Hey there, time traveller! This article was published 21/3/2014 (1249 days ago), so information in it may no longer be current.
Shares in Canadian Pacific Railway have never been higher, relatively speaking. And though shareholders couldn’t be happier, farmers, the company’s biggest consumer, are not.
"To put it simply, we have a shortage of manpower and a shortage of engines," said one CP employee who spoke on a condition of anonymity.
While the reduction in fleet and employees has made the company more efficient and given them a boost on the stock exchange, it’s meant the movement of agricultural commodities have ground to a halt.
And it’s not just CP either, as the Canadian National Railway has experienced delays moving the record-shattering 76 million tonnes of crop.
CP CEO Hunter Harrison and CN CEO Claude Mongeau have been quick to point to the large harvest and one of the coldest winters in decades as the two largest contributing factors to the delays.
While cold temperatures have forced companies to shorten trains this winter, the employee said the impact is minimal compared to the lack of resources.
"We used to have surge capacity and incentives to work more hours and the company has taken that all away," he said. "It’s something that needs to be addressed because the farmers are the biggest part of our economy. If the farmers are doing good, we’re all doing good."
On March 7, the federal government stepped in.
Transport Minister Lisa Raitt imposed a schedule on CN and CP to increase grain movement to one million tonnes per week when the four-week timeline was complete. She also required the companies to report directly to her on their weekly shipments.
The move, which came with a penalty of a $100,000 fine per day for non-compliance, combined with a break in the cold weather, has seen the number of gain hopper cars spike week-over-week.
Brandon-Souris Conservative MP Larry Maguire, who is a former president of the Western Canadian Wheat Growers, championed the minister’s decision to get involved to solve the problem for producers.
"It is paramount we get grain moving as quickly as possible so our local farmers can get their crop to market," Maguire said.
Kim McConnell, founder of AdFarm, pointed to another reason for the grain backlog.
"I look at the railway system today and service is totally unacceptable," McConnell said. "There’s insufficient trains and insufficient cars. Why? Because there is more money in oil."
Another problem is with only two major players, CN and CP basically own a monopoly on the rail transport system.
"I love the free market system better than anyone else," McConnell said. "It’s a wonderful system, but we must have sufficient competition to be able to move this stuff forward."
The backlog has led to lower prices for some producers and forced others to take out loans for a short-term cash injection to keep going.
CP spokesman Ed Greenberg said it’s a complex supply-chain issue that encompasses the railway, grain traders, elevators and producers.
"Despite the challenging weather and extraordinary crop, our grain volumes from September through January are 17 per cent above the five-year average," he said. "So our railway has been responding as quickly as we can to our grain customers."
The company has called on more elevators to work 24 hours, seven days a week to match the schedule of the railway companies, he said.
"The railways have been moving all of the grain that the supply chain can handle," Greenberg said.
Grain is the company’s largest commodity. Yet to compare commodities, such as oil versus grain, is counter-productive and impossible, Greenberg says.
Ken Larsen, director of the Canadian Wheat Board Alliance, said this isn’t the first time producers have faced delays getting grain to export terminals from railway companies.
In the late 1990s the CWB, which lost its western grain-marketing monopoly in 2012, launched a service complaint with the Transport Commission and won, then sued both companies for poor performance.
CN settled immediately, paying an undisclosed amount while CP lost its case and had to pay $15 million, according to Larsen.
"That time, the railways pleaded that there was snow in the mountains," he said.
The following year, the CWB collected $6.6 million in despatch from ship owners after ships were loaded more quickly than anticipated.
"Because the CWB had no retained earnings, those despatch dollars were always returned directly to farmers," Larsen said. This trend of earning despatch for farmers’ benefit continued until (Agriculture Minister Gerry) Ritz killed the CWB."
» Twitter: @CharlesTweed
CHANGES AT CANADIAN PACIFIC
The Canadian Pacific Railway, one of two major rail providers in Canada, has managed to post double-digit decreases in its operating ratio over the last two years, causing shares to soar.
In 2011, according to the United Transportation Union, CP posted one of the worst operating ratios of all the major railroads at 81.3 per cent. In comparison, Canadian National Railway posted a ratio of 63.5 per cent — meaning for every $100 of revenue, CN generated nearly double the profit of CP — $36.5 compared to $19.7.
Today, less than two full years since Hunter Harrison took over the top job with the rail company, CP's operating ratio has dipped into the 60s.
Total revenue last year jumped eight per cent to $6.1 million, a company record.
"The transformational pace of change at CP has definitely exceeded expectations," Harrison said in a January release documenting CP's 2013 full-year financial results.
"We entered 2013 with an aggressive agenda of change and financial targets that would put us squarely in the path of achieving our goal of once again becoming an industry leader. I am proud to report that we exceeded those targets and have re-established a sense of pride and accomplishment to this historic organization."
Since Harrison's hiring, stock prices have more than doubled, going from approximately $80 to $170.