Thank you very much, members.
On behalf of the Inland Terminal Association of Canada, it's a pleasure to take part in this process. The companies within ITAC view themselves as an integral part of a competitive marketplace for farmers. All of the ITAC members have at least 50% ownership by farmers in their companies. Some members have mainline companies as partners, while others are entirely owned by private farmer investors. In all cases, ITAC members offer strong local competition for grain purchases driven by the strong farmer membership.
ITAC members include CMI Terminal near Naicam; Gardiner Dam Terminal near Strongfield; Great Sandhills Terminal near Leader; North West Terminal at Unity; Providence Grain Solutions based out of Fort Saskatchewan, with locations in Alberta and one in Saskatchewan; Prairie West Terminal near Plenty; and South West Terminal at Gull Lake.
The grain handling industry has adapted well to the new marketing environment that started in the previous crop year. Those of us who are left welcome the opportunity to continue to grow our businesses.
On January 24 our group gathered for a regular meeting, and a straw poll was taken of the outstanding orders—railcar requests made and not filled. The eight terminals in attendance were 4,300 cars behind at the time. The group ships about 2.4 million tonnes in a typical year. The unfilled orders amounted to almost 20%, at 17% of typical movement.
Of course this is not a typical year, with crop production at 30% to 40% above normal. It is also important to note that these 4,300 unfilled cars represent real sales that have been made to customers.
It is ITAC's understanding that both railways have gone back to railcar allocation based on historical averages. When they realized the magnitude of the rail backlog, they abandoned the open order system, which was based on sales made and approved through export terminals.
As smaller companies who in many cases are single-point shippers, we have few options, as compared with mainline terminals, to fill customer commitments when railcar supply is restricted. We believe transportation capacity must be enhanced. The industry will need to move even larger volumes of grain as genetics and farming practices evolve. While 2013 was a record crop, we feel this could become near the norm.
The system must be based on performance-driven incentives that are equal for all parties—the shipper, the receiver, and the railways transporting products. Currently elevator companies scramble to load trains in the allotted time to avoid monetary penalties. No such penalties exist when railcars do not arrive on time or sit idle filled with grain.
Please understand that the current environment is based on a one-sided tariff-driven process benefiting the rail companies. We are strong advocates of performance-based, two-way agreements with penalities and transparency. The railway needs to commit more locomotives, railcars, and human resources. We believe necessary financial incentives for the railway companies can be achieved within the current revenue cap.
I could spend time on industry statistics to highlight the magnitude of the backlog, but I'm sure you're more then well aware, given the prior presentations, of the depth of the problem this year. We choose instead, in this presentation, to highlight the overriding fact that rail transportation is failing to meet anywhere close to the current need.
There is a huge cost to farmers and the entire economy. Farmers receive much lower prices because of the backlog, and grain sales have been delayed in a world grain market faced with declining prices. That's not to mention that the system costs are much higher than they would be if the system were performing to expectation. Basis levels are at a record high, lowering further the price that farmers receive. The basis is high because all of us as exporters are paying huge demerit bills for ships that are waiting for grain.
The carry-over grain at the end of the crop year means that a logistical backlog could take two years or more to resolve unless more transportation resources can be deployed. The current backlog of unfilled sales and the inability to execute new sales could seriously damage Canada's reputation as a reliable source of supply. Traditional buyers are already currently shifting their demand to the U.S. and other sources. It's always difficult to win back lost sales and customers.
ITAC wishes to be part of the solution. To that end, we have financially supported Pulse Canada's logistics initiative, which has also gained federal support, as you're aware. However, it's a medium- to long-term initiative. Better movement needs to be accomplished in the short term or this problem will grow increasingly expensive.
Before I close, I would like to reiterate that ITAC businesses are truly farmer-driven. The enterprises have been built and paid for by farmers, and farmers are the guiding force behind them. Farmers need and deserve better rail service.
I appreciate your time and attention. I look forward to questions.