Home Month and Year May 2022 Canada’s Essential Service

Canada’s Essential Service

Rail is important, big business

Photo by Tim Stevens.

Despite recent supply chain speedbumps and broadsides, Canadian business continues to rely on the sophisticated science of logistics: the movement of goods from Point A to Point B and the two key logistics function of transportation and warehousing.

Of the four primary modes of transportation: truck, ship, train and plane (road, maritime, rail and air shipments) rail may not be in the glaring focus or in the news as much as trucking and cargo ships but, according to stats and revenues and shares of GDP, rail is the linchpin of Canada’s vital logistics sector.

The transportation bottom line is Canada’s economic growth and standard of living depend on the export and import of goods. The undisputed logistics fact is that freight railways ensure that goods make it to market as efficiently and cost-effectively as possible. Stats show that Canada’s railways helped deliver more than $320 billion worth of Canadian exports to markets across North America and around the globe.

“Together, CN and CPR represent more than 95 per cent of Canada’s annual rail tonne-kilometres, more than 75 per cent of the industry’s tracks, and three-quarters of overall tonnage carried by the rail sector,” explains Stéphanie Montreuil, senior director of Communications with the Railway Association of Canada (RAC), representing some 60 freight and passenger railway companies that transport approximately the hundreds of billions worth of goods and tens of millions of passengers in Canada each year.

RAC facts and figures show that Canada has more than 46,000 kilometres of tracks and generates approximately $10 billion per year – 95 per cent from rail freight operations and approximately five per cent from commuter, intercity and tourist passenger rail services. As evidenced throughout the global pandemic, railways are central to Canada’s economy and interact with all facets of society: consumers, suppliers, shipping groups and communities from coast to coast to coast. Freight railways support economic prosperity by connecting Canadian businesses to domestic and international markets and provide Canadians with the goods required to stay healthy and safe. Rail is an important supply chain link for Canada’s key trade corridors and gateways,” she adds.

Calgary is an important hub for Canadian freight rail. According to CN spokesman Mathieu Gaudreault, “Alberta generates substantial volumes of agricultural and energy products. CN also handles growing amounts of intermodal container traffic through our Calgary and Edmonton terminals. In Calgary, CN has a logistics park, an automotive distribution facility, a forest products distribution centre and a CN CargoFlo bulk handling facility. Calgary and Edmonton are also home to major rail classification yards.”

With or without logistics bias, the numbers illustrate the proven transportation advantages of rail. Canadian railways offer some of the most competitive freight rates in the world, which helps to save customers (and ultimately, consumers) billions. Since 1988, rail freight rates have increased by 38.8 per cent, while consumer prices have increased by 91 per cent. Although transportation of goods by rail is somewhat below the capacities offered by trucks, rail freight still accounts for a fairly substantial portion of supply chain movement.

Gaudreault points out that there are good reasons to send freight by rail. “It’s cost-effective and up to four times more fuel-efficient than sending freight by truck, and that’s better for the environment. A rail freight shipment company transports can move nearly double the quantity of goods they could in ‘80s, for about the same price.”

There’s no doubt about it. Rail is key component of the logistics sector in Alberta, and particularly the Calgary area. “Rail is incredibly important to Canada, the Province of Alberta and subsequently Calgary,” emphasizes Jason Riley, instructor in supply chain management in the Faculty of Continuing Education at Calgary’s MRU. “For reasons such as robust local employment and both Provincial and National Strategic Import/Export Transportation Capability/Capacity Planning.

“Canadian Pacific is headquartered in Calgary, providing extensive local operational capacity and heavily sought-after labour opportunities. Unionized positions such as conductors, engineers, trainpersons and yardmen in many cases earn twice the annual Canadian average.” He notes the comparative and cost-efficient numbers crunching of freight rail. “The cost of moving bulk goods via rail versus truck is estimated at a 1:4 ratio or 75 per cent less cost.”

MRU’s Riley underscores that rail is only second only to pipelines when it comes to moving fossil fuel products both in cost and efficiency, and he underscores a valuable rail advantage. “When it comes to transportation capacity building/flexing rail has proven to be more adaptive in a time of need. In 2018 the Alberta government was able to increase crude oil export capacity by adding approximately 4,000 new railcars over a period of 24 months. Although the plan execution was nixed by the government (at a loss of 2.1 billion) the fact that rail capacity can be increased in short order compared to a multi-decade pipeline project.”

RAC’s Montreuil also points out that “rail is one of Canada’s most capital-intensive industries. Canadian railways are vertically integrated, including ownership of the track, real estate and rolling stock, which illustrates the need for significant investments. On average, Canadian railways invest between 20 and 25 per cent of their revenues back into their networks each year – more than $20 billion in Canada over the past decade.”

Calgary’s Riley highlights that, for now, Alberta is moving 150,000 barrels of crude via rail per day to the Gulf of Mexico with open capacity to move an additional 150,000 barrels daily. “If demand continues to grow and exceeds current rail constraints, we will need more railcars. The irony would be unpalatable for those who know the history. The Canadian Federal government recognizes approximate $5 billion per year over the last 10 years from Alberta crude exports.”

The rearview mirror blames many recent business problems on the two years of the pandemic, but COVID’s impact on the logistics sector was not as big as some assume. “Internally, Canada’s transportation industry has been acutely challenged with manpower constraints such as the availability of skilled transport truck drivers,” he adds. “COVID played a small role in what is perceived to be supply chain issues. Supply issues at the root have been the cause of COVID outbreaks within global manufacturing or assembly facilities.

“In 2021, during the peak of COVID, freight railways operated efficiently delivering essentials such as energy products, personal protective equipment, medicines, vaccines and agricultural and food products. For rail, there was very little change in key performance indicators such as gross weight shipped, operational cost and gross revenue.”

Logistics experts acknowledge the minimal pandemic impact on freight rail transportation. Industry stats show that, while passenger rail volumes took a massive hit, the pandemic and post-pandemic conditions may have even given freight rail a bit of an edge. When it comes to the freight competition, recent numbers show that trucking rates are increasing, due primarily to driver shortages and regulatory changes. That also opens the door even further to a modal shift in favour of rail.

Calgary’s Jason Riley cautions that “this will happen only if all parties involved enhance their collaboration, leverage digital technology and utilize data-driven analytics to make decisions. Railroads are capable of delivering at the right cost and competing successfully against truck freight, but it is necessary to forge tighter relationships based on open communication and collaboration, data visibility and long-term value creation.”