CN, CP: Highest grain volumes expected despite potential slow harvest start

The 2022-23 crop year will see Canadian grain volumes return to more historical levels, but supply chain pressures will require CN and Canadian Pacific to ensure they have enough network capacity, particularly out west in the fourth quarter. Harvesting also might begin later in the third quarter. 

These projections were part of grain transportation plans both railways submitted recently to the Canadian federal government.

“CN expects intense pressure on Canada’s transportation system during the 2022-23 crop year, especially with respect to rail movement to Canada’s West Coast ports,” CN (NYSE: CNI) said in outlining its plan for the event that starts Aug. 1 and runs through July 31.

The railway anticipates “total demand for rail capacity between Edmonton and the ports of Vancouver and Prince Rupert will exceed network capacity during some weeks in the fall of 2022 and in early 2023,” said CN, adding that it bases forecasts on the best economic and market information available. 

CN said it is keeping communication lines with customers open and working with them as they create their own production forecasts. The railway urged customers to “make the most efficient use of capacity available in all rail corridors” during grain’s peak period in the fall and winter, including the “significantly underutilized” eastern network. 

CN expects to move between 24.5 to 27.0 million metric tons (MMT) of grain carloads during the 2022-23 crop year, compared with over 20.5 MMT of grain and grain products moved via railcar and container in 2021-22 when last year’s drought contributed to reduced crop yields. 

As CN prepares for this new crop year, it plans to modernize 100 locomotives between 25 and 30 years of age. The engines will be upgraded from DC-traction motors to AC-traction motors, and they will have state‑of‑the‑art technology to support improved productivity and reliability, CN said. The railway also said it recently acquired 57 high‑horsepower locomotives, 47 of which will be on CN’s network this fall, with the other 10 joining in the first quarter of 2023.

CN also is actively recruiting and training conductors. The railway said its active operating crew base will be sufficient to move anticipated grain volumes in 2022-23. However, the network also could experience some capacity constraints in Q4 because there aren’t enough conductors due to the tight labor market, and anticipated demand from all business units could exceed capacity on the western corridor.

“Considering that CN must move all traffic offered on our network in accordance with our statutory level of service obligations, we anticipate periods during the crop year where short‑term demand may not be met,” the railway said. “CN faces significant pressures on rail capacity from all rail traffic segments in relation to the operating crew base required to move all that traffic.”

However, CN is taking other steps to improve network flows, such as working with grain handlers and exporters to improve two-way communication on forecast car delivery, pickup timing and loading and unloading schedules at grain terminals. CN also listed in its grain transportation plan recent and ongoing capital improvements that could improve fluidity.

Canadian Pacific upbeat about higher grain volumes

Canadian Pacific (NYSE: CP) also expects grain volumes to be higher in the 2022-23 crop year, anticipating moving more than 30 MMT overall of grain and grain products.

As CP executives mentioned during the company’s Q2 earnings call last week, the railway expects “a slow start” to the 2022-23 crop year amid delayed seeding across most of the Canadian Prairies and a lower carry-in volume of approximately 6 MMT. CP said in its plan that’s the lowest carry-in volume in more than 15 years due to low grain yields and high global demand. 

To ensure CP has the network capacity it needs to move grain, the railway plans to make about 1,100 locomotives and 15,500 grain hopper cars available through the year. From August through mid-December and then from April to July, the railway anticipates supplying 6,000 grain hopper cars per week to Canada’s grain elevators. In the winter months, it will supply 4,350 grain hopper cars weekly while the Port of Thunder Bay is closed. These estimates are based on market demand, according to CP. 

CP also expects to hire 2,500 employees across its Canadian and U.S. networks as it also works to complete its $500 million multiyear investment to purchase 5,900 new high-capacity grain hopper cars, bringing the total to more than 7,300. These efforts will complement CP’s 8,500-foot high-efficiency product train model, which the railway says utilizes the high-efficiency hopper cars and delivers 40% grain per train.

CP moved roughly 17.45 MMT of grain and grain products in 2021-22, down 43% from a record-breaking 30.62 MMT in 2020-21.

While the severe drought last summer contributed to lower grain volumes for 2021-22, other events during the year also put pressure on CP, as well as CN.

According to CP, these events included the COVID-19 pandemic and the absences that occurred because of it; Canada’s vaccine mandate, which has been since rescinded as of June 30 but “required the removal of hundreds of fully qualified and trained railway employees from active service;” the Omnicon variant that caused significant numbers of absences in January and February 2022; and “multiple extraordinary climate events,” including wildfires in British Columbia last summer that caused track damage; extreme winter weather conditions in the Canadian Prairies; and extreme flooding in southern Manitoba and northern Ontario in April and May.

A 60-hour strike by members of Teamsters Canada Rail Conference in March added to disruptions at CP, according to its grain transportation plan.

Statistics Canada is forecasting total crop volumes to be around 93 MMT, with western Canada grain production anticipated at 71 MMT, according to CP. 

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