Canadian grain shippers hopeful about rail service in current crop year

September 5, 2023

Canadian grain producers generally expect rail service in the 2023-2024 harvest year to meet market needs, but they’re keeping an eye on other factors that could affect rail service in the coming years, such as grain export capacity at the Port of Vancouver.

Grain shippers are also waiting for the supply chain to completely recover from a July labor strike at the ports of Vancouver and Prince Rupert.

“It’s always the same story this time of year when it comes to rail service and rail capacity. We never really know for sure how it is going to go,” Wade Sobkowich, executive director for the Western Grain Elevator Association, told FreightWaves when asked about expectations for Canadian Class I railways CN and Canadian Pacific Kansas City.

“Are CN and CP both going to be ready for when the crop comes off, or will they take some time to gear up? Then, will they dedicate enough resources to grain service for the fall and winter period? What is on the horizon for railway job action? What’s the weather going to be like and will we be facing washouts, flooding, cold weather, high snowfall levels?” Wade said.

“Aside from these variables, I’d say the grain companies are cautiously optimistic about rail service levels for the fall and winter. We have seen good rail service in recent months, which hopefully carries into harvest.”

Crop levels for Canada’s 2023-2024 crop year, which runs from Aug. 1 to July 31, are expected to be down from 2022-2023, but changes in precipitation and heat in the late summer and early fall can affect those estimates.

During second-quarter 2023 earnings calls in July, CPKC (NYSE: CP) said it expects its grain segment in Canada to be around 65 million metric tons (MMT) of grain and roughly equal to last year’s volumes. CN (NYSE: CNI) expects the 2023-2024 crop volumes to be in the mid-60 MMT range, below the low-to-mid-70 MMT range of last year.

Canadian grain producers will seek to move as much product as possible in the fall and winter, and shippers expect extended interswitching to have a positive impact on service and capacity, according to Sobkowich. The Canadian government recently expanded the distance for where interswitching might occur at an interchange from 30 km to 160 km (18.6 miles to 99.4 miles). Those new provisions go into effect on Sept. 20, according to Sobkowich and news reports. Interswitching involves a shipper on one railway seeking service on another railway, with that switch in providers happening at an interchange.

“It’s going to be an interesting year because we’ve had some really difficult conditions as far as drought in a lot of pockets in western Canada. Similar to last year, where some of the forecasts — around when the crops are going to come off, when harvest is going to happen, how big the crops are going to be — I think are in a little bit of flux,” said Greg Northey, vice president of corporate affairs for Pulse Canada.

“From a service perspective, that always becomes a bit of a problem for the railways to react to, because they have their sort of set [idea of] how they’re going to handle their capacity and what capacity they’re going to make available. So, we may see pockets where we don’t get much of a crop and other places where we get a lot of crop. So, there’ll be a lot of variation I think throughout the corridors for both CN and CP, including when it needs to come off and when we’ll need rail service.”

Since pulse producers move 50% of pulse exports via containers and the other 50% via bulk, ensuring that the Canadian supply chain can move containers efficiently is a long-term hope for Northey. Pulses are edible seeds such as dry beans, chickpeas and lentils.

Intermodal container availability is “something we’re very conscious of as a sector … so one of our biggest focuses for transport is how do we start to make sure we get the right investments in that [container] supply chain — having the appropriate gateway strategy,” Northey said. “That’s really what our long-term focus is: How do you ensure Canada is a good place to invest for those who move containers, and frankly, for shipping lines so that they can continue to provide service. It’s all about honing our ability to move containers, stuff containers and connect the end-to-end supply chain.”

Indeed, Sobkowich said he is watching how the Vancouver Fraser Port Authority and Transport Canada’s efforts to regulate vessel management will affect grain movements.

The Canadian government has been seeking to increase Canadian agricultural exports to $85 billion by 2025, and to do that, it has been investing in infrastructure to facilitate an increase in the flow of goods, according to Sobkowch. This includes infrastructure investments at the Port of Vancouver.

But seeking to increase the flow of goods across Canadian ports also increases the level of vessel activity — and that has prompted some local residents, particularly in the Southern Gulf Islands, to push back and attempt to reduce the number of anchorages or the amount of time that vessels use designated anchorages, according to Sobkowich. That’s why Transport Canada has implemented a pilot program on top of an existing vessel management system that would restrict when vessels anchor.

“The assumption appears to be that time at anchor can solely be addressed at the vessel end of the supply chain. This is erroneous, and any solutions based on this premise will be ineffective without other measures to improve the accuracy and timeliness of rail deliveries to the port,” Sobkowich said. “Grain handlers and exporters already pay demurrage and penalties when they keep vessels waiting.

“The incentive already exists in the supply chain to have these vessels move in and out as efficiently as possible. It simply doesn’t work to have the conflicting objectives of growing exports while reducing the presence of vessels to move product. Depending on how the regulated scheme rolls out, it could and likely will have the impact of creating another choke point in the supply chain.”

For their part, both Canadian railways have said they are in constant contact with their grain customers ahead of and during the fall peak harvest season and into winter.

“CPKC expects to supply the capacity required to transport more than 33 MMT of Canadian grain and grain products throughout the crop year, subject to market demand. This performance target is contingent on all elements of the supply chain, including grain customer terminals, ports and vessels, operating with maximum efficiency, reliability, predictability and balance throughout the duration of the crop year,” CPKC said in its July report to the government on how it expects to manage rail service for grain volumes during the 2023-2024 crop year. Both CPKC and CN are required to submit these reports prior to the start of the upcoming crop year.

“The railway is only one part of a complex, integrated grain supply chain. The supply chain is only as strong as its weakest link. Maximizing capacity and volume throughput requires all elements of the supply chain to operate with coordination, synchronization, efficiency and balance,” CPKC said in the executive summary for the report.

CPKC also said it added 4,537 high-capacity grain hopper cars to the combined CPKC fleet and that it now operates approximately 18,000 modern hopper cars, delivering significant capacity gains for Canada’s grain supply chain.

“The key to success is for supply chain partners to avoid working in isolation and to collaborate across sectors to support long‑term demand. In other words, we need to look at the entire system of interconnected supply chains to support economic growth. For example, locomotives, crew base, and rail infrastructure are resources shared across all rail traffic moving on CN’s network — not just grain,” CN said in 2023-2024 grain plan.

“For this reason, demand for the movement of grain and processed grain products cannot be considered in isolation. This is also why it is so critical to have accurate demand forecasts across all business segments to ensure effective long‑term resource planning. Recognizing that capacity is not infinite, rail traffic increases associated with sudden demand shocks in any one sector due to significant global events or sharp changes in market conditions are not easily absorbed.”

CN also said it expects the delivery of 750 new high-efficiency grain hopper cars in 2024 and anticipates the expansion of CN’s locomotive modernization program to upgrade older direct current locomotives to newer alternating current technology. The railway expects its capacity to handle grain via carloads to be at about 36 MMT.

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