Agriculture Committee on Feb. 12th, 2014

[Michael Murphy]

With the locomotives—and I went through this earlier—we had a fleet size that we have downsized by taking out our least productive, least efficient locomotives. There was not a lot of value in having those. Some of those weren't being used nearly as well as they could have been and they weren't efficient, so some of those have been taken out, absolutely.

On cars, we've had some cars taken out. I don't think we've had hopper cars, though. Our fleet is still sitting around 18,000 hopper cars.

[Robert Taylor]

To put that number in perspective, we have a fleet of 50,000 railcars, so you're talking about 2,700 on 50,000, and they are an assortment. Some are 50 years old.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Okay.

Do you have any more to say?

[Michael Murphy]

The one comment I wanted to add was with respect to western Canada, a high priority area for us. We're a bulk railway and 40% of what we move are bulk commodities. They tend to be located in western Canada, whether it's coal or potash or grain, and grain is the largest of those. We have a high priority in terms of our capital spend. We spend about 20% of revenue—and very few industries do this, if any—on capital every year, and a big priority for us has been in western Canada.

I mentioned our north main line, Edmonton to Winnipeg. Who benefits from that? Obviously, the products we're talking about here, in bulk, are major beneficiaries, though not exclusively. We don't build lines specifically thinking about one product or another all the time, but there's clearly an advantage there for that kind of expenditure.

We just announced that our capital program is even going to be larger in 2014 than it was in 2013, so there's more to come in terms of investment in western Canada. I can get into more detail in terms of where we think we might...because we think there are some advantages in terms of more sidings, and all of that is where we have our line of sight.

[The Chair, Conservative, Bev Shipley]

I'm sorry, but your time is up, Mr. Zimmer.

We'll now move into the third round and we'll go to Madame Raynault for five minutes, please.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair.

We know that there were record crops in 2013, which is great for our farmers. The weather surely played a role in this. However, we cannot forget that researchers are trying to create new seeds to produce more in order to feed the whole world. Better seeds have an effect on crops and increase the amount of food for humans and animals.

Right now there is a transportation problem because of the cold and everything you mentioned earlier. This question is for the three witnesses. What are your short- and long-term plans to avoid this problem so that farmers never have to go through this again and so that it is easier for you to transport our farmers' grain?

[David Miller]

If you're asking can we promise that we're never going to be up against capacity limits in specific times of the year or with specific unusual peaks, I can't say that. You can never size the system to meet every peak demand.

As I said, we're investing well over $2 billion a year to grow our network, whether it's longer sidings, whether it's more double tracking, whether it's more cars and locomotives. We are looking for ways to grow. It's in our interests to move as much as we possibly can. There's nothing to be gained by us being unable to meet the demand that's out there.

But certainly there are issues with regard to surge capacity and how many cars, locomotives, crews, you can have sitting around on the chance that you may need them for a small piece of the year.

[Michael Murphy]

The only thing I would add, Mr. Chairman, is to build on my comment previously about capital expenditures. This is a hugely capital intensive business, maybe more than any other sector.

Our capital program is not just about maintaining what we already have. It's also about dealing with growth. That's an important part of this conversation, because of the importance of bulk commodities, as I mentioned, particularly in western Canada but not exclusively, for us.

We're looking at growth in a number of areas and that's part of why we're spending at a higher level in terms of our capital in our forecast that we've announced for 2014 and beyond. That's something we're going to continue to do.

[The Chair, Conservative, Bev Shipley]

You have a minute and a half, two minutes yet.

[Francine Raynault, NDP, Joliette, QC]

I think it would be really unfortunate if farmers decided to no longer farm grain or to farm less. Right now they are losing a lot of revenue because they have grain sitting in silos and the quality is deteriorating. If they farm less or are not able to obtain a line of credit for planting crops in 2015, they will go bankrupt. What will they do?

You will have the assets, but no grain to transport. What is the immediate solution? Will you be forced to transport grain from 2013 crops when 2014 crops are ready?

[Michael Murphy]

I will add to what I said earlier in terms of dealing with the size of the crop. We have the specific things that I mentioned in terms of the current crop year, and I won't repeat it in the interests of time, but we also are looking ahead to the next crop year and after that. We think there may be opportunities to think about the marketplace differently and to think about a much more commercial marketplace, like we have in the rest of our business.

That's a conversation that we're prepared to have.

[The Chair, Conservative, Bev Shipley]

Okay. Then we'll move on. Thank you, Madame Raynault.

We'll move on to Mr. Hoback for five minutes, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Actually, Mr. Chair, I'll share my time with Mr. Dreeshen since it's the last round of questions.

[The Chair, Conservative, Bev Shipley]

Okay.

[Randy Hoback, Conservative, Prince Albert, SK]

Surge capacity, Mr. Miller, what is the right number for surge capacity? Right now if you ask farmers about your surge capacity they would probably say that you guys do not have enough surge capacity to handle these high areas where it peaks up and peaks down.

How is that surge capacity calculated? Is it based at the lowest volume across the year or is it somewhere in the middle? What is a reasonable number? What is CN's and what is CP's surge capacity?

[David Miller]

I'm not sure there's a magic formula I can give you. The reality is that there's no question that one area where the revenue cap is an issue is in terms of surge capacity. The need in terms of having excess capacity available when there's no chance of being compensated for it under the current system is one place where it is a deterrent. I don't think there's any question about that.

[Randy Hoback, Conservative, Prince Albert, SK]

The railcars are owned by the government. So surge capacity for you in the grain sector is just locomotives and people, is that not true?

[David Miller]

Well, locomotives—

[Robert Taylor]

We have about 6,000 government hopper cars out of a fleet of 18,000, so there's your surge capacity of 6,000.

[The Chair, Conservative, Bev Shipley]

Mr. Dreeshen.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you, Mr. Chair.

There are a couple of things I'd like to go back to.

One of them has do with that Thunder Bay traffic I had talked about, as soon as that becomes possible, and taking a look at some of the options that are going to be there.

The other thing is the confidence that you can be able to say that we are going to be able to move this. That's a critical aspect right now.

Quite frankly, as we've heard in testimony, there are people saying that they're going to be growing the kinds of crops that aren't expected to make the same sorts of yields as before. That's driven for a different reason. I have heard of people saying that maybe they're not going to fertilize, and so on. People are taking a look at the advance program and trying to make decisions. What are going to be the right ones if they can't manage their cashflow?

I think it's important that you are able to give the signals that can show where this glut is and how it is moving, and to make sure that is something that people can recognize.

I'd like to get a bit of a commitment. I can't remember whether it's a three-month ruling that you have to have as to where all this is, or whether it's a one-month. Maybe it needs to be a weekly one as to where we're going as far as this glut is concerned.

Can I get a view on that? If it's something that we really need, can we get a commitment on that?

[Robert Taylor]

If I may, we're meeting the minister again on February 24. He's asked for some additional information in terms of the ability of the supply chain to move grain through individual corridors, and the like. That's something we're looking at right now. We have been meeting the minister weekly for a little bit. We're skipping one week because of your parliamentary break. So these things are being talked about.

On Thunder Bay, you make some very good points. We were actually talking about Thunder Bay today, about an earlier program into Thunder Bay to try to get some of this grain into empty elevators there.

I would expect to see an earlier program into Thunder Bay this year than last year, and a program into Thunder Bay before ships actually arrive.

[David Miller]

In recent years there has not been much of an eastern rail program. Over the winter this year, it's been delayed because of weather issues, but we are definitely looking at trains to Quebec City.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much.

[The Chair, Conservative, Bev Shipley]

You have another minute.