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Does Western Canada still need a grain transportation co-ordinator?

The answer may be no, but there’s still a need for improved logistics between railways and grain companies

It’s been two years since the start of the infamous grain transportation backlog of 2013-14, but there’s still debate about whether a new organization should take over the former Canadian Wheat Board’s role as a transportation co-ordinator.

“Most people like to focus on ’13-14 and say, ‘Look at the problems we created without the single desk.’ I think they’re missing the point,” says John DePape of Farmers Advanced Risk Management Co. (FarmCo). “We would have had problems with the single desk (too). At least without the single desk, we could see what it was costing. With the single desk, it would have been more difficult to quantify.”

“There’s only a fixed capacity to move grain. And if it had moved, it would have been tied up in terminals and elevators because they don’t have the capacity. You can’t just have 30 per cent extra capacity hanging around in case once in a blue moon you get a big crop,” says Barry Prentice, a University of Manitoba professor of supply chain management.

What might have changed under the CWB’s delivery contract system would have been who got the blame for the mess.

“It wouldn’t have all come into the railways at the same time. Farmers would have been angry at the wheat board instead of the railways because the wheat board would have been saying ‘don’t deliver that grain, we don’t want it,’” Prentice says.

Without the CWB controlling deliveries, it took widening basis levels to prevent more grain from reaching the system.

“If you have more grain than you have capacity, that basis is going to take a hit,” DePape says. “When you have twice as much grain coming at you as a grain buyer than you can possibly handle, who would ever pay more for it? The market worked as expected under the circumstances.”

No single cause

Mark Hemmes, president of Canada’s grain monitor Quorum Corporation, agrees that the single desk wouldn’t have made much difference given the severe weather in 2013-14 and noted the grain industry’s frustrations with rail service predate the CWB’s monopoly demise. A lack of co-ordination between railways and grain companies in getting grain to port remains an ongoing problem. Hemmes says removing the CWB is not the primary reason.

“I think it’s more a case of where you get this push-pull between the railways’ desire to optimize their asset utilization and increase their profitability,” Hemmes says. “I don’t know what the solution is, but trying to find a singular cause in this situation is not as cut and dried as some people would like to make it.”

The CWB at one time handled 60 per cent of all movement, and now it’s spread between 20-odd grain companies vying for export markets. Hemmes says he’s impressed with how well they’ve handled things without having the market clout of the CWB. There had been fears that grain companies would all jam the system after harvest.

And that’s not what’s happened, Hemmes says. “The flow of traffic over the last three years really hasn’t changed remarkably, and the same challenges exist in the couple of weeks that lead up before Christmas to well into March, where railways’ ability to offer capacity is diminished.”

Weather is a major element in that, but railways need to come up with a way to recover better, he says. “What happened in ’13-14 is a really great example of that. The way that whole thing manifested itself, there were a couple of derailments, and then all of a sudden it gets cold — in Canada we always expect it’s going to get cold, but nobody expected it to go to -30 for six weeks straight — and that crippled them. And what compounded it was they couldn’t dig themselves out of it.”

Hemmes says that a couple of decades back, the railways did have more surge capacity and recovery capability, but the pressures of stock market performance increased their focus on quarterly results over long-term thinking.

Says Hemmes: “They’re answerable to their shareholders, not to shippers, especially in a marketplace where there’s virtually no competition.”

Western Canadian Wheat Growers Association executive director Blair Rutter dismisses calls for a central co-ordinator. He advocates a contract system between shippers and railways that would include penalty clauses for non-performance.

“We had a centrally planned system and part of that was the control of transportation by the wheat board. When you move away from that, you need something to replace it, and you could go the option of a central planner. But a preferred option is a contractually based system where it’s through contracts you get performance assurance,” Rutter says.

Improved logistics

There have been some positive developments post-single desk.

One is increased utilization rates in the country as it’s now grain companies that are responsible for optimizing space utilization. A central planner determining space and handling allocation for hundreds of different facilities can’t ever be as efficient as individuals focused on turning their own elevators at the best rate possible.

“The same thing applies at the terminals as at the ports. Those guys, now that they have total control of everything that goes through there, they do a phenomenally good job. And those terminals have become more efficient as a result,” Hemmes says.

The CWB may have been very good at consolidating loads at port, but the grain companies are getting better, Hemmes says.

“Now, each one of the grain companies is responsible to load one vessel as opposed to having five terminals loading one vessel. Depending on the commodity and the time of year, these guys do trade position. It’s in their best interest to look for ways to consolidate.”

Another change is some shipping agents are booking individual holds instead of an entire vessel.

“So you can buy two holds out of a six hold ship, for instance. The consolidation role has in some instances shifted away from the CWB and it’s now the shipping agents. They’ll charge a little bit of a premium on it, but it makes it a lot more efficient,” Hemmes says.

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