A rather incredible (to me) story in the Dec. 11 Wall Street Journal, "Grain Train Runs Away from Farmers in Canada," claims that the Canadian roads are torpedoing grain exports to the U.S. in favor of the quicker turnaround of equipment offered by hauling to West Coast or St. Lawrence ports.
"Farmers typically don't decide where their product goes," the story says. "Grain and rail companies make those decisions based on such factors as price, timing and resource use."
The rails are said to favor the above destinations over throwing more traffic into the U.S. snarl. The quicker turnaround of equipment helps them meet new government quotas for the volume of grain they are expected to move weekly.
Canadian farmers are beaten out of the better prices they could get in the U.S., factoring in the cost of ship transportation out of the West Coast or St. Lawrence.
We know that (in the U.S.) elevators send the product they have bought from farmers to wherever they can get the best price, also consulting the cost of the haul. And we know that (down here) rail companies sometimes price their transportation so as to steer traffic to one place over another.
But rail companies telling a farmer or grain company, "Your product WILL go here rather than there"? I find that hard to believe.
Are things THAT different up Canada way? Or does the WSJ just have its railroad reportage screwed up again?
The story is irritating in the usual way, e.g., using "railroad" and "shipper" interchangeably. Also, no meaningful comment -- which might have clarified matters -- from the CN or CP. (The railroads' fault here.)
dakotafredBut rail companies telling a farmer or grain company, "Your product WILL go here rather than there"? I find that hard to believe.
I guess there is some advantage to being the originating carrier? Much like BNSF decides that east bound freight will be interchanged in Chicago and not KC or St Louis, while for west bound autos Norfolk Southern decides to hand off in KC and not Chicago?
I don't buy this idea. The grain is sold based on the competitive price of combining the farmer's selling price and the transportation costs. The farmers (or at least the article) think that the railroad is forcing them to sell cheaper, and pretending that the transportaion cost is not a factor.
Thanks to Chris / CopCarSS for my avatar.
Convicted One guess there is some advantage to being the originating carrier? Much like BNSF decides that east bound freight will be interchanged in Chicago and not KC or St Louis, while for west bound autos Norfolk Southern decides to hand off in KC and not Chicago?
That simply changes the share of the line haul charges. The destination remains the same.
This would be more like the railroad telling the automaker that the load of auto parts was going to Memphis instead of Kansas City... At least that's how I read it.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
Railroads (at least in the U.S.) can't tell shippers where they can and can't ship their product. But they can influence those decisions by their pricing practices. For example, the old C&NW railroad learned that it was usually more attractive to them to shuttle unit grain trains between on line elevators and on line barge terminals on the river system rather than interchange this traffic with other railroads for an all-rail move to the ultimate destination. The main reason was equipment utilization - they could get more hauls out of their equipment with the on-line shuttle than with the interchange service. Their pricing reflected this and so made it more advantageous for customers to move their trafic this way. By the way, the "customers" in this situation aren't the farmers or the grain elevators. The "customers" are typically large companies like Cargill and ADM which are bying the product and paying the freight and are quite capable of taking care of themselves.
But you have government interference. Th Canadian government has set minimum amounts of grain the railways must move or get penalized. There is a slower cycle time for cars into the US, and to meet their mandated quotas the railways need the fast turnaroung times of domestic shipments. It is what the farmers got the government to do that is now biting them in the rear.
John
If the farmers don't like the price they are getting - they can let it set in the origin elevators until they get a price they like - just build a few more elevators to hold last years harvest, this years harvest and next years harvest. [/sarcasm]
Biggest complaint of the Canadian farmers has been the railroads aren't moving enough grain - no matter where it is being hauled to. If you want sit on your grain, just slow down the equipment turnaround and you will be sitting on more grain than you want.
Never too old to have a happy childhood!
BaltACD Biggest complaint of the Canadian farmers has been the railroads aren't moving enough grain - no matter where it is being hauled to. If you want sit on your grain, just slow down the equipment turnaround and you will be sitting on more grain than you want.
At the same time, we know that farmers and elevators who can afford to and have the room will sit on their grain until the price is just right or they're out of room at last -- then want their cars, in whatever number, right now. And the railroads are supposed to cough them up.
Question:
To what extent can shippers help themselves by owning or leasing their own fleet? In the distant past, I read somewhere that this is no panacea, that their cars are subject to hijack by a railroad willing to pay the per diem. True? Or still true?
Also, I can understand shippers -- or most of them -- not being able to afford to own or lease cars in the numbers that would allow them to take advantage of today's unit-train rates.
“The decline in grain exports is an unintended consequence of recent regulatory changes aimed at guaranteeing farmers rail time in the face of stiff competition from crude by rail.Those changes aren’t always helping farmers, as rail companies look for quicker journeys for grain to meet federal requirements, sending cargoes to ports in Vancouver and along the St. Lawrence River.”
“Farmers and other industry observers say the Canadian government’s minimum-shipment order was too broad and didn’t give enough specifics on where the railroad companies should be transporting the crops.”
The efficient movement of grain requires many parts performing at top efficiency.
1. Origin elevators getting cars when needed (in unit train lots).2. Elevators loading cars within the tariff time limits.3. Railroads transporting unit trains to destination (domestic customer or export location) with dispatch.4. Destination cusomer receiving and unloading unit train within the tariff time limits.5. Railroads returning cars to loading areas with dispatch.
A slowdown in any one of the area increases that physical number of cars that will be required to move the total tonnage as the slowdown will limit the number of loads a particular car can handle over time - 3 loads per car per month is better than 2 loads per car per month.
dakotafredAt the same time, we know that farmers and elevators who can afford to and have the room will sit on their grain until the price is just right or they're out of room at last -- then want their cars, in whatever number, right now.
And, unless I am mistaken, they will expect the cars, once loaded, to get to market or destination AS FAST AS POSSIBLE ... but don't care much about what railroads have to do to get the cars involved back to the next customer, either.
I wonder if the co-op idea could be extended to provide for loading dedicated 'fleets' or full unit trains of grain-suitable cars that could be used to serve American points, and have them run full loaded and return on a kanban-style assured return time basis to elevator(s) or terminal(s) as needed...
Many small grain elevators and the branch lines they were located on in the Midwest are no more. Huge elevators along navigatble rivers and/or profitable rail lines receive grain from an area far larger than smaller elevators did.
This change has been to an economy of scale enabling unit trains for outbound rail shipments.
Never having been in Canada, how many small elevators remain? Has government policy in Canada been to protect small elevators from market driven consolidation?
I'm still hoping a Canadian or somebody else can answer my basic question:
In Canada, is the following scenario -- which seemed to be the thrust of the WSJ story referred to above -- really possible?
Grain shipper: "I want 25 cars to go to Alton, Illinois."
Railroad: "Sorry, sport, your cars can go to Vancouver or any place you want on the St. Lawrence River."
Since we have not seen the original article we really do not know what claim was made.
Dakotafred's scenario is NOT credible in the US. Canada is a foreign country, so I do not know but I doubt it. I do know that Canada actively constrains railroads' gross revenue from grain. How and why I do not know.
That said, American carriers can demarket specific moves either by closing gateways or raising rates. It may well be that your move to Alton carries a higher rate than a move to the Pacific coast, especially if origin is in Alberta or Saskatchewan. Farmers looking at a 5 cent per bushel greater price in Alton could tell an ignorant reporter that they are "frozen out" of that market because the evil railroad charges seven cents more per bushel for that move than for a move to a Canadian port for export.
Since Canadian grain is marketed by Government controlled "wheat pools" I wonder how our prairie farmer would even know our assumed facts since the whole point of a pool is to make sure every farmer gets the same price.
On balance it sounds like a ghost story but I can not prove it. Only a Canadian elevator operator or railroad grain marketing guy could explain their system and they pobably have better things to do.
Mac
I have the article around here someplace, but it's too late tonight to reply in detail, except:
Somewhere in there it said the average turnaround time in the US is around 28 days. (If John Kneiling were still alive, he'd be screaming by now !)
- Paul North.
In response to Dakotafred's questions:
Question: To what extent can shippers help themselves by owning or leasing their own fleet? In the distant past, I read somewhere that this is no panacea, that their cars are subject to hijack by a railroad willing to pay the per diem. True? Or still true?
Answer: Not true (at least in the U.S.). A railroad can't use private cars for other services without the permission of the owner or lessee. That said, some railroads have offered voluntary programs where the car owner will allow its private grain cars to be used as part of the railroad's general service fleet in return for a payment and a guarantee of railroad car supply.
Qustion: Also, I can understand shippers -- or most of them -- not being able to afford to own or lease cars in the numbers that would allow them to take advantage of today's unit-train rates.
Answer: Remember, again, that in the U.S. it is typically a large grain company (like ADM or Cargill) that owns or leases the cars and directly pays for the transportation, not the elevators. Grain companies like this have no trouble owning or leasing sufficient cars to take advantage of favorable unit train rates.
To the situation of grain shipment in Canada, as well as the U.S. The process may as well be considered to be one of comparing apples to oranges; Regulations and Politics towards the products( grains) are considered differently. In many cases the grain that is accumulated by the various elevators, and their specific conditions of ownership change at each phase of movement.
In the U.S. That ownership changes hands when the delivery vehicle,( be it truck or rail delivery) goes to the storage unit (Co-Op, etc) the receiving price is then set on the loads tare weight of the product. Then, when the grain is shipped, the price and weight are determined for that train load shipment by contracts.
The owning unit can then negotiate their price, and location of delivery a contract. Transportation and mode are set contractually by the shipper and receiver upon that sale.
In this area, many small elevators are no longer accessed by rail, they ship by road to elecvators that can accumulate, store and ship in very large quantities. There is an- on line elevator at Wellington,Ks that ships reguarly by train load movements, consequently they have a locomotive and track to handle those shipments. I doubt that there is little, if any speculative loading of grains for shipment to a destination that can be changed in-route. The costs would be very high, and thus cut into profits.
Euclid I don’t think this is too complicated. I found the article yesterday by googling the apparent title given in the first post of this thread. The article referenced in the first post of this thread is from WSJ and requires subscription. However, I found it free yesterday, and what I posted a few posts up is quoted from the article. This is the basic explanation of the problem as stated in the article: “The decline in grain exports is an unintended consequence of recent regulatory changes aimed at guaranteeing farmers rail time in the face of stiff competition from crude by rail.” I did not see anything in the article that suggested that farmers order their grain to be shipped to a destination and the railroads ship it to a different destination. Instead, I gather that the farmers sell their grain to the elevator or other broker, and that entity then decides which market it is shipped to. Then in order to meet the government regulation, markets in the U.S. must be ruled out.
I dunno, Euclid, look at the rest of the cited paragraph (that you only started above): "Those changes aren't always helping farmers, as rail companies look for quicker journeys for grain to meet federal requirements, sending cargoes to ports in Vancouver and along the St. Lawrence River."
And later: "(This) is despite the higher price that Canadian grain had been fetching in the U.S. and lower transportation costs compared with overseas destinations."
Doesn't sound like shippers (grain companies, elevators or farmers) are deliberately selling to the poorer market, but having the decision made for them by the railroads.
Finally, there is this quote from the executive director of Western Canada Wheat Growers: "We think the market should be determining where the grain goes, not the railways."
Again, I'm not saying that FOR SURE the railroads are wagging the market dog in Canada -- only that a fair reading of the WSJ story sure makes it sound that way.
The decision, if that is what it is as aoopsed to an unintended consequence, was made by the government demanding fixed quotas of export grain be exported.
The article was very short, only 4-5 paragraphs. The gist of it is that since the Canadian govenrment imposed volume quotas, the carriers have had to use all grain cars for moves to ports removing canadian grain from domestic us markets tending to improve prices in the US by removing lower priced Canadian wheat from US market.
As to Executive Director, you may be assured that he was among the ones demanding that the Government "do something" to improve export grain capacity. The Government did somethin and now he is blaming the railways for what the Government did. Surprise, surprise!
As always - when dealing with those who make and implement policy decisions -
Be careful what you ask for, you may get it and not like what you get!
dakotafred Euclid I don’t think this is too complicated. I found the article yesterday by googling the apparent title given in the first post of this thread. The article referenced in the first post of this thread is from WSJ and requires subscription. However, I found it free yesterday, and what I posted a few posts up is quoted from the article. This is the basic explanation of the problem as stated in the article: “The decline in grain exports is an unintended consequence of recent regulatory changes aimed at guaranteeing farmers rail time in the face of stiff competition from crude by rail.” I did not see anything in the article that suggested that farmers order their grain to be shipped to a destination and the railroads ship it to a different destination. Instead, I gather that the farmers sell their grain to the elevator or other broker, and that entity then decides which market it is shipped to. Then in order to meet the government regulation, markets in the U.S. must be ruled out. I dunno, Euclid, look at the rest of the cited paragraph (that you only started above): "Those changes aren't always helping farmers, as rail companies look for quicker journeys for grain to meet federal requirements, sending cargoes to ports in Vancouver and along the St. Lawrence River." And later: "(This) is despite the higher price that Canadian grain had been fetching in the U.S. and lower transportation costs compared with overseas destinations." Doesn't sound like shippers (grain companies, elevators or farmers) are deliberately selling to the poorer market, but having the decision made for them by the railroads. Finally, there is this quote from the executive director of Western Canada Wheat Growers: "We think the market should be determining where the grain goes, not the railways." Again, I'm not saying that FOR SURE the railroads are wagging the market dog in Canada -- only that a fair reading of the WSJ story sure makes it sound that way.
Oh I absolutely agree that this is affecting the market. But the decision is not being made by the railroads. It is being made by the regulators. The railroads have found a way to comply with the regulators' demand for a certain rate of movement; and they are accomplishing this by avoiding U.S. markets.
If you want that extra bounty of the U.S. market, you have to get the regulators to back off on their delivery demand. Otherwise you need to build more railroad.
PNWRMNM The article was very short, only 4-5 paragraphs.
The article was very short, only 4-5 paragraphs.
Mac, you saw another version. The print WSJ was 19 graphs, about 25 column inches.
Also, I don't think the government specified exports, overseas or otherwise, only that the rails clear so much grain per week. The story represents that the only way the railroads could keep up was to keep the movements in Canada, avoiding the mess in Chicago and elsewhere south of the border.
dakotafredAlso, I don't think the government specified exports, overseas or otherwise, only that the rails clear so much grain per week. The story represents that the only way the railroads could keep up was to keep the movements in Canada, avoiding the mess in Chicago and elsewhere south of the border.
I think you and Euclid have figured it out. The Govt said YOU MUST haul this much grain and the carriers decided to keep their cars in domestic service which has shorter turn times than moves to the US.
tree68That simply changes the share of the line haul charges. The destination remains the same.
I really thought that was the case in the Grain-haul example as well. I never really thought the end destination for the grain was the USA. We grow a surplus of grain each year and export a lot of it. In that vein I just envisioned the USA being a conduit for the grain, much like the St Lawrence Seaway or the west coast Canadian ports would be.
I figure in all three cases, the grain is going to end up being exported to a gross grain importer. So, in the parallel I offered, the Canadian road's insistence of hauling the grain all the way to a canadian port would be very similar to NS handing off auto racks at KC instead of Chi Town. (Or BNSF handing off imported containers in Chi Town and not in KC) Getting the max haulage, as originator.
dakotafred Again, I'm not saying that FOR SURE the railroads are wagging the market dog in Canada -- only that a fair reading of the WSJ story sure makes it sound that way.
dakotafred dakotafred Again, I'm not saying that FOR SURE the railroads are wagging the market dog in Canada -- only that a fair reading of the WSJ story sure makes it sound that way. Not to beat a dead horse, but ... to beat a dead horse: The Canadian railroads have had ample time to reply in the WSJ letters section to any perceived misrepresentation in that (to me) surprising news story. That they haven't tells me that the story might be essentially correct, to wit: The railroads are choosing, for their own convenience, lesser-priced markets for the shipper -- which is absolutely contrary to anything that goes on in the United States, thank goodness. It also suggests that, far from being the "banana republic with snowplows" that John Kneiling called it, Canada is a regular gold mine of swashbuckling opportunity for oldfashioned robber barons. Can this really be true?
Euclid,
Part of the problem is that the average forum participant does not know much about the grain business and even less about Canada, which IS a foreign country.
This post will be a mixture of fact and speculation, with the speculation identified. I was marketing VP for a shortline in eastern Washington and got a fair education from my customers and from the BN Grain Marketing guys, most of whom were previously in the grain trade.
In the US title changes from the farmer to the country elevator when the farmer sells it to the elevator. Delivery date and sale date may of may not be the same since one of the functions of the country elevator is to store grain, for which the elevator gets paid by the bushel and by the month. Much grain is necessarily delivered at harvest, but may be sold months later. This lets farmers speculate with their own grain. The US government has subsidized construction of "on farm" storage, which increases the farmer's ability to hold grain for what he thinks will be the best price. Once the country elevator buys the farmers grain, many of them enter into the futures market to lock in a price. They get into some sophistacated financial transactions, none of which we particularly care about.
The country elevator now has to sell the grain it owns. He can sell to a local feed lot or a local processor, say the flour mill in Spokane. In eastern Washington he is much more likely to sell to one of the major grain exporters who have export elevators on the Upper Willamette, or Lower Columbia Rivers, or Puget Sound. Once they have a sale, at a price fixed certain, the country elevator also has a delivery window at whatever elevator the buyer uses. He orders cars from the railroad, telling them the destination. Railroad supplies the cars, hauls the loads to the elevator the grain is billed to, and gets paid by the country elevator or the export buyer, say Cargill, depending on the terms of sale between the country elevator and Cargill. The railroad does NOT market grain in the US.
Cargill has already sold hundreds of thousands, or millions, of bushells to a foreign government or a commercial buyer. They have a delivery window too. Someone has to order a ship to the export elevator, timed to arrive shortly after the grain does. Export elevators are massive facilities and usually have a lot of storage, so the issue of timing is not such a big deal as might first appear. Think of the export business as a continuous flow, as opposed to a single transaction.
Canada is a foreign country. As I understand it, the marketing that in the US would be done by a country elevator is done by provincial grain pools, the Sasketchewan Grain Pool for exmple. I also understand that the farmers get whatever the pool gets, less their skim of course. The grain pool owns the country elevators. It is unclear to me when title changes. I suspect it is on delivery to the country elevator and the farmer gets a cash draw against eventual proceeds. Remember, at harvest time no one KNOWS what sales will actually be made and at what price. As a matter of accounting, the pool probably takes at least 15 months from the end of harvest to account for its operations and cut farmers a final check for the previous year's harvest.
In the normal course of business if the pool wanted to make a sale to the US, which it would do only if the net price was higher than the coast net price, it would order the cars from CN or CP, load them and off they would go.
What I think happened is that when the Canadian goverment required AS A MATTER OF LAW that the railroads handle unprecedented volume per month, they told the pools not to bother to order cars for the US, because the carriers get more turns per month on their (Canadian) routes than when they send cars into the US.
I know this is not a direct answer, but it is the best I can do. Note we have not seen anyone in the Canadian grain trade respond to this thread.
Mac McCulloch
I'm not involved in the Canadian grain trade either, but Mac's comments are referring to the past system. The Pool companies are no more, bought out by various major grain companies. The remnant of the Canadian Wheat Board looks to be in its death throws. I think that the US example Mac uses is probably pretty close to how it now operates in Canada.
The shipper specifies the destination of his grain, never the railway. But I suspect the issue is that the railway may be giving priority in car supply for grain staying within Canada since the cycle time is better. Fast cycle time is critical when government fiat has specified minimum quantities shipped (as a result of lobbying by the same farmers). There are only so many cars, so the more trips a car can do the better.
When the cars go to a Canadian destination the railways can and do put a priority on returning the trains of empties back to a prairie grain terminal for reloading. If they go off-line to a US destination, return of the empty may be delayed.
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