Balt,
Good article. Glad you posted it. It lays out the variety of factors historically and presently at play.
In my own sometimes inept way I was trying to get at this in fewer words (not always a good thing with something so complicated).
Again, the article lays it out well.
Thanks again
Charlie
Chilliwack, BC
Canada grain shippers, railways in a "cold" wars Railway Age (Online) By David Thomas March 6, 2014 Clearing the autumn grain harvest from trackside elevators is a perennial occasion for ritual fist-shaking on the Canadian Prairies. Western Canadian farmers enjoy a long tradition of blaming the railways for their woes, even more than the weather. (A favorite national folk tale has a Prairie farmer stricken by hail and locusts cursing, "God damn the CPR.") This year's historic bumper crop has conspired with exceptionally frigid air to make the grain-shipping season particularly contentious. The immediate conjunctural factors of crop size and weather have conspired with underlying structural conditions to increase the prospect for yet another in Canada's long history of federal attempts to balance rail efficiency and the frustrations of Western Canada's grain growers. The leading wheat farmers' lobby wants the Western-dominated Conservative government in Ottawa to legislate "service obligations of the railways, in terms of car order fulfillment, car spotting, pickup, and delivery." It also wants shippers to have "interswitching" access to a competing main line carrier extended from 30 km (18.6 miles) to 120 km (74.4 miles). The government says it is listening sympathetically. The Western Canadian Wheat Growers' Association advocates adjusting the country's regulated cap on grain rates to give railways "greater incentive to provide additional surge capacity during the peak post-harvest shipping period." But it wants to rake some of that back by sharing in the productivity gains made by the railways since the rate cap went into effect 14 years ago. Crude-by-rail has become a new but probably illusory target for grain shippers. The Saskatoon-based wheat lobby argues, "Increased shipments of oil by rail result in fewer locomotives, crews, and line capacity dedicated to shipping grain." It wants more pipeline approvals to release equipment for traditional rail-borne commodities. The big cause for this year's network congestion, according to CN spokesman Mark Hallman, is the persistent extreme cold that impedes the performance of train braking systems, forcing railways to run shorter, slower trains. "The notion that CN's crude-by-rail business is displacing grain on the company's rail network has no merit," Hallman said. "CN's crude oil carloadings in 2013 accounted for just 1.4% of the company's total carloadings of freight, and CN has ample network capacity in normal weather conditions to move all freight efficiently, including grain." A huge but late harvest combined with the Arctic air mass that settled over North America is slowing the movement of all freight, not just grain, Hallman said: "When the temperature is forecast to drop below -25 degrees C, CN needs to plan for shorter trains to consistently get air from the head-end locomotives to the tail-end of trains to release the brakes. Usually, this occurs for relatively short periods in specific areas. This year, we have had to operate with shortened trains for much longer periods, and over much broader territory than normal. "Shorter trains increase the number of trains operating on our network handling the same volume of traffic. Running more trains means a need for more crews, and more trains meeting and passing one another, which eats up network capacity. Shorter trains and cold weather also mean longer dwell times for cars in switching yards, and slower local train operations when delivering and picking up cars from sidings. The cumulative impact of the continuing severe cold has been to slow down the velocity of train operations throughout our network, which reduces our capacity to move traffic." Once normal weather returns, say both CN and CP, railways will be able to rapidly catch up with car spottings and pickups. That will not fix the underlying business and regulatory issues that guarantee tension among grain shippers, carriers, and governments. Insisting that railways move more grain while at the same time crippling rate economics is deeply rooted in the country's history. Canada's sea-to-sea geographical span is in fact thanks to an 1897 deal that handed Canadian Pacific land and cash to push track just above the 49th Parallel as a counter to 19th century American "Manifest Destiny." The deal included an absolute cap on CPR freight rates for shifting western grain to the Great Lakes and the backhauling of "settlers' supplies" westward. That "Crow Rate" subsidized both prairie growers and central Canadian manufacturers, to the disadvantage of Western attempts to build regional manufacturing. The Crow Rate was replaced in 1993 by a sliding cap on freight rates equal to 10% of the global wheat price. In turn, that cap was superseded in 2000 by today's "maximum grain revenue entitlement." Incorrectly but universally referred to as the "revenue cap," the current formula adjusts the annual rate the two Class Is may levy for carrying grain to the ports of Vancouver and Thunder Bay. For the 2013-2014 crop year, the formula fixes the maximum revenue for CN at C$35.51 per tonne, and C$33.15 for CP. The average haul is about 1,000 miles. But, as with the previous schemes to damp market economics, the revenue cap isn't working to anyone's advantage. The government's preferred solution, as in the past, is yet another set of mandates and price caps. To offset its demand for compulsory service performance and a longer reach to competing carriers, the wheat growers suggest tweaking the revenue cap so that railways could charge slightly more for car movements above a "normal" threshold during the peak post-harvest shipping time. A 5% increase above the threshold would earn the railways a 1% increase in the rate cap, but only for the September-December peak period. What the farmers giveth, they also want to taketh away: Any productivity gains made by the railways "should be shared with farmers through a reduction in the revenue cap." Gerry Ritz, Canada's minister of agriculture, recently threatened to "mandate" the priority movement of grain by rail. As a first step in that contentious direction, Ritz ordered CN and CP to provide weekly instead of monthly reporting for grain car deployments. The Conservative minister warned the railways there will be "consequences" if they manage car movements to the disadvantage of farmers. CN invested C$100 million last year to grow prairie capacity, including its northern line between Saskatoon, Sask., and Wainwright, Alberta, said Hallman. "This investment in additional capacity has worked," said Hallman. "It has increased the network capacity to operate more trains, and has provided a more robust parallel route for recovery from disruptions. So far this year, CN has doubled the number of trains operating over the Prairie North Line compared to a year ago. "CN has also acquired and deployed more equipment to handle record volumes of traffic, including Western grain, by acquiring more high-horsepower locomotives and augmenting its fleet of grain hopper cars. CN has also trained management employees as conductors or engineers, who have been stepping in during December and January to help relieve short-term crew shortages in targeted areas of the network impacted by the extreme cold. These and other initiatives have helped mitigate the short-term effects of winter on our operations and to grow our long-term spotting capacity for Western grain." CP, for its part, moved 17% more grain than the five-year average from September through January, and 8% more than last year, said spokesman Ed Greenberg. It could move even more if port terminals had capacity to accept it, he said. "This is a complex supply chain issue involving not just the railways, but all participants," said Greenberg. "For example, the grain handling and transportation system would further benefit from more port elevators working 24/7 to match the round-the-clock operation of the railway. By working 24/7, the ports would unload more railcars so we can turn them back into service for grain shippers." Throughput is expected to increase as spring weather opens Great Lakes and Hudson Bay ports to grain traffic.
Canada grain shippers, railways in a "cold" wars Railway Age (Online) By David Thomas March 6, 2014
Clearing the autumn grain harvest from trackside elevators is a perennial occasion for ritual fist-shaking on the Canadian Prairies. Western Canadian farmers enjoy a long tradition of blaming the railways for their woes, even more than the weather. (A favorite national folk tale has a Prairie farmer stricken by hail and locusts cursing, "God damn the CPR.")
This year's historic bumper crop has conspired with exceptionally frigid air to make the grain-shipping season particularly contentious.
The immediate conjunctural factors of crop size and weather have conspired with underlying structural conditions to increase the prospect for yet another in Canada's long history of federal attempts to balance rail efficiency and the frustrations of Western Canada's grain growers.
The leading wheat farmers' lobby wants the Western-dominated Conservative government in Ottawa to legislate "service obligations of the railways, in terms of car order fulfillment, car spotting, pickup, and delivery." It also wants shippers to have "interswitching" access to a competing main line carrier extended from 30 km (18.6 miles) to 120 km (74.4 miles). The government says it is listening sympathetically.
The Western Canadian Wheat Growers' Association advocates adjusting the country's regulated cap on grain rates to give railways "greater incentive to provide additional surge capacity during the peak post-harvest shipping period." But it wants to rake some of that back by sharing in the productivity gains made by the railways since the rate cap went into effect 14 years ago.
Crude-by-rail has become a new but probably illusory target for grain shippers. The Saskatoon-based wheat lobby argues, "Increased shipments of oil by rail result in fewer locomotives, crews, and line capacity dedicated to shipping grain." It wants more pipeline approvals to release equipment for traditional rail-borne commodities.
The big cause for this year's network congestion, according to CN spokesman Mark Hallman, is the persistent extreme cold that impedes the performance of train braking systems, forcing railways to run shorter, slower trains.
"The notion that CN's crude-by-rail business is displacing grain on the company's rail network has no merit," Hallman said. "CN's crude oil carloadings in 2013 accounted for just 1.4% of the company's total carloadings of freight, and CN has ample network capacity in normal weather conditions to move all freight efficiently, including grain."
A huge but late harvest combined with the Arctic air mass that settled over North America is slowing the movement of all freight, not just grain, Hallman said:
"When the temperature is forecast to drop below -25 degrees C, CN needs to plan for shorter trains to consistently get air from the head-end locomotives to the tail-end of trains to release the brakes. Usually, this occurs for relatively short periods in specific areas. This year, we have had to operate with shortened trains for much longer periods, and over much broader territory than normal.
"Shorter trains increase the number of trains operating on our network handling the same volume of traffic. Running more trains means a need for more crews, and more trains meeting and passing one another, which eats up network capacity. Shorter trains and cold weather also mean longer dwell times for cars in switching yards, and slower local train operations when delivering and picking up cars from sidings. The cumulative impact of the continuing severe cold has been to slow down the velocity of train operations throughout our network, which reduces our capacity to move traffic."
Once normal weather returns, say both CN and CP, railways will be able to rapidly catch up with car spottings and pickups. That will not fix the underlying business and regulatory issues that guarantee tension among grain shippers, carriers, and governments.
Insisting that railways move more grain while at the same time crippling rate economics is deeply rooted in the country's history. Canada's sea-to-sea geographical span is in fact thanks to an 1897 deal that handed Canadian Pacific land and cash to push track just above the 49th Parallel as a counter to 19th century American "Manifest Destiny." The deal included an absolute cap on CPR freight rates for shifting western grain to the Great Lakes and the backhauling of "settlers' supplies" westward.
That "Crow Rate" subsidized both prairie growers and central Canadian manufacturers, to the disadvantage of Western attempts to build regional manufacturing. The Crow Rate was replaced in 1993 by a sliding cap on freight rates equal to 10% of the global wheat price. In turn, that cap was superseded in 2000 by today's "maximum grain revenue entitlement."
Incorrectly but universally referred to as the "revenue cap," the current formula adjusts the annual rate the two Class Is may levy for carrying grain to the ports of Vancouver and Thunder Bay. For the 2013-2014 crop year, the formula fixes the maximum revenue for CN at C$35.51 per tonne, and C$33.15 for CP. The average haul is about 1,000 miles.
But, as with the previous schemes to damp market economics, the revenue cap isn't working to anyone's advantage. The government's preferred solution, as in the past, is yet another set of mandates and price caps.
To offset its demand for compulsory service performance and a longer reach to competing carriers, the wheat growers suggest tweaking the revenue cap so that railways could charge slightly more for car movements above a "normal" threshold during the peak post-harvest shipping time. A 5% increase above the threshold would earn the railways a 1% increase in the rate cap, but only for the September-December peak period.
What the farmers giveth, they also want to taketh away: Any productivity gains made by the railways "should be shared with farmers through a reduction in the revenue cap."
Gerry Ritz, Canada's minister of agriculture, recently threatened to "mandate" the priority movement of grain by rail. As a first step in that contentious direction, Ritz ordered CN and CP to provide weekly instead of monthly reporting for grain car deployments. The Conservative minister warned the railways there will be "consequences" if they manage car movements to the disadvantage of farmers.
CN invested C$100 million last year to grow prairie capacity, including its northern line between Saskatoon, Sask., and Wainwright, Alberta, said Hallman.
"This investment in additional capacity has worked," said Hallman. "It has increased the network capacity to operate more trains, and has provided a more robust parallel route for recovery from disruptions. So far this year, CN has doubled the number of trains operating over the Prairie North Line compared to a year ago.
"CN has also acquired and deployed more equipment to handle record volumes of traffic, including Western grain, by acquiring more high-horsepower locomotives and augmenting its fleet of grain hopper cars. CN has also trained management employees as conductors or engineers, who have been stepping in during December and January to help relieve short-term crew shortages in targeted areas of the network impacted by the extreme cold. These and other initiatives have helped mitigate the short-term effects of winter on our operations and to grow our long-term spotting capacity for Western grain."
CP, for its part, moved 17% more grain than the five-year average from September through January, and 8% more than last year, said spokesman Ed Greenberg. It could move even more if port terminals had capacity to accept it, he said.
"This is a complex supply chain issue involving not just the railways, but all participants," said Greenberg. "For example, the grain handling and transportation system would further benefit from more port elevators working 24/7 to match the round-the-clock operation of the railway. By working 24/7, the ports would unload more railcars so we can turn them back into service for grain shippers."
Throughput is expected to increase as spring weather opens Great Lakes and Hudson Bay ports to grain traffic.
Never too old to have a happy childhood!
Charlie:
The Crow rate was indeed a very good thing, for the farmers. I would love to go down to the store and buy my groceries at 1897 prices, while still earning a modern income. It wasn't that the rate wasn't "profitable enough" for the railways, instead in modern times they were actually losing money hauling grain and it had to be cross-subsidized by other commodities.
Back in 1897 the Crow Rate was not such a marvelous deal for the farmers. It was intended to approximate a commercial rate if normal competition had existed. But it never occurred to the parties to include any provision for inflation. Modest inflation did occur but the railways were able for many years to absorb it through increased efficiency, as the 4-4-0 steam locomotives and 30 ton boxcars increased in size. For a short period the rates actually dropped below the Crow. It was after WW2 that inflation started to accelerate. Dieselization helped keep it somewhat compensatory for a little longer.
The agreement was only between CPR and the government, and covered only the CPR lines that existed at the time. It was expanded to apply to both railways and all prairie branches by unilateral legislation several decades later.
By 1970 the Crow rate was a serious losing proposition for the railways. The government was in a bind, since it looked like political suicide to eliminate the Crow rate. The railways were losing lots of money hauling grain, weren't willing to throw good money after bad, and major investment was urgently required. As a result, the band-aid solution was a government sponsored program to rehabilitate a number of grain dependent branchlines and buy the fleet of covered hoppers to replace the worn out fleet of 36 and 40 foot boxcars. That kept the system creaking along for a few more years.
As to the current controversy I don't know enough to apportion blame. Possibly the railways are favouring more remunerative traffic, or maybe the weather was the biggest factor. I only hope that if the railways succeed in moving the mandated quantities that the ports will also prove up to the challenge.
John
Bruce
IMHO you got it, in spades, from a Canadian point of view....
Chilliwack. BC
dakotafredEverybody likes being on the receiving end of a cross subsidy, those on the paying end -- other shippers, the taxpayers, the railroads -- not so much.
I can't disagree with you there, my problem is the behaviour of the railways since the repeal of the Crowsnest Pass Agreement. The revenue increases for grain hauling they received after the repeal should have been treated like a gift from God, and poured in to bringing their infrastructure in western Canada up to the requirements of the 20th and 21st Centuries, Instead it went to line the pockets of shareholders and increase executive salaries. Boasting how revenue per carload of grain is one of their highest earning categories is inexcusable.
It has been said that the "Prime Directive" of democratically elected governments is to get themselves reelected. In two of the three prairie provinces there is sufficient farmer vote to scuttle that plan for the current Federal government if they don't do something significant, quickly. And it is not just the inability to move grain that is the problem. There is intermodal from Asia, crude oil from Alberta and Saskatchewan, and potash from Saskatchewan. See the following article on potash:
http://www.ctvnews.ca/business/potash-market-uncertain-but-expected-to-grow-td-1.1715291
As I have said elsewhere, the population of Alberta has almost tripled in my lifetime, and Saskatchewan is experiencing significant growth as well. This is a result of very good paying jobs in the resource extraction sector, and those folks are all purchasers of consumer goods that need to be shipped in. The following article says;
As troubling, added Porter, is that almost all the job growth in the past year has occurred in Alberta, with other regions left picking up the scraps.
Porter says monthly regional breakdowns are notoriously unreliable because of the larger sampling error factor in the survey, but a year-long look usually tells a true tale.
What the long-view shows is that Alberta has picked up 82,000 jobs compared with a year ago, an increase of 3.8 per cent of the workforce, while Ontario and Saskatchewan gained 29,000 and 5,000 jobs respectively. All other provinces have lost jobs, except for New Brunswick which broke even.
I'm thinking a plan along the lines of suspending the right of the railways to pay dividends for five of the next ten years of each decade until CN and CP infrastructure is brought up to an acceptable level would be a good place to start. Using that money along with current cash holdings and other financing to start construction at levels sufficient to impact capital project costs of all other North American Class I's should be the objective. If the railways don't smarten up on their own, the government forced alternative will surely be worse.
So shovel the coal, let this rattler roll.
"A Train is a Place Going Somewhere" CP Rail Public Timetable
"O. S. Irricana"
. . . __ . ______
Fred
I can appreciate your point of view, however as Sam pointed out above, it was a significant historical quid pro quo that got the Crow Rate established in the first place in 1897. CP got lots of help from the federal government at that time.
I have no idea about analogous situations in the US. In Canada there have been plenty of cross subsidies over the years, the latest being auto manufacturing (tax breaks, development funding etc). Don't they now occur in the US too, in areas needing an economic 'boost'?
CN, when it was a Crown Corporation still and before it was devolved to the private sector, was turning a profit under Paul Tellier's leadership.
As I said previously, I'm really interested to hear what Agentkid has to say, given he and his family's working association with CP over the years.
Until then I really don't have much more to offer.
lenzfamily AgentKidI will get back to this thread at a more sensible hour, but suffice it to say I am very angry with the way CP and CN have handled this issue since the 1983 repeal of the "Crowsnest Pass Agreement" of 1897. Bruce. I never thought the railways had a bad deal with the Crow and as you say it served them and us well for 100 years.
AgentKidI will get back to this thread at a more sensible hour, but suffice it to say I am very angry with the way CP and CN have handled this issue since the 1983 repeal of the "Crowsnest Pass Agreement" of 1897.
Bruce.
I never thought the railways had a bad deal with the Crow and as you say it served them and us well for 100 years.
Everybody likes being on the receiving end of a cross subsidy, those on the paying end -- other shippers, the taxpayers, the railroads -- not so much. The outmoded Crow's Nest rates had to go for the same reason such confiscatory arrangements were scuttled in the United States: The government was scared to death that it would end up having to run the trains itself! (In Canada, the government didn't just shed Crow's Nest but a whole railroad!)
I'm with you.
The Crow was a good thing IMHO but IIRC neither CN or CP liked it much, especially latterly. Said it forced them to ship grain at a not profitable enough rate and forced them to move the traffic expeditiously IIRC. Seems to me also that Gof C purchased most of the grain hoppers they used before repeal of the Crow. I never thought the railways had a bad deal with the Crow and as you say it served them and us well for 100 years. The railways even got the hoppers on their rosters now as I notice those grain hoppers coming through town have CP reporting numbers now.
I'd be really interested in your reasons for your anger at the railways, given that you and your family had a long history with CP.
Op's insider's view would be really instructive.
One 'trueism' that gets thrown around my company is that a 1 MPH change in system velocity equates to the availablity of 75 locomotives....ie, if velocity drops 1 MPH, 75 more lcomotives are required to support the traffic level, conversly if velocity increases 1 MPH then the system can handle more traffic with those 75 locomotives. The more congested the system gets, the more locomotives (as well as cars) get tied up in the congestion and not moving. With congestion, locomotive utilization and car utilization both suffer and it takes more of both to move the traffic.
My carrier was moving at 23.8 MPH in September and 20.2 MPH currently - 3.6 MPH difference that equates into 270 additional locomotives needed to support the system.
I am sure every carrier has their own yardsticks as to how changes in system velocity affect their particular system and they may or maynot be similar to my carrier's.
blue streak 1 Yearly ritual of Canadian RR getting blasted for not carrying grain in timely manner and RRs saing they are not receiving enough revenue.. Shades of the old crow's nest rates. Are these rates the only ones in Canada that are this regulated ? Maybe CN & CP may need more locos that just are not available. LINK http://www.railwayage.com/index.php/freight/class-i/canadian-grain-shippers-railways-in-a-cold”-war.html?channel=50 enough
Yearly ritual of Canadian RR getting blasted for not carrying grain in timely manner and RRs saing they are not receiving enough revenue.. Shades of the old crow's nest rates. Are these rates the only ones in Canada that are this regulated ? Maybe CN & CP may need more locos that just are not available.
LINK
http://www.railwayage.com/index.php/freight/class-i/canadian-grain-shippers-railways-in-a-cold”-war.html?channel=50
enough
It seem that the Canadians are experiencing their annual rite of Spring..."....Grain Car Blues...".
[snip] "...In the 1890s, when rich mineral deposits were discovered in the Kootenay region of southern BC, American developers began to move into the region and extend rail lines northward from their transcontinentals. The CANADIAN PACIFIC RAILWAY, determined to retain control of southwestern Canada, asked the federal government for assistance to extend its own line over the CROWSNEST PASS into BC. At the same time, Prairie farmers were complaining about high freight rates charged by the CPR, and further federal assistance to that company would be unpopular unless something was done about the freight rates. .."[snip]
From this link@http://thecanadianencyclopedia.com/en/article/crows-nest-pass-agreement/
Everybody wants his traffic moved to the front of the line. It would be nice -- especially in these capacity-constrained times -- if the railroads could oblige everybody, wouldn't it?
The farmers and elevators here in North Dakota have been upset with BNSF and CP. The problem, besides a big harvest and competing oil traffic, has been severe winter weather.
I'd be surprised if the railroads aren't doing the best they can, short of breaking out their magic wands. They get a lot of money -- about $3,000? -- for every car of grain hauled, but don't get paid until they do the job.
Canada's Agriculture Minister says; "You've heard of 'back to work' legislation, well this is 'get to work' legislation".
http://www.ctvnews.ca/canada/ottawa-steps-in-to-ease-grain-backlog-1.1718837
I will get back to this thread at a more sensible hour, but suffice it to say I am very angry with the way CP and CN have handled this issue since the 1983 repeal of the "Crowsnest Pass Agreement" of 1897.
The railways are certainly not moving the grain fast enough to satisfy the farmers, but hard numbers to compare with previous years are hard to find. I can't determine how much of the problem is due to the bumper crop overwhelming the system rather than solely the railways' fault.
I also wonder if there might be more being shipped south into the USA. Grain trains going to Vancouver usually have a fast cycle time getting the empties back to the Prairies, assuming the port elevators are handling the arriving trains properly (not always the case). In the past I had heard comments about slow return of cars from the south. Basic arithmetic says that if it takes twice as long for a cycle, only half the quantity can be moved. We can't wave a magic wand and have the car builders instantly build another 5,000 cars by tomorrow. Nor does it make economic sense since they might not be required again for five years and the idle asset needs to be stored somewhere.
Putting my tongue in my cheek, perhaps the government should also regulate avalanches in the mountains so they don't close the line (and the highways) during busy grain seasons. Most avalanches originate in parks and crown land, which are already administered by the government itself.
John.
blue streak 1Yearly ritual of Canadian RR getting blasted for not carrying grain in timely manner and RRs saing they are not receiving enough revenue.. Shades of the old crow's nest rates. Are these rates the only ones in Canada that are this regulated ? Maybe CN & CP may need more locos that just are not available.
Hi Blue
Yes, it has been a yearly ritual after the Crow Rate was repealed.
The way things work here in a now deregulated operating structure...... The railways can set their rates and prioritize grain traffic according to other traffic volume and the rates this volume commands. Crow forced the railways to move the grain at a fixed rate, with priority, and under conditions set by the governing Crow Rate Act.
This Act no longer applies and the railways have developed other traffic and revenue sources which push grain further down the priority list.
Then we get a bumper crop as we got this year, and guess what.
Nobody is ready, least of all the Government of Canada. What then happens is that the Minister of Agriculture and Transport do their executive thing (read Regulations or Minister's Orders) which have the force of law to get CN/CP moving the volumes of grain needing to be removed from farmers' granerys or local elevators.
I'm sure there will be 'supply chain' logistics to figure out but the bottom line is that GofC has the legal/regulatory power to force the RR's to comply. $100K per day fines for non-compliance will get their attention.
Stay tuned....
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