Agriculture Committee on Feb. 12th, 2014

[The Chair, Conservative, Bev Shipley]

Mr. Payne, you're just right on.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair.

Thank you, gentlemen.

[The Chair, Conservative, Bev Shipley]

I will move now to Madame Raynault for five minutes, please.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair.

We have heard from witnesses who spoke about the problem with grain transportation. They also spoke about the losses, in terms of revenues, for farmers when they have lower quality grains. They also spoke about the fluctuation of grain prices, among other things.

However, one of the witnesses told us that the problem was simply that the rail sector dedicates too few resources to transporting grain. He said that there were not enough locomotives assigned to these operations, and that the teams had to get together to transport the grain. This witnesses added that the lack of competition among rail services was the primary cause of these problems. In January, we saw a 12% drop in the transportation of grain, while there was a 7% increase in the transportation of oil, compared to January of last year.

How do you explain that? This witness was wondering about that.

[David Miller]

We size our fleet, really, based on what we believe the ports can handle. The reason we've increased the number of cars is because, in effect, we saw in the fall that Prince Rupert and Vancouver were able to move more grain through than we had previously thought they were going to be able to. So we said, okay, if they can move the grain, we'd better add more cars.

With regard to the question of January, you can't really compare this January to last January. This is a far more severe month. There were times in January where we had as many as 35 trains sitting because it was too cold to get the air up to get them moving again.

But with regard to crude, first of all, crude is a tiny piece of our business. About 2% of our business is crude. I don't have numbers in front of me. I know that we have a backlog in crude just like we do in other commodities. Whether the absolute number was up, I'm not sure. But if it was up, it was based on a very small number.

[Michael Murphy]

I'll just add briefly to that. I agree with the points you just heard. I won't repeat too much, but we think we have the right size of fleet here to be able to move grain.

On the point about competition, that's something we are acutely aware of. There is a lot of competition for the grain business. We compete pretty vigorously with our friends at CN. We could spend a bit of time talking about how grain gets to the railway. I won't take the time to do that right now, but I'd be happy to talk about it.

On the crude side, I'll just give you a quick sense of the numbers. That's a little over 3% of our business. In the case of grain and grain products, it's a little under 20% of our business. Grain and grain products are six times the size of that business. They're really not comparable at all.

Are the growth rates on the crude side going to be looking very large? Of course, because it wasn't a business we were in five years ago.

[Francine Raynault, NDP, Joliette, QC]

If the same problem happens in September 2014, for example, and we experience a winter as cold as the one you have had out west, what do you plan on doing to fix the situation? What do we have to do so that farmers do not lose their markets, so that Japan does not buy its grain elsewhere and the farmers' products are worth less because of fluctuating prices? They will certainly get an extension to pay back their lines of credit, but interest will go up, which will cost them more.

What do you plan on doing to avoid that? Should more deliveries be made in the fall?

[Michael Murphy]

I think what I would say are two things.

One, we would continue to do what we do every year. We haven't talked a lot about how we work with our customers in terms of winter planning, which is a really important exercise we go through every year. Obviously, we would continue to do that.

But in the longer term, in the next crop year and beyond, I also talked about if we have a sense.... I don't think it's a given yet that we know the current crop year size is something that we can accept now as, well, that's the way the business is going to be every year.... Even Agriculture Canada is not forecasting that for next year.

If we make an assumption that we are going to be into a more normal, higher-level crop size, that to me is also part of the incentive to start thinking about a different environment than operating under the current one.... That's something I think you'd want to look at on a longer-term basis going forward.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Madam Raynault.

Now we'll go to Mr. Dreeshen for five minutes, please.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much.

As a grain farmer I've heard a lot of this, and of course, you've no doubt heard the testimony. I can assure you the government has heard it as well.

There are just a couple of things that I had heard in your testimony. I believe, Mr. Miller, you're saying that if the government were to make incentives then you might be able to solve this particular problem. There are incentives, but there is also the other side of that as well. I'm not quite sure what you were thinking about at that particular point in time if this is a way to help move more grain because a person has to take a look from your shareholders' point of view as to what they're making at this point in time and what else is expected of you.

I guess there's an opportunity for you to start looking at movement through Thunder Bay, perhaps as soon as it gets warm enough there. Maybe grain companies have to start taking a look at that as an option if you feel that you can't move this particular bottleneck.

I have a couple of questions that I wanted to go through. The first having to do with the grain elevator network. As a farmer I used to be able to haul six or seven loads a day into a small elevator and as soon as we got the big ones, it was down to about four because of the length of time that I was sitting there and the times at which we'd be asked to come and haul.

There was another comment earlier that says you have to take a look at what is happening as the farmers get the grain to the elevators and the prompt loading on placement. I think you're going to find, and I think you have found, that the elevators have their act together because they're running all night. They're going all Sunday. They're going to have those trains ready for you and this is the frustration that they have at this point in time because when there are expected car spots they're not getting them. Of course, it backs up and it's an issue that we have to concern ourselves with.

I guess the other aspect is taking a look at what your operations are like as far as the U.S. is concerned and some of the circumstances that exist there. In the U.S. we're looking at tariff orders, private contracts, long-term guaranteed freight, and short-term guaranteed freight. I believe someone had talked about a market-based demand and supply with respect to those particular items.

When we look at the idea of reciprocal incentives and penalties as far as your freight contracts with American shippers are concerned, could you tell me whether or not that has improved, the reliability and predictability?

You are two of seven class-one railways in the U.S. and you have had significant support from the Government of Canada over a number of years. I'm wondering if you feel that you should perhaps provide at least the same level of service to Canadian shippers despite the lack of competition in the Canadian rail market. I'd like you to talk a little bit about the competition side of it as well.

Thank you.

[David Miller]

In terms of competition, the U.S. does have the barge system, which I suppose does make a difference that we don't have. But that aside, the fact that there are more railways in the United States doesn't necessarily mean that there are more railways in particular regions. The U.S. pretty much has two major railways on the western side of the country and two major railways on the eastern side of the country. I'm not sure there's a dramatic difference there.

[Earl Dreeshen, Conservative, Red Deer, AB]

Could you then address the concept of the tariff orders and the private contracts, the different types of contracting situations that are occurring there?

[David Miller]

There's no question that there are a lot of things that we can do in the United States that with the revenue cap really would not be realistic here. I mean, you have people bidding for cars there and that sort of thing, which just isn't a realistic option here. You have private fleets owned by some of the grain companies there, which isn't particularly an option here.

The systems are so different. The U.S. system is so much.... It is deregulated to a much greater degree, so it really is difficult to compare the two systems.

I think that's probably the most I could say.

[Earl Dreeshen, Conservative, Red Deer, AB]

Would you care to take a run at that from your side?

[Michael Murphy]

Yes. Let me just pick up on the second point that you raised. You used the phrase “reliability and predictability” and caught my attention with that. That's something we've tried to speak about a lot because at CP we do a lot of contracting with customers across our different lines of business. That's not necessarily the case in terms of grain and that's because this marketplace is regulated in a very specific way unlike other lines of business that we have.

That double component that you talked about is precisely what we're always trying to do. How do we increase the visibility on demand? One of the things you're shooting for here is if a customer is looking for greater reliability and predictability, the railway is obviously looking for a much higher visibility on demand.

When we do contracts, both of these elements are in play. You have contracts sometimes where customers are willing to make specific commitments about certain volumes of traffic they want to send our way. That's not always the case and that's up to the customer, but when you're not willing to make any kind of commitment in that regard, it makes it tougher for us, obviously, to get a sense of what it is we're going to have to do.

The government went through, and I won't take too much time, Mr. Chairman—

[The Chair, Conservative, Bev Shipley]

You're over time. Someone may follow up with that in a few minutes.

Madam Brosseau, you have five minutes, please.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

I would like you to speak more on better planning.

You touched on that, Mr. Murphy, when you talked about winter planning. You also mentioned a different environment in response to the question from my colleague, Madame Raynault. I'm wondering if you can elaborate on that. I don't think I quite understood what you said.

I don't know if you remember. I'll probably have to check the blues.

[Michael Murphy]

Okay, we'll start with the first one.

There are a lot of elements to winter planning. Obviously, it's something that we take a lot of time on, because we know we're faced with this every year. We do this in conjunction with our customers, and governments are very engaged with us as well, particularly through Transport Canada. We coordinate with Parks Canada and the B.C. Ministry of Transportation, on avalanche risk and preparedness, for example. We haven't talked a lot about that today but that's another part of our reality. We make decisions with respect to where we're going to locate snow removal equipment along the corridor, and we've beefed that up. That's something we look at regularly. Changes in operating procedures in terms of making sure...because one of the words we didn't talk about is the impact of cold weather, it's really a safety issue. That's one of the key issues for us in terms of.... Air, we talk about getting air through the train and that's for braking. Safety is obviously a huge concern there.

There are a lot of elements here. We could go on, but I hope that gives you some sense of—

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I understand safety would be top of mind, but I'm sure this isn't the first time we've had cold weather and a lot of snow in Canada. So as to more planning, how do you plan to make sure this does not happen again? More communication?

Mr. Miller, you said you communicated with Minister Ritz. Was that in Saskatoon?

[David Miller]

No, that was with regard to the Saskatchewan minister, but that was on a different point.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Do you guys communicate and have you spoken with the minister on this issue? Has he communicated with you?

[David Miller]

Absolutely. We've had several meetings with the minister and the deputy minister to—

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Also the transport minister?

[David Miller]

Both ministers.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Both ministers, okay. That's been constructive?