Commercial incentives and supply chain collaboration are key to helping move more grain

Apr 09, 2014, 13:45 ET from CN

Intrusive re-regulation of railways alone will not increase rail volumes of grain, now or in the future

WINNIPEG, April 9, 2014 /PRNewswire/ - Claude Mongeau, president and chief executive officer of CN (TSX: CNR) (NYSE: CNI), said today Canada's grain handling and transportation system can only succeed in efficiently moving more grain to market if commercial incentives align the supply chain and if all supply chain participants are held accountable for their performance.

Mongeau, addressing the grain sector in a speech to the Winnipeg Chamber of Commerce, said: "The challenges the grain supply is facing stem from extreme circumstances - a huge, 100-year crop and the winter of a life time.

"We can only move forward on a sound footing if the grain handling and transportation system is driven by the right incentives and accountability framework. Deeper supply chain collaboration and end-to-end coordination must be based on commercial and economic realities.

"Punishing railways with re-regulation will not move more grain, now or in the future. Ottawa's ill-advised rail legislation will see more government control of the grain sector than seen for decades and turn back the clock on the significant gains for farmers and other railway customers."

Mongeau said few in the grain sector anticipated what would become an enormous 76-million tonne grain crop, and that it's unrealistic to expect any supply chain to move so much tonnage in a matter of months. In the post-harvest period, CN moved a record volume averaging more than 5,000 hopper cars of grain per week until early December, when extreme cold weather took a toll on operations. But as soon as the weather improved, CN quickly recovered - in March CN spotted an average of 4,550 hopper cars per week for loading at country elevators, which is 21 per cent greater than the company's average March performance for the last decade.

CN believes one of the principal challenges facing the grain transportation and handling system is the lack of proper coordination across the supply chain. With the changed role of the Canadian Wheat Board, the grain sector is experiencing growing pains in coordinating all pieces, from grain marketing strategies to the grain handling steps in the supply chain.

"The lack of coordination is exemplified by the grain elevator companies' handling of the current crop," Mongeau said. "They got off to a very slow start in August 2013 while the huge crop was maturing in their own backyard. They unfortunately failed to take advantage of at least 10,000 carloads of rail capacity that was available on CN at the time. Then, as the enormity of the harvest struck home for all stakeholders, the grain elevator companies began, and continue, to flood the railways with far more orders than what the system is capable of handling, based on even best historical performance benchmarks. With these inflated orders, the grain elevator companies are setting unrealistic expectations, yet they have been vocally trying to single out railways for criticism, as if we were the only party that needs to step up its performance to meet the challenge of this harvest."

Mongeau concluded: "Canadian farmers deserve high-quality and cost effective service from all grain supply chain participants to get their crop to market and to maximize their income.

"The Federal Government has a clear choice to make. The Government should either continue down the path of deregulating the grain handling and transportation system - a successful commercial approach that's been ongoing for the past 30 years - or decide to cast the regulatory net squarely on all participants in the supply chain, not just railways. Ensuring proper coordination of the grain handling and transportation system through a regulatory approach would require the Government to also regulate grain elevator companies for the benefit of Canadian farmers."

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