Just when domestic forest products companies thought they were back on track with demand picking up in the critical Unites States market, a major transportation hitch is putting the brakes on shipments.
The Ontario Forest Industries Association and its Quebec counterpart say shipping delays resulting from a lack of rail cars being provided by major rail carriers are seriously hurting sales and share of market.
“With the return of markets in the United States, we are seeing a corresponding increase in the demand for Ontario forest products. Unfortunately, we believe that Canadian Class 1 railroads have clearly underestimated both the magnitude of the recovery and the number of rail cars needed to ensure that Ontario products make it to market,” OFIA chief executive officer Jamie Lim said in a news release Wednesday.
“The current situation severely limits the ability of our member companies to export their products during this critical time. If this is not addressed in the very near future, this issue could ultimately affect manufacturing activity going forward.”
OFIA manager of forest policy Scott Jackson said in an interview that Ontario mills and mill towns went through extremely tough times over the past several years and that the current upswing is a golden opportunity to capitalize on the opportunities.
“We’ve been waiting a long time for this upswing. And now that we’re here it’s very frustrating when you can’t take advantage of that market upswing,” he said.
“Our industry is largely captive to the rail industry when it comes to shipping our products to the marketplace,” said Mr. Jackson, adding that the concerns over rail service by the two dominant players -- Canadian National Railway Co. and Canadian Pacific Railway Ltd. -- go beyond Ontario and the forestry industry.
The lobby group is calling on the railroads to address the issue as quickly as possible.
The OFIA complaint follows similar criticism Monday from Quebec’s Conseil de l’industrie forestière.
The Quebec group said there are serious constraints on the shipment of softwood lumber to the U.S., leading to “substantial losses of market share” and a diminished export capability.
CN says the issue isn’t that simple.
CN spokesman Mark Hallman said in an e-mail message Wednesday that there are two factors affecting the company’s performance in hauling forest products to U.S. markets.
First, CN’s rail car supply for forest products is based on shipment forecasts and commitments from customers over the prior year, he said.
CN has sufficient fleet to meet the demand based on those forecasts, but anything above those levels “now requires additional freight cars and in today’s market the lead time to obtain such cars is 12 to 18 months,” he said.
The second aspect is that CN has, since the start of 2013, run into extreme cold weather, major snow falls and several line disruptions, said Mr. Hallman.
That means slower train speeds and longer dwell times at terminals, he said.
“CN is confident, however, that in the coming weeks service levels will be back to the levels our customers expect.”
Mr. Hallman added that CN's forest products car spotting performance -- that is, spotting the car on the rail siding on the day promised by CN -- averaged 90 per cent last year, and 88 per cent in 2011.
"Clearly, this shows a consistent, solid performance over the long term and CN's strong customer focus," he said.
The federal government has proposed new freight service regulations -- the Fair Rail Freight Service Act -- that would impose fines and arbitration to cover service problems.
However, it doesn't make sense to call for increased rail regulation just because top-quality service delivery was affected by customer forecasts that didn't anticipate current markets and by weather issues, Mr. Hallman said.
CN believes that market forces are best for the rail industry and that unnecessary and overly burdensome rail regulation would put the commercial framework of Canada's rail system, said Mr. Hallman.
Mr. Jackson of the OFIA said there’s no justification for blaming the weather.
“Winter happens every year in northern Ontario and Quebec,” he said.
A CP spokesman referred requests for comment to the Railway Association of Canada; officials at the latter organization were not immediately available for comment.
Among developments helping boost U.S. demand for forestry products is a recovery in housing starts south of the border.