Grain trucks line up to empty their loads at the Pioneer terminal near Kemnay on a grey Monday morning. (TIM SMITH/BRANDON SUN)
Hurry up and wait — that’s the message railroad companies are sending producers and elevators, according to Wade Sobkowich, executive director of the Western Grain Elevator Association.
With the country’s grain storage facilities at approximately 90 per cent capacity, elevators are struggling to find enough rail cars to move commodities to export terminals.
"Everybody has a lot of orders in for shipping," Sobkowich said, adding that between the county’s two major rail companies — Canadian National Railway and Canadian Pacific Railway — there is a cumulative shortage of rail cars that has grown to more than 15,000 cars.
"Railways are one piece of a complex chain that starts with the producer and ends with the overseas customer and they have a cascading effect when they don’t provide adequate car supply."
The problem, according to Sobkowich, is the rail companies’ resistance to invest in surge capacity while, at the same time, being able to unilaterally decide where and how resources are allocated.
"The rail company would like the industry to be constant all year, but we don’t work that way — we have peaks and valleys in our system."
While other industries, such as oil or coal, can alter their production output based on the rail companies’ ability to get the commodities to export markets, the agricultural industry doesn’t share the same luxury.
With a small window to maximize outputs, farmers are more often than not at the mercy of the rail companies when the crop does come in.
"In our industry, the producer and the shipper are not the same party," Sobkowich said. "The railways know that. They know the crop is going to move eventually and that they will get that revenue sooner or later."
By "flat-lining" the system, rail companies can control costs more efficiently, keeping shareholders happy.
A bountiful harvest, which will see many grains and oilseeds at record levels this year, is compounding the problem.
High crop volume, coupled with a transportation shortage, has caused prices and sales to dip as exporters are cautious not to buy more than they are confident they can move.
Sobkowich said exporters must be wary of vessel demurrage, contract-extension penalties or defaulting on a contract due to transportation uncertainties — issues that ultimately affect a company’s reputation and may push buyers away.
"Customers will go elsewhere if we cannot provide them consistent supply, and there is an array of countries waiting to fill that market," he said.
The impact trickles down to producers as well.
Farmers are forced to hold onto product, which can cause cash flow problems or storage issues that could potentially lead to spoilage.
Sobkowich would like to see government legislation that would create a similar series of penalties if rail companies break agreements for service.
"If you’re an elevator situated on a rail line, you have no choice but to wait for the company to supply you with rail capacity," he said.
"If shippers don’t load in a certain time frame or if we don’t follow the rules that the railways have set, then we pay to the railways.
"We think there needs to be a balance the other way around, so that if they don’t provide adequate car supply or spot cars when they are going to, then that penalty also needs to be in place."
Republished from the Brandon Sun print edition November 5, 2013