Chemical, mining industries say rail backlog causing plant shutdowns, lost sales

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The rail backlog that has angered the North American grain industry and led to the ouster of one railway chief has spread to chemical and metals companies, who say unreliable train service is causing plant shutdowns and lost sales.

Bob Masterson, chief executive of the Chemistry Industry Association of Canada, said inadequate rail service has disrupted production at 13 plants, including five that had "complete shutdowns." Eight companies said the rail problems extended to their customers, who also had to halt production because of delayed train deliveries, he said, declining to identify the companies.

Teck Resources Ltd., a miner that says it is the biggest customer of Canadian Pacific Railway Ltd. and the country's biggest rail shipper, claimed rail service failures have cost it hundreds of millions of dollars in the past decade. "Perennial rail service challenges have impacted Teck's competitiveness, our national supply chain's long-term economic sustainability and Canada's global reputation as a trading nation," the company said in a letter to a Senate transport committee in February. CP declined to address Teck's comments.

Canada's two major railways, CP and Canadian National Railway Co., said an unexpected rise in freight volumes, combined with a cold and snowy winter, have caused railway congestion and slowdowns. Both railways said they are adding crews and locomotives, but the investments will take several months before they become productive.

The federal government has told CN and CP to outline how they will improve their "disappointing" service to forestry, chemical, energy and grain shippers. "A reliable freight system is a critical part of a healthy Canadian economy that supports middle class jobs and economic growth," said a letter addressed to the companies' CEOs and signed by Transport Minister Marc Garneau and Agriculture Minister Lawrence MacAulay.

CN has apologized to customers and announced the departure of its CEO. The railway said it was surprised by a rapid increase in a range of freights, including sand used in hydraulic fracturing, containers, coal and potash. "We simply did not have enough locomotive power or crews to deal with the rapid increase in business," Mike Cory, CN's chief operating officer, said in Ottawa at a House of Commons committee meeting on Monday.

Jeffrey Ellis, CP's chief legal officer, told the same hearing that "extreme weather has been a challenge" this year, but the Calgary-based railway has moved 3-per-cent more grain this crop season compared with a year ago.

Mr. Masterson, who speaks for an industry that relies on railways to ship and receive three-quarters of its goods, said chemicals producers in Western Canada have been particularly hard hit by rail failures.

"When it happens every winter you start to think it's systemic," he said, noting freight charges and related fees rise every year, yet rail customers have no corresponding recourse if the railways fail to deliver or pick up.

"If we make the smallest mistake or mislabel something or our shipments aren't ready to go when the railways arrive, the charges pile up, pile up, pile up. But they can indiscriminately not arrive, misdeliver, not pick up on time, not deliver on time, and there is no reciprocity," Mr. Masterson said.

The controversy comes amid debate in Ottawa over Bill C-49, legislation that changes laws governing rail, air and marine transportation industries. Among its many changes, the bill gives shippers the ability to seek reciprocal financial penalties against railways for service failures, and alters the way railway grain revenues are regulated to encourage railways to buy new grain hopper cars and boost hauling capacity.

The shippers' complaints echo those of 2013-14, when a record grain crop in Western Canada preceded a harsh winter that snarled rail freights and left farmers with full bins of unsold crops. The government responded to grain industry lobbying by requiring railways to move a weekly minimum amount of crops.

Mr. Masterson opposes a repeat of such a move, saying it pits grain shippers against other rail customers.

Cam Dahl, president of Cereals Canada, said Canada's international reputation as a reliable supplier has been damaged by repeated failures of the supply chain, an issue overseas buyers never fail to inquire about. "Consistency is a critical part of the Canadian brand, so every time we have issues in delivering on time according to contract we're damaging our long-term reputation and long-term brand. It hurts today, but it also has a long-term impact," Mr. Dahl said.

Major shippers in the United States, where CN and CP have networks, complained to the U.S. rail regulator about poor service and higher fees at all major North American railways, according to letters posted on the Surface Transportation Board (STB) website.

The Alliance of Automobile Manufacturers said a shortage of rail cars is delaying automobile deliveries and driving up storage and shipping costs for members, including Ford Motor Co. and BMW Group. The National Grain and Feed Association said railways raised charges even as service worsened.

The STB responded by telling each of the major North American railways to address the shippers' concerns, and to provide details on locomotive fleets, employee head count and capacity constraints, among other information.