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Supply chain infrastructure: Is there a role for short line rail companies?

Photo by Phil Symchych

The global supply chain is said to be in chaos. In Canada, the National Supply Chain Task Force Final Report identified a crisis in our supply chain. The causes range from changes in trade patterns to a global pandemic, to climate disruptions and a shifting geopolitical situation. The report also mentioned long-standing weaknesses in the chain. 

As a major Canadian exporter, Saskatchewan relies heavily on rail to move goods to seaports. But reports of poor Class 1 service are widespread, according to the Western Canadian Short Line Railway Association (WCSLRA). The report suggests exploring how short lines can help increase shipping capacity and further complement Class 1 railways. 

“In COVID, consumer markets suddenly froze, and we saw a lot of car storage traffic go into short lines,” says Rachel Mackenzie, communications and government relations director for the WCSLRA. Short lines served as a pressure release valve, as systems became jam-packed with cars. Mackenzie says this already happens during market fluctuations and weather events. “Short lines can help reorganize cars, build unit trains, and retrieve their own traffic from Class 1s when CN and CP are unable to deliver it.” Of the 26 short line railways in western Canada, half are in Saskatchewan. British Columbia and Manitoba have five each, and Alberta has three. 

Many short line rail companies acquired tracks that were not in great condition. One of the WCSLRA recommendations that made it into the Final Report was the need for ongoing infrastructure maintenance funding for short lines. An American program provides approximately $3500/mile to support short line railway maintenance. Mackenzie says this program is seen as very successful. 

The Association also recommended that rail interswitching zones be expanded from 30 kilometres to 200 kilometres. Interswitching is the transfer of traffic between two railway companies. This move would increase Class 1 railway competition and better serve those for whom rail is the only shipping mode. Mackenzie says many stakeholder groups support this expansion. The final report supports the expansion but omits the recommended distance. The suggested timing for action on this is May 2023. 

“This is very unpopular with CN and CP, and the Class 1 railways are lobbying hard against it,” says Mackenzie. “Transport Canada staff have told us at supply chain group meetings that more data is needed to select the optimum interswitching distance, so it is unlikely that interswitching is the easy, low-hanging fruit to take action on, or that they will make any changes in the time frame recommended by the Task Force.” Switch zone rates should be mileage-based and set annually by the Canadian Transportation Agency (CTA). The Agricultural Producers Association Of Saskatchewan (APAS) recently sent a letter to Transport Canada on behalf of Saskatchewan farmers, asking that railway interswitching zones be expanded. 

The final report also wants to see the power imbalance between shippers and railway companies addressed. This would create greater fairness and more competition in the rail system. 

Mackenzie says the Canadian Transportation Authority (CTA) should be overseeing this. Shippers have asked that the CTA be given the necessary authority and regulatory power to do so. “The CTA needs better funding and a rail-specific department in order to respond to shipper complaints. But right now, the CTA is bogged down in aviation complaints about lost luggage.”

Canadian ports are not paragons of efficiency. Most of Saskatchewan exports move through the Port of Vancouver. Provincial leaders, Scott Moe among them, are seeking greater representation on the Port’s Board of Directors. “As a group, the western provinces make up 85 per cent of the Port’s export value, but only have nine per cent of the representation on the board,” Moe has said.

Prairie provinces were concerned when the Port of Vancouver recently raised port fees on things like potash and grain from .08 to .40 per tonne. “Those fees will harm Saskatchewan agriculture,” Highways Minister, Jeremy Cockrill told the media. 

The Port of Churchill is Canada’s only arctic port and welcomes seasonal activity. “It’s great because it provides yet another port within Canada that we can use. It’s a great destination for grain from northern and central Saskatchewan,” Mackenzie says. Canada is providing funds to upgrade Manitoba’s Hudson Bay Railway which leads to the port. 

One of 38 recommendations in the report flagged for “immediate” action is that Canada Border Services Agency must permit containers currently being stored at port terminals to be moved via rail or truck to inland locations for customs clearance. This will create space at the terminals for arriving vessels to be unloaded. “Emergency measures must be taken to avoid backing up the entire supply chain.”

With all their moving parts, supply chains have yet to go digital. The digitalization of supply chain processes requires “intense and urgent focus,” according to the Report. Canada is lagging in using technology to modernize its processes. “A lack of open, transparent and visible supply chain digital data is hindering industry’s overall ability to innovate and invest for the future.” 

In this, the government managed a “hurry-up offense.” On February 13, the National Trade Corridors Fund (NTCF) put out a call for proposals to access its $50 million in funding for “Advancing Supply Chain Digitalization.” The WCSLRA is encouraging its members to apply. The deadline for applications is April 11.

Inland ports represent another solution to supply chain issues. In the past decade or more, dry ports have arisen in Winnipeg, Calgary, and Regina in response to escalating demands for efficient freight transportation systems. 

An emerging rail development in Saskatchewan could also help ease supply chain congestion. Located just 12 minutes from Saskatoon, Saskatoon Transportation Link (STL) spans 750 acres, 500 of which are situated between two Class 1 railways, CN and CP. “STL is a local, privately owned company located in the development-friendly R.M. of Blucher,” says Laurie Bradley, one of five STL directors. 

“Our land prices and municipal tax rates are much lower than that of nearby urban land,” Bradley adds. STL could potentially become a valuable interswitching location. 

With respect to air freight, the International Airport Review says Canadian airports are ready to take on a greater role in supply chains. Some carriers are converting entire aircraft for full freight, which typically requires upgrades to runways. The St. John’s Airport is looking for partners to help it become a North American logistics hub. Shipping cargo is anticipated to be a greater source of growth than increasing passenger traffic. 

The trucking industry is not unscathed, having seen disruptions from labour shortages and a freedom rally. Trucking remains a vital link in supply chain management. 

The WCSLRA encourages members to build positive relationships and innovative agreements with their Class 1 partners. Southern Rails Cooperative Ltd. performs switching services for CN and CP on their tracks in Moose Jaw, Sask. Big Sky Railway Ltd. in Delisle, Sask. has negotiated running rights with CN that enables them to deliver full trains to CN crews in Saskatoon’s Chappell Yard, saving crew time, locomotive use, and yard space for CN. “This arrangement took many years of careful relationship building but is working well for both parties,” Mackenzie says. 

Looking ahead, mending the links in Canada’s supply chain will require greater cooperation and collaboration, a theme throughout the final report. Maybe, as Forbes magazine said recently, 2023 is the year global supply chains will bounce back. With the pandemic seemingly receding in the rearview mirror, Mackenzie hopes there’s still enough motivation to make the recommended changes.