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An update from Murray Hamilton

June 2018

As we close in on the final weeks of the 2017-18 crop year, I want to take this opportunity to reflect on some of our key accomplishments as well as the opportunity the supply chain has to increase grain movements as we enter the 2018-19 crop year. Last fall, in lock-step with our customers, we moved grain at a record pace. September was our best-ever month for Canadian grain movements, and October was our best October ever. This was possible because producers, grain companies, CP and port terminals all were aligned to maximize available capacity. We have remained consistently ahead of last year's numbers for tonnage moved.

Early in 2018, CP faced unexpected and unprecedented demand in the northern catchment areas of our network due to our competitor's capacity shortfalls, and the challenge was further compounded with extreme winter conditions. Despite those challenges, CP was able to maintain overall deliveries ahead of the prior year and all participants remained motivated to maximize available capacity. CP was able to recover quickly by remaining disciplined in the execution of our operating plan and by ensuring that we have adequate crews and locomotives to support the demand. CP was also able to largely maintain that fluidity as we worked through the brief work stoppage that occurred in late May.

As I view our network operations this June, there are empty grain cars staged across the Prairies awaiting grain deliveries to our elevators. Reduced demand for grain cars has been attributed to reduced farmer deliveries caused by a compressed seeding and spraying season, as well as by market conditions affecting farmer decisions to sell and deliver. Despite having capacity to move 5,500 weekly loads, we've seen an average of 4,150 cars per week load over the past four weeks. This capacity utilization shortfall represents more than 480,000 tons of grain capacity that is potentially lost forever. This lost capacity represents an industrywide missed opportunity to not only move more grain, but also to strengthen Canada's reputation as the most reliable grain-handling system in the world. CP stands by, open for business and ready to do our part in maximizing this capacity.

In light of the softening of demand, and in order to ensure that CP can continue to deliver efficient rail service as cost-effectively as possible, we are having to manage operating costs through layoffs and storage of cars and locomotives. It is important for the industry to understand that re-energizing the system requires a clear signal that demand is returning, and that sufficient ramp-up time is taken into account when planning shipments. The reality is that, similar to grain handling equipment, track, locomotives and railcars are all extremely expensive to build and maintain, and it is costly to hire, train and maintain train crews. Thus, it is imperative that we size our network reasonably and maximize the utilization of our assets and resources to the greatest extent possible at all times. Leaving costly capacity idle for any significant part of the year would not be a responsible use of our invested capital, and will hamper our collective ability to provide the low-cost supply chain that enables Canada to effectively compete in the world market.

If you haven't already, I encourage you to read through our news release on our plans to order 5,900 new grain cars , which we issued June 7. Demand for rail transportation overall at CP is growing, and we are stepping up to meet that demand. Our call to action now is to work collaboratively on ways to maximize our capacity year-round.

Finally, I want to be sure we're communicating with our customers. This is a time of change. Even as we receive new grain cars, we are transitioning to an 8,500-foot model for our dedicated grain trains that promises to take efficiency to new heights. The next generation of grain train is capable of handling upwards of 40 percent more capacity than the prior one. This will mean greater reliability for our grain customers, and when our customers win, we also win. We are in this business together, and it's truly my privilege to be in it with you.

If you have any questions or concerns, feel free to contact me at grain_questions@cpr.ca.

Regards,


Murray Hamilton
Assistant Vice-President, Sales and Marketing, Grain

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