Tensions are running high between Canada’s major railways and the government, with one key executive expressing to a Wall Street audience his anger at Ottawa’s criticism over the slow movement of grain.
Hunter Harrison, chief executive officer of Canadian Pacific Railway Ltd., told the New York gathering Wednesday that he is “irate” about the government’s complaints of CPR’s grain shipping practices during a harsh winter, demanding an “eyeball to eyeball” meeting with federal officials.
Mr. Harrison’s counterpart at Canadian National Railway, Claude Mongeau, adopted a gentler stance at the same investor conference, but said he did not like the government’s “accusative tone” and that “we shouldn’t be singled out to give the impression that somehow it’s a railroad problem.”
The federal government has made the two railways double shipments of wheat, canola and other crops to clear a backlog that has left prairie grain elevators at capacity, hurting farmers who need the income to pay bills and prepare for this year’s crop.
Shipments are being affected by the particularly harsh winter and the fact that this year’s crop was 40-per-cent bigger than last year’s, the railways say. Mr. Mongeau warned the severe grain backlog will persist.
“I’ve been doing this for 40 years and I’ve never seen anything like this,” Mr. Harrison said of the extreme cold and snow that snarled much of the transportation system in Western Canada.
Grain farmers and the companies that buy and sell their crops have been complaining about poor service from the railways. They say cost-cutting and a focus on crude or other more lucrative commodities are to blame, not winter.
Mr. Harrison highlighted the different service levels demanded by the various sectors the railway handles.
He said bulk shipments of coal, potash and grain have been “modestly” affected by the severe winter, even though “some people in Ottawa or a farmer would disagree.” But domestic intermodal traffic – moving the containers that move to and from ships – has held up “very well.”
“Because that’s one commodity that we’re sensitive to,” Mr. Harrison said. “If you miss, you miss. It’s not like grain or it’s not like coal, [where] if you’re a little bit late you’re still going to haul it. If that [intermodal] trailer comes in Friday night and you’re not able to handle it, it’s probably not going to be there Monday.”
Wade Sobkowich, whose Western Grain Elevator Association in Winnipeg represents grain shippers, said the railways “assume the grain will move eventually,” and are not concerned with the impact of slow movement on grain companies and farmers.
“As shippers we are captive,” he said. “A grain company situated on a railway line can only ship product on that railway.”
The government has given the railways four weeks to begin shipping a combined 1 million tonnes of grain a week or face fines of $100,000 a day. It has also told the government-appointed traffic monitor to more closely track grain car movements.
CP spokesman Ed Greenberg said Mr. Harrison has asked to meet with federal ministers, but would not say what he intended to talk about.
Neither Mr. Ritz nor Transport Minister Lisa Raitt would say if they agreed to meet Mr. Harrison. Ms. Raitt said she had already met with the CEOs of both CP and CN “to express my displeasure with the situation and seek their input on how to resolve the issue on an expedited basis.”
CN said it is prepared to meet the government’s “challenge,” but that it needs the co-operation of other players in the supply chain – including the operators of the elevators and port terminals. Speaking at the same investor conference as Mr. Harrison on Wednesday, CN CEO Claude Mongeau said the massive size of the crop will mean the severe grain backlog will persist.
He adopted a gentler stance than his counterpart at CP, but said he did not like the government’s “accusative tone ... we shouldn’t be singled out to give the impression that somehow it’s a railroad problem.”
Since taking the helm at CP, Mr. Harrison has taken steps to make the railway more efficient, retiring 400 locomotives and 11,000 rail cars while cutting staff by 4,800. He said the move “from the bottom to the top” has involved a change of culture and leadership, adding “the plan has come together pretty well.”
The grain industry says these cuts are to blame for deteriorating service, which they endured long before winter started.
“They have made these changes to reduce their operating costs,” Mr. Sobkowich said. “This manifests itself as inadequate service - especially in circumstances when service requirements are higher because of a larger than normal crop and when operating conditions are difficult because of cold weather.“
CP’s 2013 profit rose 80 per cent to $875-million. CP estimates revenue will climb by 6 per cent to 7 per cent this year, and more share buybacks could be in store as cash flow increases. It is also planning to sell real estate worth about $2-billion.
Mr. Harrison repeated his call to pull older crude tankers off the rails.
“I’m not against hauling crude. We can do it safely,” he said, adding oil by rail remains less than 5 per cent of the company’s overall sales, “with the worst margins in the world.”
“I like the volume. I just don’t like the margins,” he said.