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Rancour over grain bottleneck only growing

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The finger-pointing and war of words between the railways and the grain shippers are not letting up.

This week, the venue moved to Ottawa for hearings in front of the House of Commons standing committee on agriculture regarding Bill C-30 that attempts to address the current serious rail-capacity issues.

Both sides came with plenty of ammunition.

Wade Sobkowich of the Western Grain Elevator Association (WGEA) caused heads at both CN and CP to explode by tweaking the railroads' duopoly scenario in the Prairie grain-distribution network.

Generally speaking, the network of large Prairie grain elevators is serviced by only one rail carrier, per elevator.

The proposed legislation, now before committee in Ottawa, would extend what are called inter-switching limits from 30 kilometres to 160 km. The legislation is also proposing fines up to $100,000 per day if the railroads fail to move a minimum volume of grain as well as allowing the Canadian Grain Commission to regulate how much a grain company would have to pay a farmer if the company failed to meet delivery dates.

"What we want is a normal-functioning marketplace or something that acts like that," Sobkowich said. "For instance, there is competition in the courier business. If you don't like what one does, you can go to another."

His argument is the rail-freight market does not act in a normal, competitive way and so measures should be put in place to simulate a normal-functioning market.

"If you had access to inter-switch, which I understand is cumbersome for both the shipper and the railway, then, just by virtue of the fact it is there, it could provide motivation or discipline to the railway."

Sobkowich said he understands the railways are doing what they can to avoid additional regulation -- "You or I would probably do the same thing," he said -- and he also agrees with CN each segment of the supply chain, including the grain companies, need to be held to account.

"We are held to account," Sobkowich said. "It is the railways that are not right now and that is why we need these measures."

What makes the railroads fume is his example of how his members are held accountable by being subjected to tariffs imposed unilaterally by the railroads if the elevators don't expeditiously use and load the railcars they order.

Mark Hallman, a spokesman for CN, could barely contain himself in an email exchange when he heard that one.

"Once again, the WGEA should get its facts straight instead of complaining to governments with self-serving advocacy and ill-advised calls for heavy-handed regulation of other participants in the grain-supply chain," said Hallman. "Demurrage charges are being vilified by the WGEA as unilateral penalties, when they are, in fact, more properly described as economic incentives designed to ensure car capacity is maximized for the benefit of the supply chain serving Canadian farmers."

Hallman has a point, but so does Sobkowich.

Sobkowich said those "demurrage" charges -- which only amounted to about $1 million in 2013 out of the $1 billion in rail freight the grain companies pay -- provide an incentive to the grain companies to get at the cars on the double.

His argument is that just as his members work to avoid those charges, the threat of inter-switching might be enough to prod the railroads to meet their railcar delivery schedules in a more expedited way.

In a quiet moment of reasonableness, all parties would agree the solution to the great grain bottleneck of 2014 is for all the links in the chain to work together and better.

But none of the parties seem to be able to resist taking a shot at the other.

In his remarks to the Commons committee, CP's president and chief operating officer Keith Creel said, "In the near and long term, additional capacity can be brought online if railcars are unloaded when available for unloading seven days a week, 24 hours per day. The rail industry operates 24/7, 365 days of the year... But some terminals operate three shifts per day, five days a week while others operate two shifts per day, seven days a week. Not one terminal consistently operates a true three-shift-per-day, seven-day-a-week operation."

In other words, his guys are working their butts off, but the other guys are loafing.

Now CN is accusing the grain companies of price-gouging, which prompted Sobkowich to fire back, "The railways have outstanding orders of approximately 70,000 railcars, a number that has been building since September 2013... What we are seeing is a dysfunctional market as a result of the shortfall in rail capacity."

Next, they'll be insulting each other's mothers.


Republished from the Winnipeg Free Press print edition April 3, 2014 A14

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About Martin Cash

Martin Cash joined the Free Press in 1987 as the paper’s business columnist.

He has spent two decades chronicling the city’s business affairs.

Martin won a citation of merit from the National Newspaper Awards in 2001 for his coverage of the strike and subsequent multi-million-dollar union settlement at the Versatile tractor plant. He has also received honours and awards for his work on agriculture and technology development in Manitoba.

Martin has written a coffee-table book about the commercial and industrial make-up of the city, called Winnipeg: A Prairie Portrait.

Martin Cash on Twitter: @martycash


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