March 7 (Bloomberg) -- Canada’s two major railways will each be required to ship a minimum of 500,000 metric tons of grain each week to clear a crop backlog stuck on the prairies.
Canadian Pacific Railway Ltd. and Canadian National Railway Co. will be required to increase the volumes carried each week over a period of four weeks to move 1 million metric tons of grain each week, Transport Minister Lisa Raitt said today at a press conference in Winnipeg. Railways that don’t comply will face penalties of as much as C$100,000 ($90,000) per day, Raitt said.
“The elevator system is operating at over 90 percent capacity and that means very little room for farmers to able to deliver their grain,” Raitt said.
The move comes as record harvests and railroad logjams across Canada’s prairie provinces make shipments difficult for grain companies and farmers. The rail-car order backlog tops 60,000, eight times higher than a year ago, according to Quorum Corp., the Edmonton-based company appointed by the federal government to monitor Canada’s grain transportation system.
Saskatchewan Premier Brad Wall and Liberal MP Ralph Goodale have called on the federal government to pass an emergency law to clear the backlog on rails controlled by Canadian Pacific and Canadian National.
Canadian National shares closed 0.3 percent higher at C$62.19 in Toronto. Canadian Pacific fell 0.3 percent to C$173.19.
Agriculture Minister Gerry Ritz said the government would introduce legislation to ensure grain movements in the future. The law will “ensure Canada maintains a world-class logistics system that gets agricultural products to market more efficiently,” the government said in an e-mailed statement.
Plans to boost regulation are “ill-advised and counter-productive,” said CN spokesman Jim Feeny by telephone. “Clearly, the government’s intention to introduce more regulation is a source of concern to us.”
Calgary-based Canadian Pacific also said it was disappointed with the government’s decision.
The government’s actions “raise more questions than they answer, and only focus on the railways and not the entire supply chain,” Ed Greenberg, a Canadian Pacific spokesman, said in an e-mailed statement. “Moving grain from the farm to the port is a complex pipeline involving many parties and requires all participants of the Canadian grain handling and transportation system to work together, which requires a 24/7 commitment similar to the railways.”
Canadian Pacific expects to carry 240,000 carloads of Canadian grain in 2014, an increase of more than 20 percent over last year, Greenberg said.
Canadian National, which typically carries 17 million metric tons of export grain annually, said the order would result in an increase of 10 million tons, or 68 percent.
“No supply chain in the world can reasonably be expected to handle a 10 million tonne increase in traffic on such short notice,” Canadian National Chief Executive Officer Claude Mongeau said in an e-mailed statement. “It takes eight months to on-board and train a crew member, and seven to eight months to acquire cars and locomotives.”
The supply chain will return to high-performance levels when cold temperatures lift, Hunter Harrison, Canadian Pacific’s CEO, said in an open letter this week. Moving consumer goods and commodities has been affected by harsh winter temperatures not seen in more than 60 years, he said in the letter.
“Some have called for CP to add more rail cars and locomotives,” Harrison said in the letter. “Adding more cars to the system when it is congested and being negatively impacted by weather is exactly the wrong thing to do.”
Industry groups said the government’s action should help to alleviate the backlog. The failure of railways to provide adequate shipping capacity has caused at least C$2 billion in losses to prairie farmers because of the price discounts, the Western Canadian Wheat Growers Association said in an e-mailed statement.
Grain companies are under pressure from customers upset by the failure to meet commitments in domestic and export markets, Curt Vossen, chief executive officer of Winnipeg-based Richardson International Ltd. Any increase in the current levels of grain-cars delivered would help, he said.
“We’ve got vessels waiting in port position on the West Coast and we’ve got customers concerned about plants running out of raw material,” Vossen said.
The government’s action comes too late as emergency laws should have been enacted late last year when the backlog began to reach a crisis, Goodale said in a telephone interview from Ottawa. Railways have already pledged to increase the number of grain cars as the weather warms up, and the government should be requiring them to send more than 5,500 cars a week, he said.
Many farmers will be unable to haul their grain on rural roads in four weeks time as the ground will be too soft and some municipalities ban heavy trucks during the spring thaw, Goodale said.
“The action they are proposing is feeble,” Goodale said. “It is nothing more than what the railways already proposed to do.”
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