The U.S. ag attache in Canada says some some eastern Canadian mills have been forced to shut down due to shipping issues. The attache says the decision by two main rail companies to focus their attention on shipping more grain to western ports than transporting grain east and south, has made mills dependent on shipments to reduce their output.
"A combination of increased competition on the tracks from the oil, gas and chemical industries, poor weather which has meant shorter trains, a shortage of locomotives and crews to keep velocity on track, and a bumper crop has caused important delays that are having significant impacts on the grain industry stakeholders," says the attache. "In order to address the backlog in grain, the rail companies have made a questionable policy decision that is causing additional distortions in the supply chains. Canada’s two main rail companies have announced that they will concentrate on shipping more grain to western ports rather than transporting product east and south."
The Western Canadian Elevator Association reports around a 55,000 rail car shortfall, with half of it destined to the U.S. and domestic markets. "The Canadian milling industry in eastern Canada is reporting delays of three to four weeks which have resulted in some mill locations in Canada to shut down," says the attache. "Segments of the U.S. milling industry are also being hard hit by the lack of rail service south. Some U.S. milling operations that are dependent on the Canadian supply of high quality oats for their operations are reporting that they have less than 20 days’ worth of stocks before they will be forced to shut down their operations."
The attache says in terms of exports out of the Vancouver port, the outlook is not much better. "There are reportedly a record 50 ships waiting for grain on the West coast. "Lost sales, contract penalties and demurrage costs continue to escalate. The huge carryover stocks for 2013-14 are estimated to amount to 25 MMT if Canada has an average crop yield in 2014-15, there are concerns that domestic prices will be driven down further."
"Despite the urgency of the situation, and calls for the federal government to implement emergency legislation to force the railways to handle more grain, the fact remains that there is no short-term solution, other than to hope that the weather warms up quickly so that the velocity of the rail system can be accelerated. In the longer-term, a significant increase in investment into the transportation infrastructure in Canada is likely needed," says the attache.