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.
"We have a duopoly here," Wall said Feb. 28 in Ottawa, after meeting with Prime Minister Stephen Harper. "There’s two options, and the product’s not moving."
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.
The railway company shares rose after the announcement. Canadian National gained 21 cents, or 0.3 percent, to C$62.22 at 12:12 p.m. in Toronto. Canadian Pacific shares pared loses, falling 34 cents, or 0.2 percent, to c$173.37.
The grain supply chain will return to very high levels of performance when cold temperatures lift, Hunter Harrison, chief executive officer of Canadian Pacific, said in an open letter. 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."
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.