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Are Petaluma Grain Deliveries Affected by CN Service Problems?

From WSJ 2018-03-15:

https://www.wsj.com/articles/canadian-national-railway-struggles-to...

Canadian National Railway Struggles to Make On-Time Deliveries

Previous cost-cutting has left railroad short of capacity to serve customers shipping grain, oil and more


Canadian National Railway ousted its chief executive amid struggles to make deliveries on time.
Canadian National Railway ousted its chief executive amid struggles to make deliveries on time. Photo: Luke Sharrett/Bloomberg News

TORONTO—Service problems at Canadian National Railway Co. CNI 0.42% , caught off guard by an oil-sector rebound, are causing severe delays in deliveries of grain, fracking sand, crude and other goods from Wisconsin to the Canadian west coast.

Producers say they are falling weeks, and in some cases months, behind deliveries to customers because of erratic and reduced service at CN, Canada’s largest railway.

Backlog

Canadian National Railway deliveries are troubled by delays and cancellations

Rate of fulfilled weekly grain car orders

Canadian National

Canadian Pacific

100

%

80

60

40

20

0

Aug. 2017

Jan. ’18

Source: AG Transport Coalition

Oil-field services company Halliburton Co. HAL 0.30% warned last month that it would take a hit of 10 cents a share on first-quarter earnings because of CN delays in deliveries of sand to hydraulic-fracturing shale-oil sites.

The abrupt ouster of CN’s CEO Luc Jobin last week was prompted by concerns from its board that the railway wasn’t moving quickly enough to boost capacity, a person familiar with the matter said.

The railway said last week it is investing 250 million Canadian dollars ($193 million) to build new tracks and yards from Chicago to Western Canada to expand capacity. It also said it has leased 130 locomotives, expects to add 775 conductors by the end of June and is asking employees to postpone holidays and retirements.

The slowdown is particularly critical for grain farmers in Alberta and Saskatchewan, where CN​has​canceled​deliveries of more than 18,000 cars ordered to fulfill weekly grain shipments since August, according to an agricultural coalition that tracks shipments. Rival Canadian Pacific Railway Ltd. canceled 100 cars during that period. Most grain from Western Canada is shipped overseas.

Jean-Jacques Ruest, appointed CN’s interim CEO last week, ​told a conference Wednesday in New York that he was “on the clock” to “rebuild capacity to meet the demand.” ​

Jean-Jacques Ruest, interim chief for CN, says he is working to rebuild the railroad’s capacity.
Jean-Jacques Ruest, interim chief for CN, says he is working to rebuild the railroad’s capacity. Photo: Canadian National

The added capacity recently boosted weekly car deliveries by about 50% in early March from February lows, a CN spokesman said.

Both CN and CP have grappled with delivery delays in recent months because of harsh winter weather. But the problems run much deeper at CN because the railway aggressively cut costs in 2015 to adjust to a downturn in demand in the then-struggling energy sector. More than 1,000 employees were laid off and about 200 locomotives were placed in long-term storage, a spokesman said.

The network backlog is also straining capacity for crude-oil shipments.

Jarrett Zielinski, CEO of Torq Energy Logistics Ltd, which operates six crude-oil rail terminals in Canada, can’t find enough room on the trains to meet demand from shippers. The firm is being asked to ship roughly 50,000 barrels of crude a day, but can only find room for about a fifth of that amount, he said.

Some oil producers are coping by loading oil on trucks that drive across the border and then load the cargo onto U.S. trains, he said. “In some cases, that is still more reliable than train shipping in Canada,” Mr. Zielinski said.

The delays are so acute that Canada’s federal government has asked CN and rival CP to submit a plan this week for clearing up the crop backlog.

“Canada’s international reputation as a reliable supplier is at stake,” Transport Minister Marc Garneau and Agriculture Minister Lawrence MacAulay said in a letter to the rail CEOs.

CN was delivered 17% of grain cars ordered in Western Canada for the last two weeks of February, according to the agricultural coalition, leaving some 40 ships idling off Canada’s Pacific coast as they wait for grain loads going overseas. Some farmers are months behind in deliveries to customers, threatening cash flows needed as this year’s planting season approaches

“This is costing us a lot of money,” said Greg Porozni, a grain farmer east of Edmonton, Alberta, who said he has been unable to sell January and February crop contracts after months of canceled local CN grain-car deliveries.

The slowdown has forced him to increase his bank loan and delay seasonal crop purchases for the planting season, which begins in six weeks, he said. “We’re very, very frustrated than CN hasn’t fixed a service problem that it has known about for months,” said Mr. Porozni.

Energy and crop experts predict it will take several months to clear the transportation log jam.

“This is an extraordinary situation. We will be well into the fall before we can clear this up,” said Mark Hemmes, president of Quorum Corp. a government appointed monitor of Canadian grain shipping.

When the railway stalled service to Wisconsin fracking sand producers for a few days last month, some clients turned to rival U.S. railroads and truckers. Emerge Energy Services LP said during an earnings call last month that its shipments on BNSF Railway Co. “will increase significantly” in the second quarter.

Write to Jacquie McNish at Jacquie.McNish@wsj.com

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