the implementation of our western Canadian grain plan for the 2018-19 crop year.
[English]
Let me say at the outset that we believe the current crop year to be pivotal. The issue is clear. We must overcome the challenges the grain-handling system faced in the previous crop year. To meet the needs of western producers and all our customers, CN is in the midst of an unparalleled $3.5-billion capital investment in our infrastructure and human capital. That is up $700 million from last year and represents 25% of our gross revenues. For every dollar we earn, 25¢ goes back into the properties to improve our capability of delivering our customers' goods over a long period of time.
On July 31, we tabled, pursuant to Bill , a copy of the grain plan—you have a copy in your material—that sets out how CN intends to move the grain crop through the grain year 2018-19. Pursuant to Bill , on October 1 we filed a winter plan that sets out in detail how the railway will move the grain crop with other commodities through the more challenging winter period.
[Translation]
As part of Bill , we were able to consult our stakeholders in detail. We didn't just prepare a plan for grain transportation and a winter operating plan. We took the time to meet with our customers, shippers and the entire western Canadian agricultural community. The idea was to consult them before tabling the plan on July 31. We were very pleased with this opportunity to table the plan, but more importantly to consult with stakeholders in the agriculture industry and western Canadian grain producers.
[English]
On that note, it's my great pleasure to introduce my colleague Mike Cory, EVP, chief operating officer, to update you on the movement of grain this year.
Mike.
:
Good morning, everyone. Thanks for the invitation.
How are we doing? The crop year is off to a very strong start, in spite of some challenges caused by early weather issues across western Canada, which, in some regions, delayed the harvest by many weeks. To this point, CN is on a record pace for grain movements out of western Canada. From week one through week 17, we've shipped 9.38 million metric tons of grain and processed grain products, as compared to our previous best of 9.07 million metric tonnes in 2016-17. This is 3% ahead of our former record.
We could have even done better. The reality is that there were more than 8,000 car orders cancelled since the start of the crop year, and in large part this is the result of the lack of grain availability caused by the delayed harvest. Now that most of the grain is off, producers and grain companies are dealing with the consequences of a late harvest and a lot of damp grain, which also slows down the system. In our grain report, we've indicated that we expect to move 5,500 hopper cars from the CN supply fleet each week during the peak months when the port of Thunder Bay is open and 4,000 cars per week when it is closed during the winter months.
We also move close to 700 to 900 private grain cars controlled by our customers. We've been consistently shipping this range per week in addition to the CN cars. This represents a significant evolution in the system. Four years ago, the number of private cars moved would have been in the order of just 20 to 30 private cars a week.
What has changed since we last met you back on March 19 and what has enabled us to significantly improve our performance? At that time, we indicated that our service had deteriorated due to a dramatic increase in traffic across virtually all areas of our business. This increase significantly exceeded both our expectations and those of our customers. In response, we've made very significant investments in both people and infrastructure. As Sean mentioned at the beginning of his remarks, the decision was made to increase our capital spending for 2018 to a record $3.5 billion, with the emphasis on capacity and enhancing projects in western Canada where the bulk of the traffic increase has occurred.
Specifically, we've installed more than 60 miles of double track in areas where congestion has been causing delays. We added or lengthened 10 sidings in the Vancouver and Prince Rupert corridors and we have increased yard capacity in key locations such as Winnipeg, Edmonton and Melville. These priority projects, most of which are now complete, have already had a positive impact on the fluidity of our network. At the same time, we've been focusing on increasing our workforce. Our Winnipeg training centre has been working at capacity for the past year, ensuring we have sufficient trained operating people in place. As a result, we now have 1,250 new qualified conductors in the field, which is a significant increase from last year.
We have also made significant investments in equipment. Specifically, we've ordered 260 new locomotives to be delivered over the next three years, with 60 in place before the end of 2018. We've also ordered 1,000 new high-capacity grain hopper cars, which will enable us to begin replacing the aging Government of Canada car fleet. We expect 500 of these new hopper cars will be delivered prior to the end of the crop year. We have ordered additional new centerbeam cars to serve our forest product customers.
Make no mistake, while we are pleased with the progress we have made, challenges remain. With the harvest finally complete, demand over the past several weeks has been well beyond what the grain supply chain can realistically handle. For example, in week 16, we received almost over 7,000 car orders, which significantly exceeds what can be handled, particularly with some congestion challenges at port terminals.
We expect demand for grain cars will remain strong well into the spring. The thousands of cars that did not move in September and October because of delayed harvest is capacity that was lost. It can't be transferred into months where we are already operating at capacity. Farming, like railroading, is an outdoor enterprise and we are both at the mercy of nature. For example, the inability of terminals in Vancouver to load when it's raining continues to present problems, especially during the rainy winter months on the west coast. The inability to load in the rain can lead to terminal congestion forcing us to hold trains en route to the port, or in the country. This leads to increased car cycle times, which reduces the overall capacity of the system.
Finally, I would note, the increase in the shipment of crude by rail due to a lack of pipeline capacity has received a lot of attention in the recent weeks. We recognize the critical importance of the oil sector to the west and will do our utmost to move additional volumes of crude when we have the capacity available. While we will do our best, we cannot increase our crude oil transport to the detriment of the other customers, particularly western grain producers. While recent weeks have seen an increase in crude traffic, we've also seen a slowdown in the movement of some other products, such as frac sand.
As I stated previously, we've increased our overall network capacity through significant investment, so no one should assume that more crude moving means less grain. In that regard, it is important to remember that very little crude moves west, which is the primary destination for these other commodities.
In conclusion, we are in a much better place than we were last crop year. That said, we need to be clear-eyed about the challenges that lie ahead. Winter always creates issues, and the impact of the late harvest will be felt throughout the crop year. However, with the investments we have made and the focus that we have brought, we are confident that CN is up to the challenges and we will continue to get the job done.
Thank you.
Thank you, Mr. Chair.
I appreciate the opportunity to meet all of you. I am sorry that I couldn't be there in person, but it's good to meet you remotely.
Mr. Dreeshen, it's good to see you again. We met at the Paterson elevator opening this fall near Calgary.
I am CP's Vice-President of Sales and Marketing for Grain and Fertilizers. Just by way of background, prior to joining CP earlier this year, I spent many years working for a grain shipper in Winnipeg.
Thank you for the invitation to speak with you this morning. CP appreciates the opportunity to discuss our plan to move Canada's grain during this crop year and the upcoming winter.
CP operates a 13,000-mile transcontinental rail network across Canada and the U.S. Our rail network is a critical component of North America's integrated supply chain. Grain is CP's largest line of business. It represents nearly one-quarter of our total revenue.
CP stands ready to safely and efficiently move grain during this crop year and we are off to a good start already. This year's Canadian grain crop is large. Our current estimate is that the crop is between 70 million and 72 million metric tons. When we add in the higher-than-normal carry from the previous year's production, the total crop to move is approximately 83 million metric tons, which is 5% higher than the prior five-year average.
Even though we are currently seeing strong demand from many other lines of business, our railway is performing very well, and our focus on grain is unrelenting. In fact, we broke our all-time record for the movement of grain in October, moving 2.64 million metric tons of Canadian grain and grain products.
Because of strong demand, CP is investing in significant new resources. We have more than 1,200 employees in training. The majority are running trades employees—the men and women who operate the trains. They are being deployed over the coming months. We've all added more than 100 fully remanufactured high-horsepower locomotives, which increases our road power fleet by about 20%.
Based on current forecasts, CP's operating team plans to consistently spot 5,500 hopper cars weekly for the movement of Canadian whole grains through the fall. We've done just that again with 5,540 hopper cars spotted last week. We plan to continue at this pace until the closure of the port of Thunder Bay in late December. Thunder Bay is an important outlet for Canadian grain. Through the winter months with Thunder Bay closed, CP plans to supply approximately 4,000 cars per week with CP equipment for the loading of grain.
Further, CP anticipates moving, on average, an additional 850 cars weekly of grain products in mostly customer-supplied cars throughout the crop year. These expectations, of course, are contingent on strong co-operation from, and coordination with, all components of the supply chain.
CP has significantly increased our capital investment in 2018. We are investing $1.6 billion dollars this year to enhance both safety and service. A significant portion of that—approximately half a billion dollars—is dedicated to new high-capacity grain hopper cars. We placed an initial order for 1,000 cars with National Steel Car of Hamilton, Ontario. CP has already received 261 of these new hopper cars. We will have 500 in service by the end of 2018 and then another 500 in the first quarter of 2019.
Over the next four years, with these 1,000 cars as the base, we plan to purchase a total of 5,900 new hopper cars, which will fully replace the old low-capacity Government of Canada hopper cars. The new car design is shorter and lighter, and it features a three-pocket configuration that allows for more efficient loading and unloading, and simpler maintenance. The new hopper cars can handle 15% more grain by volume, and 10% more load weight than can the cars being retired. Their shorter frame allows more cars in a train of the same length, though a train of the same length as today's standard—7,000 feet—will carry 16% more grain with these new hopper cars.
CP is also driving the new standard in grain transportation—a high throughput elevator capable of loading an 8,500-foot train clear of CP's main line track in 16 hours or less.
These new elevators will use a power-on model, which means that CP's locomotives stay with the train and are used by the elevator for the loading operation. When the loading is done, the power is there, allowing for quick and seamless departure from the elevator. Along with our new fleet of high-capacity hopper cars, this new standard will significantly increase the volume of grain the supply chain can move over a crop year.
CP currently services seven 8,500-foot loop-track elevators across the Prairies. Four additional 8,500-foot-capable facilities have been announced on our network this year. CP is continuing to negotiate and work with our customers to upgrade most of the network to an 8,500-foot model.
Now, let me make some comments about our winter planning at CP. We all know that harsh winter conditions are an operating reality for all modes of transportation in Canada. Winter conditions can profoundly affect railway operations and our ability to maintain service to our customers. As we Canadians know, not every winter is the same. The severity, duration and geographical scope of harsh winter conditions can vary significantly.
When temperatures drop below -25°C, a train's speed, length and weight must be reduced to ensure safety, which is always CP's number one priority. The reduction of these factors unavoidably constrains the rail system's velocity and throughput for a period of time, which in turn, reduces the supply chain's overall capacity. CP is employing a distributed power configuration on trains, placing locomotives in mid and end positions, which partially mitigates the need to reduce train length in cold temperatures by adding air pressure to the brake system throughout the train.
We also need to be constantly vigilant to the threat of avalanches through our mountain corridors in Alberta and B.C.
CP deploys significant resources each year to forecast and plan for winter, and then to mitigate the impacts as much as possible. Fortunately, CP has achieved improvements to winter performance in recent years through significant investments in track infrastructure and rolling stock and strong winter planning with our customers and the broader supply chain. Nevertheless, the impact of winter on a railway's performance can never be eliminated. No matter what action is taken, tough winter conditions will always constrain the system's capacity, impacting service through some periods. Proper planning is essential, but it can never completely insulate a railway from the effects of winter.
Again, I thank you for the opportunity to speak with you this morning, and I'm happy to take any questions.
:
Thank you very much for asking this excellent question.
First, it's important to understand that the rail system extends over 26,000 miles across North America. It is also important to realize that it's an external network.
We have to make choices every day. We have an obligation to provide our customers with services that meet the standards we impose on ourselves so that their goods reach the market in a timely manner. In making our decisions, we ask ourselves how we can ensure the network operates smoothly while serving our customers. It isn't as if, one morning, we make the decision to move grain that day, coal the next, and oil next week. We must transport all goods on a daily basis.
We must take into account certain situations. For example, if there is no more space at the Port of Vancouver because cars aren't unloaded while it is raining and, for logistical reasons, the boats haven't arrived yet, we often transport the wheat to Kamloops and wait until the boat is in position before bringing our cars into Vancouver to serve the customer. If we sent all the wheat cars to Vancouver, we would risk clogging the Vancouver terminal.
These are choices that are made on a daily basis. People's perception that we choose one commodity over another is unfounded. We have to serve all our customers and it's a fairly complex network. Railroading is a team sport. It is also a sport that becomes more difficult during the winter, but that is no reason not to serve our customers.
I assure you that the choices are made daily by the people on the farm, so that all our customers receive the services to which they are entitled and that their goods reach the market. If we do not do so, we will damage the reputation of grain producers, the reputation of Western Canada, but more importantly, Canada's reputation as a commodity exporting country.
Our investments in the network increased from $2.7 billion in 2017 to $3.5 million in 2018. So almost $800 million more was invested in the network, much of it in western Canada, between Winnipeg and Edmonton, where there was an issue for us.
The Grain Plan, which we have provided to you, includes a November 2018 update. It's the first document inside the cover. There are blue lines on the back. It indicates that there are 27 investment projects, 21 of which have already been completed. You have the details for each network.
In the next two years, we will buy 260 locomotives. We have also hired 1,200 new locomotive conductors. Even more important, of the $3.5 billion, $400 million has been invested in the network between Winnipeg and Edmonton. You can read the details in the document. On this network, we are trying to have double-tracking over 60 miles at a time, which will improve resilience and redundancy.
We believe we are entering winter this year much better prepared than last year. We aren't perfect, and we still have work to do, but we will continue to make investments not only to increase capacity, but also to build resilience during more difficult export periods.
When the Port of Thunder Bay closes in December, we want all western Canadian grain to be moved to Vancouver or Prince Rupert. Investments will be made in that network. You have all the details in the document.
We publish updates every month to indicate where we're at. At this point, we are clearly demonstrating that the investments were made where there were problems last winter.
:
Let me start by saying that the Prince Rupert grain terminal is separate from Ridley. Ridley is the coal and coke terminal.
I don't know how to answer your question. Every participant in the supply chain needs to have resiliency. As we've spoken about, whether it's more track, more people, more cars or more locomotives, we know there will never be a perfect linear movement of grain. You need to be able to catch up.
For the terminals in Vancouver, it's somewhat the same. If there's heavy rain and they can't load the grain into the ships because we can't use tarps or holes, then that stops the entire system. What we work with them on is to first of all make sure we have the proper understanding of what they're going to unload, how they're going to unload it and what grain they need from us so that we can get it there and maximize that part of it. The resiliency we need in a place like Vancouver is to be able to unload 24 hours, seven days a week, in the rain, just like we need to be able to run when it's 30 below zero and snowing dramatically. In terms of rain, Joan can speak to the issues of going through the spiral tunnels.
Those are all very tough things we need to have resiliency on, and that will definitely help the supply chain.
:
Thank you very much, Mr. Chair, and my thanks to all of our witnesses.
I had the opportunity to be out at the Paterson plant in Bowden, and I had a chance to see the loop tracks working. I know that very soon on CN, not too far from me, there will be a similar one. Farmers in central Alberta are looking forward to that. It seems to be working extremely well. The fact that you can keep the locomotives hooked on the entire time and the amazing speed at which they are able to move product is certainly helpful. I know that this investment by both the grain companies and the railways is certainly appreciated.
In our discussions today, one comment was about the delay in harvest and how people are necessarily behind. There was grain that had come off in August and September. The problem was that we didn't have the sources. The shippers didn't have all the grain that they typically would have so that they could mix and move out what they wanted, so there are certain types of commodities that had difficulty that way. It's starting to move now and there's still the issue of when the train is going to be there, and the grain companies are getting all their crews together and expecting that a train will be there. It doesn't always happen the way in which it is intended.
When we're talking about investments to make grain cars and to deal with all of that and the tracks, the first thing you need is steel. There is a serious concern with the billions of dollars being invested by both CN and CP and how much they're being caught up in trade and tariff issues.
I'm wondering if both CN and CP could give a perspective on that so that we get an idea of how it might affect each of you.
The other point that was discussed earlier had to do with the loading of grain on the west coast and the concerns about rain and how it affects that. Again, it seemed to be logical. If you're dealing with the feeder holes that are there, you could certainly get the majority, or get the trains, loaded.
I understand the tarping issue, but what I don't quite understand—and I made a note earlier—is this: When looking for a solution to take care of that bottleneck, is it concern about the grain because you don't want it getting poured on, or is it concern about personnel? When the union is looking at it, obviously, its interest and concern is going to be with personnel, not with the product. That's a different issue.
What are the concerns? What are they looking at? Is there a solution, or are they simply saying, “We're not going to be out in the rain”?
Thanks to the witnesses for being here.
I'm having a hard time understanding the issue of rain. We haven't been shipping grain for the past year or two. We've been doing this for decades. There hasn't been any innovation to transfer from the cars to the ships in decades...?
I'll ask the question to all of you who are involved in this. Who's responsible for this? I just can't believe, for the life of me, that nobody has come up with a solution that's acceptable to the workers and acceptable, at the end of the day, to the customers—because, at the end of the day, if they don't get their grain on time, then, as Mr. Finn said, Canada looks bad. I'm wondering if they are now working on a solution.
I'll go to you, Ms. Hardy, first.
:
First, when the port of Thunder Bay closes in December, there is no doubt that all western grain must then be moved to either Vancouver or Prince Rupert. This is the challenge we face.
Second, with respect to supply chain capacity, we estimated that the number of cars that CN could move was 5,500 during normal periods and 4,000 during the worst weeks of winter. For us, the challenge is that there is much more demand than cars. Last week, for example, we were asked for 8,000, but we delivered 7,200. In this case, the demand was clearly greater than the number of cars available. In other words, demand was higher than network capacity. One reason for this is that it is very cyclical. From week to week, the number of cars that will be ordered for grain may vary. We need to manage this and ensure that cars are allocated to everyone so that they can empty their elevators and transport their goods.
To answer your question, our biggest challenge is managing the situation when there is more demand than cars available in the CN and CP network. When we have a difficult week, we have to catch up as quickly as possible. However, it is impossible to spread a weekly delay of 7,000 cars over 50 weeks and have enough cars to move the grain. The challenge for us is to estimate needs, determine where the grain is and move it quickly, so that the supply chain is as efficient as possible.
:
Good morning, Chair, and members of the committee. I'm Steve Pratte, Policy Manager at the Canadian Canola Growers Association.
Thank you for inviting the CCGA here this morning to discuss our perspective on grain movement this year. The Canadian Canola Growers Association is a national association governed by a board of farmer directors. It represents Canada's 43,000 canola farmers from Ontario west to British Columbia. As members well know, grain farmers critically rely on transportation to move our products to continental customers and to terminal position for export to our global customers.
In terms of canola, Canadian farmers grow a truly global crop. We are the world's largest exporter of this highly valued oilseed, and in any given year, over 90% of Canadian canola, in the form of raw seed or the processed products of canola oil or meal, is ultimately destined for export markets in more than 50 countries. In 2007 this amounted to $11.4 billion in sales.
Turning specifically to the movement of grain in this 2018-19 crop year, we have been very pleased with the recent aggregate performance of the grain supply chain. As we heard this morning, by various measures railway performance in the grain sector has been very strong, not only in total volume moved in the first 16 weeks of the crop year but also in terms of the various week-to-week performance metrics such as railway hopper cars supplied against shipper demand.
With any complex system, aggregate performance can mask specific issues, which in the grain supply chain often occur within the first and last miles of the movement and are very often specific to location or facility. Despite farmers' overcoming a challenging and late grain harvest in many areas of western Canada, the total system's performance has supported the relatively free flow of farmer grain deliveries into the country elevator and domestic processing streams, and the export of products continentally and abroad.
This is a good-news story—on balance. The grain supply chain to date has been relatively fluid. The performance of the railways in their service to our shippers, being the critical link between the elevator and terminal, is to be noted and given credit.
That stated, in western Canada we are now entering the annual period of lowering temperatures that will bring sustained system operational challenges and complexities, particularly, as we heard again this morning, for the railways. We encourage all supply chain partners to continue to work together to mitigate supply chain risks and swiftly deal with emergent issues.
To that end, it is worth making very brief mention of some of the early effects of recent changes to the legislative framework governing rail transportation in Canada that directly and indirectly impact winter railway operations.
Firstly, Bill , contained a new feature aimed at enhancing annual communication and coordination of grain stakeholders: the annual publication of the August 1 grain report and the October 1 winter contingency report. The railways were given latitude in the preparation of these reports, and they did interact with grain shippers and stakeholders in the development of their inaugural publications. The grain sector is of the opinion that these reports are a good first step and that they could use some further refinement in the future.
Through this process and other corporate actions undertaken by the companies, the railways have certainly introduced a greater degree of communication and information sharing with the broader grain sector than existed even five years ago. I'll tip my hat to them for that.
In any year there will no doubt be specific or localized issues that arise, such as major line interruptions, and sometimes these will produce knock-on effects impacting a larger geographical region and extending deeper into the supply chain, essentially creating backlogs. Thankfully, this has not occurred to date, and hopefully it won't this year.
The real effect of these backlogs is that they negatively impact the farmers' ability to satisfy existing contract obligations with their grain buyers or their ability to sell into buoyant markets to receive payment to support their businesses, and ultimately, their families. In short, as members on this committee would know, if there's no grain delivery, there's no farmer payment.
If and when disruptions do occur, hopefully the suite of measures communicated to government and stakeholders in the railway winter contingency plan will suffice to bring a return to normal operations in quick order.
Secondly, Bill appears to have effectively dealt with the policy issue of the aging grain hopper car fleet. By amending several details in the calculation of the maximum revenue entitlement formula, the bill has had the intended effect of unleashing investment by both railways in the new generation of hopper cars, with announcements emerging from both companies immediately following the bill's receiving royal assent.
It should be noted, though, that farmers are ultimately paying for this railway investment through the structure of the maximum revenue entitlement, but it is a critical investment required to modernize the rolling stock. As the railways begin taking ownership in the coming months and continued fleet renewal occurs over the next several years, this is expected to produce significant increases in the efficiency of our grain supply chain when coupled with shortening cycle times and new train configurations, essentially allowing the system to move more with less.
Although the impact on this winter's movement may be negligible, moving forward, this will have a welcome and positive effect as the cars have a 50-year service life, and this will literally have positive impacts for more than a generation.
Finally, Canada has an aggressive trade agenda supported by recent trade agreements, and the agricultural sector plays a major role. Canada's canola sector and broader agri-food sector are focused on sustained, long-term growth, and this has been identified as a near-term driver of the Canadian economy.
The recent report of the economic strategy table challenged the agri-food sector with an ambitious target of $85 billion in annual exports by 2025. The service provided by our two major railways will play a major part of supporting the sector's realization of this goal, as will the port of Vancouver.
CCGA encourages members to consider the critical infrastructure issues in the port of Vancouver and what the role of government, be it policy, programs or investment, could be. It is time to ensure that long-term capacity is in place to sustain this national economic activity, and this may require some bold approaches to the regulatory and investment environment. In particular, the critical last mile of the grain supply chain into the port of Vancouver should be assessed and addressed.
In closing, this year we are heading into the winter optimistic but realistic about the railways ability to sustain their service to the grain sector and, more broadly, all commodity shippers.
Thank you for the opportunity to be here this morning.
:
Good morning, and thank you for inviting me to present on this important issue. I'm glad to be here representing the Grain Growers of Canada, 65,000 grain farmers from coast to coast.
My name is David Bishop, and my wife, Mary, and I farm in Barons, Alberta. We produce cereals, oilseeds and pulses on 3,500 acres, including 640 acres of irrigation. My family's farming history in Canada dates back to 1910, and I began farming with Mary's parents in 1986. Currently, I'm also vice-chair of Alberta Barley, and I am past-president of the Alberta Seed Processors. I am proud of my involvement in commodity organizations and feel it is important for farmers to come to Ottawa to speak to you directly on these issues.
I would like to start by thanking this committee for the work you have done and continue to do on transportation. Transportation is an important issue for farmers across the country, and your past hearings, including the special hearing you held in March, helped to shed light on the challenges we have faced and has helped ensure the right solutions are put in place.
As this committee is aware, prairie grain farmers are almost entirely dependent on the rail transportation system to get our products to market in a timely manner. The unfortunate reality is that poor railway performance has prevented that from happening on almost regular five-year intervals. It is my hope that actions over the last year will help break the vicious cycle that has left farmers in a critical situation where we can't move our grain. As you know, when we can't move our grain, we don't get paid.
While my grain is moving well right now, the delayed harvest means that this year has not been without challenges. I experienced a five-week delay and a reduction in grain quality due to the bad harvest conditions and will now be counting on reliable grain service to move what I did get off.
The passage of Bill is a significant achievement for the rail shipping industry in Canada. It brings in measures long called for and rebalances the competitive environment. I appreciated the comments from CN and CP in the first hour of this meeting and would like to recognize that both railways have been reaching out to engage our group, the Grain Growers of Canada, and other groups to build strong relationships. Such outreach gave me hope for the future, and I look forward to continuing this relationship.
We've also been pleased to welcome investments in the new infrastructure, including the ordering of new hopper cars by both CN and CP. These critical investments are a clear indication that the bill has provided security of return on investment that the industry needs. Infrastructure has been degrading for many years, and it will take a significant injection of funds to ensure that the rail system can meet the needs of the industry as we continue to grow and meet the government's export goals. We hope to see many such announcements in the future.
I would like to take a minute to address the reports that have been released by the two railways. The new grain report and winter report are steps in the right direction. It is promising that they have been accompanied by an increase in engagement between the government, railways and the grain value chain. However, improvements are needed to get to the point where grain farmers can be confident that Bill will deliver transparency and collaboration that works.
A significant challenge with the plans that have been released is that the railways only commit to targets or maximum movement levels. They provide no indication of a minimum amount, and as such the railways could move substantially less grain and still declare it a success. Grain farmers need the railways to provide details on their planned minimums, and that information needs to be provided by corridor.
As I said earlier, grain farmers welcome the important investments being made by railways in new high-capacity hopper cars. However, the plans released by the railways continue to provide movement targets in line with historical averages. Given the continued growth that is expected in the grain sector, the reports provide little evidence of how the railways plan on meeting that increased demand. It is also worth noting that while the reports released to date speak to the apparent uncertainty in the supply chain, what is certain is that grain farmers need grain shippers and railways to move as much grain as possible between October and March when demand for Canadian grain is at its highest. This is essential for supporting a profitable farm gate.
What has become increasingly clear over the last five years is that we need ongoing oversight and engagement from this committee, the government and the Canadian Transportation Agency to hold all members of the supply chain to account to get the rail freight service that grain farmers need. It remains crucial that the government continues to closely monitor performance by the railways and is prepared to enforce the new regulations as necessary.
We are a mere 15 weeks into the new crop year, and we're just now moving into the critical time where performance typically will start to degrade, if it is going to. Around this time last year my industry was trying to raise alarm bells for what was to become a severe grain shipping backlog. These alarms fell on deaf ears, and these things are too important to be left to chance.
As all farmers say, winter happens every year. Time will tell if the plans the railways put forward will be up to the challenge of keeping grain moving across the Prairies and out to port. From what I hear, grain is moving pretty well and that is great news, but it needs to be sustainable.
Thank you for this. I look forward to your questions.
:
It would be hard to quantify exactly what the cost is. Every farm is different, and a lot of us are shipping at different periods, depending on when we've marketed our grain.
If we don't move our grain, we don't pay our bills, and then we have to take out bridge loans to get things done and that's where the biggest effect is. We're a very cash-sensitive business in farming. For farmers, cash flow is king, and if we don't move our product, we don't have cash flow. That is a big problem. We are encouraged, because dialogue, I think, through the whole chain, with the grain companies, the grain farmers and the shippers, and even the ports to some extent, which we don't really hear about.... We all need to be talking together to make this work. That's why I said we're encouraged by the dialogue we've been having with the railways. It's a first. We've never had this before.
It seems almost as though we have a five-year cycle for issues with shipping. There was one last year, and then it was five years earlier when we had the other big issue with shipping. I was encouraged to hear that you guys were talking about the ports. I came in a little bit late, so I didn't hear everything. The ports also need to be fixed. Vancouver especially can be challenging in terms of getting the grain or any commodity in.
:
I can echo that a little bit. That's pretty well said, but as far as the impact goes, when I mentioned corridors, I'm lucky because I'm in a corridor where they get quick turnaround, so I will get my grain shipped quicker if there's an incident. There are a lot of other areas of western Canada, especially in the north, where they're the last ones to get serviced.
That's why when I was talking about minimums and that, we need to know by corridor because there's not just one line. There are the feeder lines going into the main line, and that's where the backlogs will start showing up first.
I would say we're satisfied. We are encouraged about what we're hearing from the railways as far as what they are doing in their plan. I can't say too much negative about it.
The only thing maybe I would say is that they are running around 80%, which has been okay, but I will use the analogy that if you're using public transportation, how satisfied would you be if only 80% of the time it was there? I won't use Phoenix, but I could. Maybe 80% of the people are not getting paid. Some are. I will use that analogy on that.
Also, if we have delays, it does not just affect the farmers and the economic impact. It affects all of the rural communities because if the farmer doesn't have any cash, he doesn't spend money in the community, and then the businesses in the local communities suffer.
:
I will take that one first.
On reciprocal penalties, I think there are two things to think about. For instance, the railways will say that a very high percentage of the current traffic falls under reciprocal penalties. They are talking about a per car debit/credit.
I'm not speaking for the grain companies, obviously, but I think their conception is bigger. We're not concerned about $200 per car here and there. We're talking about the value of that being $1 million. Let's have something with a bit more skin in the game and on the table.
To my understanding, under the amended process for the arbitrated SLAs under Bill , encouraging.... I'm not aware—that would be commercially confidential—if anyone has stepped up to try to use that new tool in the tool box, but certainly as a concept with a legal backing, it is something I know that the shippers of grain are happy about and pleased with. Again, you might need to talk to them about more of the detailed nuances of it and whether they have started to use it.
Earlier on, railway operations were talked about as a team sport, and Mr. Bishop, you just talked about the complexity of that team sport. I have to say, it was pretty encouraging, though, to hear from our rail companies the changes that have happened. The communications that have happened between all the players has been a significant boost forward. When I look at the capacity in terms of railcars, in terms of what they can do and carry more because of the technology and the materials they're using, that's good.
As you have talked about in terms of genetics, in terms of precision planting, all those types of innovative things we have, they're making a difference for the primary producer. With that, is there a significant increase in primary producer storage capacity of their crop when they take it off so that when the railcar is moved out to the elevators, with the larger capacity of the cars now, you will have more to put in those cars at the time?
I still remember back, and earlier we were talking about the complexity of ordering and getting the cars for specific commodities. We tend to talk about barley or wheat. We don't always talk about what different varieties of barley are used for and meeting those demands in terms of the cars that are coming.
What's the increase that has been happening at the producer level, on farm? Are we able to meet those demands for the different varieties of product? Thirdly, when the cars are ordered, are they showing up?