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Who Will Replace Western Canada’s Aging Grain Hopper Cars? (PCN Spring 2017) MAR 28 2017 | Consumers and Producers | Pulse Crop News

This article appeared in the Spring 2017 issue of Pulse Crop News.

Much of Canada’s grain hopper car fleet is “duct-taped together and on its last legs,” a transportation policy expert told a packed room during FarmTech in January.

Advancements in railcar technology mean that fewer new rail cars will be needed to replace retiring older ones, but it still isn’t clear who will bankroll a fleet that is nearing the end of its life expectancy, said Steve Pratte, Policy Manager with the Canadian Canola Growers Association.

“This whole system has rested on the hopper cars we’ve had since the 1970s,” he said. “Underpinning that is the hopper car fleet is a mixed bag of ownership, and age and stage of the hopper car.”

Pratte said that advances in hopper car design since the 1970s include capacity increasing from 4,550 ft3 to 5,150 ft3 and 5,400 ft3 . The maximum gross weight also swelled from 120 tonnes to 130 tonnes. He also pointed to structural design improvements and lighter tare weights.

In early 2016, there were 22,400 publicly-supplied hopper cars in circulation but how many are online at once varies by month depending on fleet, storage and back order, Pratte noted. There are a lot of players in the Western Canadian grain supply chain, he said, and the average crop production of 60 million tonnes was moved for each of the last five years.

The Canadian Transportation Act (CTA) Review Report devoted a page to the issue of aging grain hopper cars, Pratte said.

The report states that: “Between 1972 and 1994, the federal government purchased 13,500 rail hopper cars to carry Canadian grain from the Prairies to Western Canadian ports for export. The expected service life of these hopper cars was about 40 years. Under past and current operating agreements, these hopper cars are provided at no cost to CN and CP for grain transport, although the federal government collects annual revenues in the range of $10 to 15 million for alternate uses of the cars. Due to losses from accidents and aging, the federal fleet was estimated at about 8,410 hopper cars in 2014. The Governments of Alberta and Saskatchewan respectively acquired 1,000 hopper cars in 1980-81 of which about 900 currently remain in service. The Canadian Wheat Board (now G3 Global Grain Group) bought about 2,000 hopper cars in 1979-80 and purchased 1,663 leased rail cars in 2005-06; about 3,380 hopper cars remain in their fleet. The total number of Canadian grain hopper cars is estimated at about 23,000.”

Pratte noted over the last few decades, public policy gradually shifted toward deregulation and 900 Alberta cars are now approaching 50 years of age.

“The major issue from the farmer’s perspective is: As this publicly-provided policy is phased out, how is that reflected in the price of your grain,” Pratte asked the room filled with producers at FarmTech in Edmonton. “Is this going to be one more of those costs downloaded to you eventually?”

APG Past-Chair Allison Ammeter, who farms near Sylvan Lake, agreed that it’s a problem that is top of mind for producers.

“As a farmer, dependable grain movement is a critical part of our business,” she said.  “However, the concern is that yet another cost will be added to our bottom line if we leave car replacement to the railways. An additional concern is that replacement will not be done in a timely manner.  This is the time to address these concerns to ensure that the railways, grain companies, and governments do not simply wait for someone to make the first move.”

Unfortunately, the CTA report didn’t make any specific recommendations on that front, Pratte said.

The report states: “The existing grain hopper car fleet in Canada is nearing the end of its useful life and must be expanded and renewed. The federal government can play a role in the development of a long-term strategic plan on how best this can be achieved and under what timelines. It also has a role to ensure a favorable regulatory regime exists that does not generate barriers to investment. Modifications to the MRE (Maximum Revenue Entitlement) methodology (or elimination of the MRE, outright) could reduce “free-riders” and investment disincentives. Other options include, an accelerated capital cost allowance of railway cars (e.g. to levels comparable to those in the United States, 30 percent for railway cars), and the exploration of the appropriateness of an investment tax credit are initiatives that foster a positive investment climate.”

In a speech on Nov. 3, Minister of Transport Marc Garneau promised legislation to be tabled in the spring to “advance a long-term agenda for a more transparent, balanced, and efficient rail system that reliably moves our goods to global markets.”

Pratte added that there is some interest from private companies to make the investment but government still has a part in the process.

“The role of government potentially is as broker – who’s going to do what and who is going to move first,” Pratte said. “The motivation for shipping companies to maintain their own cars versus the railways is the legal promise of service. If you put in so many units, we guarantee you so many lines of service per week. You obtain it and we’ll give you better service.”