UPDATE 1-Canadian railways make progress on easing grain logjam

Tue Mar 18, 2014 4:55pm EDT

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By Rod Nickel

WINNIPEG, Manitoba, March 18 (Reuters) - Canadian grain shipments by rail have picked up since earlier this month when Ottawa ordered Canadian National Railway Co and Canadian Pacific Railway Limited to improve service, CN and a grain-handling group said on Tuesday.

Transportation bottlenecks have left crops landlocked after a record-smashing harvest and frigid winter in Canada, the world's biggest canola exporter and No. 2 wheat shipper.

Grain handlers have seen "a slight improvement" in railway service during the past week and a half, helped by milder weather, said Wade Sobkowich, executive director of Western Grain Elevator Association, whose members include Cargill Ltd , Richardson International and Viterra.

CN, the biggest Canadian railway, spotted an average of 4,320 grain hopper cars per week at country elevators for the the past two weeks, up from an average of 2,964 cars per week in February, said CN spokesman Mark Hallman.

The railway is in process of adding 500 more hopper cars, and intends to continue spotting more than 4,000 cars per week until Port of Thunder Bay, Ontario opens in early April, Hallman said. After that, it can move closer to the government-ordered target of 5,500 cars per week, provided there is strong collaboration from grain companies, he said.

Orders for tens of thousands of grain cars have gone unfilled in the requested time since August. Each hopper car contains about 90 tonnes of grain.

Canadian Pacific spokesman Ed Greenberg declined to disclose the number of cars it has recently deployed, but said the railway company is moving a record volume of Canadian grain.

Estimates of the number of hopper cars available last week vary by grain company, but last week may have been the busiest in 2014 so far, Sobkowich said.

Canadian Agriculture Minister Gerry Ritz wasn't satisfied.

"The facts show that the current rail service being provided to farmers is not keeping pace with demand," Ritz said in an email to Reuters.

The Canadian government ordered CN and CP on March 7 to collectively double weekly grain shipments to 1 million tonnes or the equivalent of 11,000 cars, and gave them four weeks to work up to that pace.

Railways should be able to meet those targets, Transport Minister Lisa Raitt told reporters in Toronto.

"You can't push the (supply) chain so hard that it breaks, but you can certainly push it to make sure that they understand the importance we have put on moving the grain out of the country right now," she said.

Through January, Canada exported 18.8 million tonnes of crops during the 2013/14 crop marketing year, up 3 percent from a year earlier, according to the Canadian Grain Commission.

It's too early to tell if better rail service has led to handlers raising cash bids for crops, Sobkowich said. With rail orders backed up, grain handlers stopped accepting some crops at certain times, leaving farmers with tight cash flow.

ICE Canada May canola futures have gained about 2 percent since the March 7 government order.

CP Chief Executive Hunter Harrison has aggressively downsized the railway company since taking over in June, 2012. The railway has cut about 4,850 jobs, or one-quarter of its workforce and reduced its locomotive fleet.

Those cuts are not a factor in the backlog, Greenberg said. "This is a combination of an extraordinary crop with periods of extreme winter weather," he said.

CN has added 5 percent more train operating crews and increased its locomotive fleet by 10 percent during the current first quarter, Hallman said.

Ottawa plans to introduce draft legislation in the next parliamentary session, which begins Monday, to ensure Canadian shippers could get their products to market in a more predictable and timely way.

The government of Alberta urged Ottawa on Monday to include penalties for poor service that are payable to customers who are adversely affected, and to allow railways greater flexibility to use each other's track. Saskatchewan made similar requests, along with raising railways' targets to 13,000 grain cars combined per week.

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