Response to Transport Canada's Future of Transportation Consultation - Sept. 16, 2016
Short line railways offer a green transportation option that supports local communities and strengthens both Canada’s export capacity and grain transportation system. Saskatchewan Shortline Railway Association member railways operate 24% of the rail lines in the province. Short lines are a major employer and business enabler in 14 rural towns, and travel through 18% of Saskatchewan’s urban municipalities and 26% of rural municipalities.
Over the past 20 years, short lines have successfully increased export capacity and driven economic growth, transporting approximately $500 million worth of commodities per year from Saskatchewan alone.
Saskatchewan’s short lines build industry capacity to promote Saskatchewan’s agricultural exports, transporting resources and agricultural products for 72 small and medium sized businesses across the province that are built directly on short line railways.
SSSRA member railroads depend on competitive options, like producer car loading facilities, for a significant part of their business. One line having as many as 14 facilities on their line. Producer cars make up over 65% of the volume transported by some SSRA member railways.
We believe that the future of transportation should be improved competitive choice for farmers and shippers, through the promotion of the producer car system, the inclusion of short lines in interswitching regulations, Class 1 rate protection and funding for short line infrastructure.
Creating a Flexible, Competitive Environment conducive to export
Producer cars allow Canadian farmers to choose where they sell their grain. Farms are geographically fixed and without the flexibility and choice offered by producer cars, are limited in the choice of where to sell their grain.
According to the latest release of data from the Canadian Grain Commission, ‘Grain Elevators in Canada, Crop year 2016-2017, as at August 1, 2016’, in Saskatchewan, Viterra Inc. and Richardson Pioneer Limited own 52% of the licenced primary elevator storage capacity in Saskatchewan. Add the next three biggest players, Parrish & Heimbecker Limited, Cargill Limited, and Louis Dreyfus Company Canada ULC, and you’ll see that five players control 75% of the market in Saskatchewan.
The situation is very similar for western Canada overall, with Viterra and Richardson owning 48% of primary elevator storage capacity, and the five top players (in this case, Viterra, Richardson, Cargill, Parrish & Heimbecker, and Paterson Grain), controlling 76% of the grain handling market in terms of storage capacity.
Producer cars and producer car loading facilities are becoming less common on Class 1s and more common on short lines. In 2005, CP had 142 producer loading sites. They have since decommissioned 61% of those sites, and now have only 55 locations on their lines where producers can load. CP has seen an even larger decrease, with 272 in 2005 and a 72% decrease to today’s figure of 77 loading sites.
The loss of choice in where to deliver producer cars negatively affects the uptake of the competitive program. It is understandable that the large grain companies and the Class 1s aren’t supportive of producer cars. For grain companies, it means further competition for grain to fill their storage facilities and for Class 1 railways, it means small pickups and an irritation to their logistics system. However, if there is to be competition in the grain system in Canada, the entire system cannot be controlled by only a few players. Below you can see the change in producer car loading sites over the last ten years.
Number of producer car loading sites - 2005: CN 272, CP 142, Short Line 22
Number of producer car loading sites - 2015: CN 77, CP 55, Short Line 49
The grain year of 2013/2014 had a massive impact on the grain transportation system. One of these consequences was the diminished popularity of producer cars. Producer cars were virtually impossible to secure, with producers waiting months.
The result of this was two-fold, first, several companies who had previously purchased via producer car purchased their own fleets to fill the gap in availability in 2013/14. Once the cars were purchased, there was no need to go back to producer cars. Second, producers lost confidence in the producer car ordering system and began using the more reliable primary elevators instead. Since the Class 1s were under pressure, large trains from primary elevators received first priority and farmers were desperate to get their grain out. As the adage goes, a customer lost is not easy to regain, and this seems to be true for producer cars.
The rising popularity of producer cars, as peaked in 2011-12 with 14,325 cars allocated, reversed after 2013/14. While the 2013/14 years was a busy year for producer cars (as the entire grain system was at maximum capacity), there were many cars outstanding and each year thereafter has seen declines. 2015/16 shows the lowest performance, with 5,869 cars allocated, for producer cars since 2002/2003.
When compared to the grain handling data overall from the Canadian Grain Commission for the years since 2013/14, it is clear that although the industry continues to grow year over year, producer cars are not being chosen to transport grain. It is not for lack of grain that the producer car system is sitting idle.
This issue has been reviewed several times, and has always been seen as a competition issue. In The Hon. Willard Z. Estey’s ‘Grain Handling and Transportation Review’, 1998, it states: “It is recommended that the right of the farmer to order and load Producer Cars be retained in the law. Should the farmers seek to broaden this metod of transportation of the farmers’ grain to market, legislation may be required to facilitate access to railway sidings and the grading of grain by the Canadian Grain Commission at the loading site. The enthusiasm in some areas for this idea should not be discouraged, as it is, at the least, a defensive protection for the farmer.”
It is our view, that the idea has indeed been discouraged. Through the closure of producer loading sites and the poor handling of the producer car ordering system, we are seeing this competitive option disappear. However, rather than let it die, it is recommended that promotion of the producer car become a mandate, of either the Grain Commission, or some other body.
Producer cars are an attractive option to companies that do not have facilities in Canada. They are also an attractive option to farmers, if there are access points, value and reliability.
It is recommended that promotion and marketing of the system become a mandate of the Grain Commission or some other body, that access points be improved, that the value of producer cars be brought in line with other options (for example, eliminating the fee of $27.50 per producer car), and that the system be modernized so that farmers and purchases find it a reliable option.
Interswitching is a useful and effective competitive access provision. It allows shippers access to the entire Canadian rail network and is a critical decision point for some shippers when deciding to do business in Canada.
Interswitching regulations do not benefit short lines in their current form. Because we are railways and not technically shippers, the benefits of the regulation do not extend to us. As a result, this makes short lines a less attractive option to shippers looking for a location to build facilities.
It would be ideal for shortlines to have interswitching regulations to them. Or alternatively, some other form of rate guarantee could be extended to include short lines when using multiple carriers. Competitive rates and carrier choice would allow us to offer competitive pricing and access to a larger transportation network to our clients.
Running Rights/Co-production agreements
Another provision in The Hon. Willard Z. Estey’s ‘Grain Handling and Transportation Review’, 1998, that warrants further exploration is that of running rights. He states: “The CTA currently allows only a federal railway to apply to the Agency for authority to run over the lines of another federal railway.” He suggests that this be expanded to both provincial and federally regulated railways, and states that: “This new provision would offer open access to the existing CN and CP lines provided that fair compensation is paid and that certain conditions are met. Fair compensation should, at a minimum, cover the cost of the owner of the railway lines but concomitantly ensure that the owner cannot block access by charging unreasonably high fees. Conditions imposed may include a requirement that would-be operators must carry adequate insurance and meet license, safety and other statutory requirements.”
As running rights are commonly used in Europe, this concept could be further studied to ascertain what positive competition it would allow, as well as what positive gains could be realized as a surge capacity option in situations like 2013/14.
The Saskatchewan Shortline Railway Association supports the MRE comments made by the Agricultural Producers Association of Saskatchewan in their submission to the Future of Transportation Consultations.
One additional point that we would like to include: The spread in rates between branch and mainlines on a carrier should not exceed what is charged to a short line. It would be beneficial to have added protection to rates for short lines within the MRE, or whatever system is implemented to encourage competition.
Funding for Short line Infrastructure
Funding is critical to short line railways. Short lines are facing increased expenses related to increased safety regulation and aging infrastructure, all while making an effort to compete with the subsidized trucking sector. An investment in short line rail represents an investment in green infrastructure, decrease wear and tear on highways, support for local communities, improved rail safety and increased reliability in the grain transportation system.
Investing in short line rail infrastructure gives short lines the capacity to:
· Increase safety,
· Increase track speed and train length,
· Minimize transit time through use of improved sidings,
· Incur fewer breakdowns,
· Improve crossings, and
· Decrease maintenance costs.
Suggested project areas for infrastructure investment funding:
· Railway track and grading, including components such as rails, ballast, ties and other track material;
· Railway traffic control or signaling equipment and interlockers;
· Bridges, trestles, culverts, subways or tunnels ancillary to railway track and grading;
· Fences, sheds and signs; or
· Other public improvements.
Benefits of proposed projects:
· Improved safety through resurfacing and renewal of tracks, bridges, and crossings.
· Reduced daily maintenance resulting in more efficient movement of trains and fewer interrupted service issues.
· Additional capacity through the ability to provide higher volume, increased speeds and longer trains.
· Competitive positioning for grain shipping through increased confidence in service.
· Opportunities to attract large scale shipping and new business’ built on short lines.
Important details to note:
1. The SSRA supports the RAC’s suggestion infrastructure support in the amount of: $15,000 per mile of track during the first two years of an infrastructure program (to stimulate investment and foster shovel-ready projects), and $5,000 per mile for the following five years.
2. The SSRA would prefer to see this as a grant, rather than a matching program, but is amenable to either option.
3. Only railway infrastructure located in Canada and owned by a short line should qualify for funding.
4. Provincial regulated short lines should benefit from funding to the same degree as federally regulated short lines to ensure the goals of green infrastructure, support for local communities, railway safety and improvements to the grain transportation system are achieved.
It is of critical importance that competition be a focus in any consideration of the future of transportation in Canada. The industry is becoming less and less competitive, for both grain handling and rail transportation. This poses serious risks to farmers, the export industry and Canada’s attractiveness as an investment option.
Creativity and care will be necessary to foster this competition. In this submission, we hope we have shed light on some issues, and some areas for further study which have the potential to improve Canada’s transportation system in the long-term.