Authors: Janice Plumstead & Colleen Collins
Railways Matter to Alberta
The grain surge of 2013-14 put Canada’s railway system into focus. A combination of factors that included unexpectedly large volumes of grain, demands from other shippers and severe winter weather led to a failure of the railways to deliver grain to ports in a timely fashion. It also raised questions about whether Canada’s rail system is broken.
Railways are vital to Alberta’s export competitiveness. Almost all bulk commodities not shipped by pipeline are shipped by rail. Efficient operation is so important because the province is land-locked and the distance to tidewater is much greater than it is for our competitors. As Alberta seeks to develop new markets around the world, maintenance and development of trade infrastructure plays a crucial role.
The System is Working
An examination of the rail system in Alberta finds that, while there is opportunity for improvement, in general the logistics system works well. We found:
- > The system is affordable. It has some of the lowest rates per kilometre compared to other jurisdictions in the Organization for Economic Cooperation and Development (OECD).
- > Rates have been increasing, but at about the level of the consumer price index.
- > Canada’s two large rail companies, Canadian Pacific and Canadian National, have made large capital investments that have improved their operating efficiency – actions that are necessary to keep rates low.
- > The other supply chain partners – including ports, shippers and producers – have also been investing to improve capacity, efficiency and reliability.
Opportunity for Improvement
There is still room for system improvement, which we address in 25 recommendations. Alberta’s primary interest is a safe, low-cost freight transportation system that supports export competitiveness. Any effort to improve service must be assessed carefully through the lens of its impact on affordability. Tilting the scale heavily toward service could lead to unsustainable increases in freight rates. At the same time, the system needs to better accommodate shippers’ needs for flexibility as they try
to time their sales with market demand. Contractual arrangements provide a means of balancing these needs.
Safety, responsiveness and capacity can all be improved by implementing a series of improvements to the logistics system. Recommended changes include:
- > replacing level crossings to reduce fatalities and remove speed reductions;
- > investing in track capacity to remove choke points through the Rocky Mountains;
- > integrating information systems to enable better real- time logistics co-ordination;
- > improving commodity forecasting so all supply chain partners are starting from the same place; and,
- > encouraging shippers and railways to move towards greater use of commercial arrangements as recommended by the (Jim) Dinning facilitation exercise, which has already opened the way to more innovation and less ongoing uncertainty in the system.
The (David) Emerson Review’s recommendations to improve the arbitration and dispute mechanism involved in commercial arrangements provides a path forward to negotiated agreements.
Shippers, particularly smaller ones, face an imbalance of power when negotiating with the railways. Some shippers have only one real alternative for shipping bulk goods, which creates legitimate concerns about their ability to negotiate fair arrangements. Shippers, particularly grain shippers, have quite understandably relied upon a highly politicized process to provide a counterbalance to the railways’ perceived power. The problem is that creating additional process in every shipper-railway relationship could drive up costs for everyone. While fairness matters, it is not the only value that matters. The Dinning model provided a reasonable, if imperfect response to the power imbalance that deserves to be revisited. Emerson’s report has recommended additional improvements which may help it along.
We recommend moving the focus to improving overall operations, information and efficiency as a way to build trust, keeping in mind that the ultimate goal is a system that supports Alberta’s export competitiveness, not necessarily one that makes everyone happy all the time.