Publicly-Supplied Hopper Cars and the Canadian Grain Handling and Transportation System Steve Pratte, MCIP, CCLP Canadian Canola Growers Association

Fields on Wheels – October 21, 2016 1

Presentation Outline • Introduction • Government Acquisition • Government Movement Towards Divestiture • Illustration of Transition (underlying data set) • Current Composition • Strategic Considerations

2

Introduction • Western Canada’s Grain Handling and Transportation System (GHTS) is a complex and multi-actor supply chain. • Transports the output of western farmers to domestic and international markets – five year average production of 60,075,000 tonnes. • Underpinned by fleet of approximately 22,000 hopper cars, gathering and transporting grain over 17,000 route miles from 370 primary and processing elevators. • Hopper car fleet is amalgam of ownerships, and a mix of equipment age, physical size and carrying capacity. 3

Government Acquisition • Influencing policy / economic context in 1960-70s. • Need to transition from boxcar to new technology

• Federal government first purchase of 2,000 in 1972. • Over next 20 years, federal fleet grew to approx. 13,500. • Supplemented by further 6,000 publicly-supplied: •

CWB: 4,000

•

Alberta: 1,000

•

Saskatchewan: 1,000

• Government and publicly-supplied cars apportioned between CN and CP. 4

Government Movement Towards Divestiture • Public policy gradually shifted towards deregulation.

• Hopper cars stood on periphery of broader reforms. • March 1996 Budget signalled intention to divest and sparked debate as to ownership.

• October 12, 2007 – announcement of Operating Agreements with CN and CP. • Advances in hopper car design since 1970’s: • Construction: design and material • Capacity: 4,550 ft3 5,150 ft3 • Max. Gross Weight: 263,000 lbs.

286,000 lbs. 5

Major Elements of Government Hopper Car Operating Agreements with CN and CP Duration





Use of Cars





Payment for Use





Maintenance



 

Refurbishment









Replacement Operating Reports

 



Public Annual Reports



  

Ten years with one year notice of termination in eighth year, for no more than 3,000 cars. If not terminated, agreement remains evergreen. Can be used to carry grain in North America. Can be used for other commodities if precautions are taken to protect physical integrity. Cars are provided to railways at no cost for regulated grain movements. Alternate-use payments for non-regulated movements. Railways are responsible to maintain cars to federal government safety standards and industry operating standards. Government will conduct inspections every second year to ensure cars meet these standards. Railways are responsible for maintenance costs. All steel cars built after 1974 will be inspected during the first 5 years of the agreement to identify refurbishment requirements. Cars will be refurbished to industry standards at railways’ expense. Refurbishment includes replacing defective gates that results in grain leakage and installing safety reflectors on every car. The government will conduct post-refurbishment inspections to ensure needed work has been completed. Railways are responsible for replacing cars that are retired or destroyed, obligations under the CTA. Monthly reporting on car use. Monthly reporting on destroyed cars and repairs. Summarize information in monthly operating reports. Report on change in railways’ grain fleets – retirements, destroyed cars and additions. Summarize results of refurbishment and maintenance inspections. Summarize information on revenues received from the railways.

Transport Canada (October 12, 2007). News Release: Canada’s New Government Concludes New Agreements with Railways Operating the Federal Grain Hopper Car Fleet.

6

Government Acquisition Federal Government – Estimated Hopper Car Acquisition 4,500

Number of Hopper Cars

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

Source: Quorum Corporation 7

Government Acquisition Federal Government – Estimated Hopper Car Acquisition 14,000

Number of Hopper Cars

12,000 10,000 8,000 6,000 4,000 2,000 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Source: Quorum Corporation

8

Estimated Retirement of Railway Boxcar Estimate of Railway Boxcar Fleet used for Grain Transport 40,000

Number of Boxcars

35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Source: Quorum Corporation

9

Number of Cars

Estimated Transition: Boxcar to Hopper Car 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Source: Quorum Corporation

Railway Boxcars Publicly-Supplied Hopper Cars All Equipment

10

Estimated Transition: Standing Capacity 2,500

Standing Carrying Capacity (000 Tonnes)

Boxcars 2,000

Publicly-Supplied Hopper Cars All Equipment

1,500

1,000

500

0

Source: Quorum Corporation

11

Estimated Transition: Implications on Capacity Annual Carrying Capacity (000 Tonnes)

40,000 35,000 30,000 25,000 20,000 15,000 Boxcars 10,000 5,000

Publicly-Supplied Hopper Cars All Equipment Canadian Grain Exports (000 Tonnes)

0

Source: Quorum Corporation

12

Current Composition • End of 2015: • Approx. 22,400 hopper cars in circulation (variable by month: on-line fleet, storage and bad order) • Estimated:

• 8,400 federal • 3,100 publicly-supplied • Inference: 10,900 both railway and shipper supplied

• Shift: from government-supplied to railway / shipper supplied. 13

Strategic Considerations: Estimated Attrition Estimate of Government and Publicly-Supplied Hopper Cars in Service 20,000 18,000

Hopper Cars

16,000

Alberta: ~900 cars

14,000 12,000

Government: ~3,600 cars

10,000 8,000 6,000 4,000 2,000

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044

0

All Publicly-Supplied Equipment Source: Quorum Corporation

Government of Canada 14

Strategic Considerations • Longer-term relationship between increasing production trend and carrying capacity. • Impact of advancement in cars and turnaround times: increased productivity • Capacity of cars has increased • GHTS avg. car cycle has declined: 1990-2000: 19.9 days

2014-15: 13.8 days

• Inference: approximately 75% of the rolling stock required to move a given amount of grain 15 years ago is required today. • Role of Maximum Revenue Entitlement. • Retirement of publicly-supplied fleet and plan for future replacement. 15