The grain shipment rules (Rules) enacted by the Canadian
government—the most recent iteration of which expired on
March 28, 2015—have not been renewed. Thus, for the first
time since March 7, 2014, the Canadian National Railway Company
(CN) and the Canadian Pacific Railway Company (CP) are not subject
to special shipment requirements designed to ensure the elimination
of backlogs of grain resulting from a bumper Western Canada 2013
crop and the adverse impact on normal railway operations resulting
from cold temperatures during the winter of 2013-14.
The Rules were first implemented on March 7, 2014 by way of an
order-in-council made under subsection 47(1) of the Canada
Transportation Act (CTA). Those rules took immediate effect
and set out minimum volumes of grain that CN and CP were required
to move. CN and CP were made subject to heavy fines in the event of
failure to comply with the grain shipment requirements set out in
The initial Rules were followed by amendments to the CTA and the
Canada Grain Act, which took effect on May 29, 2014 and
imposed requirements that until August 3, 2014, CN and CP each move
500,000 metric tonnes of grain per week.
On July 31, 2014, the Canadian government enacted an order
extending the Rules to November 29, 2014. Under the extended rules,
the weekly shipment requirement imposed on each of CN and CP was
increased to 536,250 metric tonnes and substantial penalties for
non-compliance were maintained.
On November 28, 2014, the Rules were again extended by order of
the Canadian government. Under the last iteration of the Rules,
varying levels of minimum weekly grain shipment levels were
imposed, ranging from 200,000 metric tonnes during the end-of-year
holiday season to 465,000 metric tonnes during the week of March
22, 2015 to March 28, 2015.
On March 28, the Canadian government announced that the Rules
would not be further extended, noting that CN and CP had overall
exceeded the shipping requirements established by the Rules and
that stored grain backlogs are now back at historical levels for
this point in the annual production cycle.
The fact that the Rules were invoked in the first place is
reflective of the difficult and politically sensitive nature of the
process by which grain produced in Western Canada is shipped from
the producer to its ultimate purchaser. Given the size of the
annual crop (the 2013 crop was 75.8 million metric tonnes of grain)
and the related economic issues stemming from any disruption in the
shipment of the grain crop to export markets, there is clearly a
strong political motivation for ensuring that undesired backlogs of
grain are avoided. Coupled with political risks, though, are the
difficulties associated with finding a balance between (1) producer
and grain company demands for prompt shipment of grain when and
where desired, and (2) the capacity of the Canadian rail system to
provide the necessary shipment capability as and when required.
We expect that the market tension resulting from the competing
market demand and supply determinants will be addressed through
further government initiative, including through a consultative
process in respect of the CTA and subsequent legislative
amendments. We are monitoring developments in this area and will
report further on them as they evolve.
In the meantime, the Canadian government's initiative in
establishing the Rules serves as a clear confirmation of a
commitment by the Government of Canada to address risks to our
domestic agricultural sector and to Canada's reputation as not
only a significant exporter of grain to the world market, but also
as a nation with efficient and effective domestic transport
capabilities in delivering grain to the international
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