Two weeks since news emerged that China is ending all shipments of canola seed from a major Canadian exporters, sources now say that another major exporter is facing similar trade restrictions. Justin Trudeau responded late last week to claims that sales of Canadian canola seed to China from all exporters has halted, “we’re going to roll up our sleeves and work with the Chinese officials to demonstrate that canola should continue to flow safely from Canada to China.” While no commodity-wide policy has been declared from officials, claims that the Chinese are increasingly hesitant to buy Canadian canola has been verified recently as Canadian exporter, Viterra Inc., has been banned from exporting canola seeds to China as well. According to an article in the Financial Post, allegations are that “China blocked canola shipments from a second Canada-based producer on Tuesday over alleged contamination issues” (Aleksandra Sagan, March 2019).

In a news release issued by the Canola Council of Canada last week, Jim Everson (the President of the CCC) maintained “optimism that Chinese concerns with canola trade could be resolved quickly,” unfortunately, “technical discussions to date have not indicated an immediate resolution is possible. Canola seed exporters report that Chinese importers are unwilling to purchase Canadian canola seed at this time.” Concerns from industry insiders that China would extend this boycott to other agri-exporters have proven legitimate with the announcement of the 2^nd Canadian company to be banned.

Indeed, the concern over the future of canola exports continues as “average weekly movement through licensed facilities (week 24 through week 33) is the lowest seen over this period in four years” (Cliff Jamieson, March 2019). The Canadian federal government will certainly need to be active in mending the relationship with Canada’s 2^nd largest trading partner or continue to actively seek out alternative buyers for Canadian canola. The Canadian economy has already started to react to the news as canola farmers are forced to either sell for less or hold in hopes prices will rise in the future. For now, the ban has been limited in scope effecting just the two grain companies and one commodity, only time will tell if further restrictions are announced and how the Federal government reacts.

This article is meant to provide some background knowledge on the nature of the relationship between Canadian farmers and the two major rail companies in Canada – CP Rail and CN Rail. To stall American interests from accessing the area, a Canadian owned rail line was developed from Alberta to British Columbia through the passage known as the Crowsnest Pass. In order to secure funding with the Canadian government, Canadian Pacific Rail agreed to reduced rates for Canadian farmers shipping grain and related machinery as the farmers were concerned about high freight rates preventing them from competing in international markets.

As the years progressed, this once mutually beneficial agreement started to lose support from the two rail lines as it was no longer cost effective and better returns could be made shipping other cargoes. There have been several revisions made over the years by the federal government in order to reduce the subsidies including the Western Grain Transportation Act which allowed grain shipping costs to increase yearly but not over a maximum of 10%, and more recently the Western Grain Transition Payment Program which further reduced subsidies in lieu of lump sum payment made to ease the transition to higher shipping rates.

Furthermore, service improved in 2014 when Bill C-30 was passed titled the Fair Rail for Grain Farmers Act which required the “Canadian National Railway Company and the Canadian Pacific Railway Company to move the minimum amount of grain specified in the Canada Transportation Act” (S.C. 2014, c.8). Following the ‘sunset’ of Bill C-30 in 2017, grain industry supporters put forward Bill C-49 which addressed two main issues (among others) –

1. “order the company to compensate any person adversely affected for any expenses that they incurred as a result of the company’s failure to fulfill its service obligations or, if the company is a party to a confidential contract with a shipper that requires the company to pay an amount of compensation for expenses incurred by the shipper as a result of the company’s failure to fulfill its service obligations, order the company to pay that amount to the shipper”
2. “If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km of an interchange, the Agency may order

• (a) one of the companies to interswitch the traffic; and
• (b) the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.” (S.C. 2018, C.10).

In conclusion, Canadian farmers/grain companies and the 2 national railways continue to try to find balance between cost and service. Clearly the system is not perfect. The expansive landscape of Canada, combined with the challenging weather, mountain passes, and natural bottlenecks, make for tough logistics. Canada’s agricultural production has increased dramatically in the past 10 to 15 years and is predicted to increase an average of 3% per year. Railways and grain companies continue to find creative contractual ways to handle this demand, such as the Dedicated Train Program by CPR whereby commitments are made for both sourcing of grain (by the grain co’s) and supply of railcars/power (by the railways) in order to create stability and consistency of supply and service.

Fibreco Terminals has ‘opened its doors’ to the grain industry for the first time ever. Traditionally a wood pellet/wood chip exporting terminal, Fibreco unveiled a proposal in late 2017 to add grain-handling operations to the facility. An agreement has been reached between the terminal and Canadian grain exporters AGT Food and Ingredients which will eventually see the implementation of a new ship loader. For now, the terminal is currently working on receiving certification from the Canadian Grain Commission for the new shore side scale that has been recently installed. Latest indication is that the terminal will welcome their first grain vessel in early April assuming the above certification proceeds as planned. According to the enhancement project website which can be found here: www.fibrecoterminalenhancement.com, key components of the proposal include –

• Rail Yard– Switch adjustments and track extensions allowing the receiving and unloading of a 112 car unit train. This will also facilitate better movement to and through the rail car dumper. Addition of extra trackage to allow for more on-site rail car storage (112 cars). Current storage capacity is 90 cars.

• Rail Car Dumper– Retrofit current dumper with new gravity hopper and construct a new railcar dumper building complete with dust mitigation, control and collection.

• Conveying Systems– Install covered conveying systems, with inbound rates at 1,500 tonnes per hour and outbound rates at 2,000 tonnes per hour (includes outbound weighing).

• Storage– Construct 48 – 3,400 tonne capacity silos and 8 – 1,000 tonne capacity silos (all gravity drain), with a capacity of 171,200 tonnes of storage.

• Shiploader– Install new travelling shiploader to more efficiently load products, to accommodate Panamax vessels, and to minimize dust emissions.

• Site Infrastructure– Upgrade electrical, water and storm systems.

• Demolition– Removal of ‘woodchip only’ handling equipment (5 reclaims, 4 conveyors) wood retaining walls, roll over dumper and portions of the rail dumper buildings.

For the full project overview, please follow this link.

With the current levels of congestion in the Port of Vancouver, more and more vessels are finding themselves vacating or avoiding local anchorages all together in lieu of Island Anchorages. The benefits of bringing vessels here right from arrival are that we can avoid the risk of extra shifting costs from local anchorages if waiting times exceed 7 days (which is the maximum guaranteed by the Harbour Master). This means that after 7 days, if inbound vessels are looking for space in English Bay, the vessel may be forced to leave and will be assigned a Remote Island Anchorage (thus incurring extra pilotage costs). The assignment process was changed in 2018 in a joint venture between the Port of Vancouver and Transport Canada, whereas agents used to have a say in which Island Anchorage the vessel would proceed to – the anchorage assignment process is now done through an automatic system. Obviously if we as agents have confidence that the vessel’s wait will not exceed 7 days prior to berthing, or congestion levels are low enough that we are confident the vessel will not be asked to vacate prior to berthing, then we will do our best to secure a local English Bay Anchorage. The problem with the randomization of the anchorage assignment process relates to the piloting order rules for grain vessels and transit times from these anchorages which varies based on which anchorage we are assigned. In the table below, you will see that some of these anchorages are quite far from Vancouver, pilot ordering times varies on which anchorage the vessel is at as their dispatchers have to account for the pilots transit time to get to the vessel. When a terminal calls a vessel to berth, they now have to liaise with the agent to consider both the time required to get a new pilot order (sometimes as long as 15 hours before the order time!) and the transit time from that particular anchorage (sometimes 8 hours + to get to the berth), when a terminal is subject to tidal restrictions, this can get even more complex. As you may imagine, this can create a headache for all parties when attempting to minimize idle time at the berth without incurring extra costs for late cancellation times or pilotage over hours costs (times when transit is over 8 hours). Furthermore, factors such as launch costs for the pilots and availability of Island based CFIA and Transport Canada inspectors can further complicate this issue when agents are trying to set up the most efficient and practical arrival of an inbound vessel. For more information, see the below chart which include approximate distances and transit times of various Remote Island Anchorages, please keep in mind these are approximates only and can often be affected by weather. To further illustrate, please see the above map with the positions of the Southern Gulf Island Anchorages, for reference – the Port of Vancouver is located to the top and right which is just out of the map borders.

*VPS refers to Victoria Pilot Station in the below table

The recent release of the 2018 year-end statistics from the Vancouver Fraser Port Authority shows promising statistics for the Port of Vancouver as record cargo volumes were reached. See the following excerpt provided by the Port of Vancouver, the full article can be found on their website.

“The Vancouver Fraser Port Authority today released the 2018 year-end statistics for cargo through the Port of Vancouver. Overall cargo volume through Canada’s largest port reached a record high of 147 million tonnes, up 3.5 per cent from 2017.

One of the port’s biggest strengths continues to be the ability to accommodate the most diversified range of cargo of any port in North America. Sectors that experienced strong growth last year include containers, potash, canola products and barley, all of which hit new records in 2018.

For Canadian businesses large and small, container trade through the Port of Vancouver is essential to gaining access to international markets. However, forecasts show that Canadian west coast container ports will be full by as early as the mid-2020s and therefore unable to accommodate growing trade. In response, the port authority is working to create new terminal capacity.

“Canada’s international trade is growing. The port authority and all those who make up the Port of Vancouver are taking steps to ensure the port will be ready to handle the anticipated increase in cargo through Canada’s west coast,” said Robin Silvester, president and chief executive officer of the Vancouver Fraser Port Authority, the federal agency responsible for overseeing the Port of Vancouver. “This includes partnering with terminal operators to expand and improve operations in preparation to meet the expected increased demand.”

Even with the additional capacity provided by such improvements, forecasts from independent experts show it won’t be enough to manage Canada’s future trade demand. This highlights the need for the port authority’s proposed new container terminal at Roberts Bank.

In other sectors, a bumper harvest in Canada was met with strong global demand for Canadian grain, special crops and other agriculture products, resulting in steady exports through the Port of Vancouver. Combined, dry bulk and containerized grain hit record levels of 27.4 million metric tonnes, with canola and barley each reaching new records for 2018. In fertilizers, potash exports increased 27.6 per cent to record volumes.”

The full 2018 cargo statistics report from the Vancouver Fraser Port Authority can be found here.

News broke on March 5, 2019 that China has officially cancelled the canola registration of one of the largest grain exporters in the country.  The move which came about with little warning has halted all bulk canola seed shipments from this particular corporation starting immediately. While it is unclear at this time what has sparked the move, some reports have pointed towards Chinese officials blaming the possible presence of foreign materials within the canola shipments heading for China. It is important to note that the Canadian Food Inspection Agency did not find evidence to corroborate this claim. As expected, however, speculation attributes the restriction to the recent tensions brought about by the Canadian Government’s detention of Meng Wanzhou (CFO of Chinese technology company Huawei Technologies Ltd.). So far only one Canadian agri-exporting company has been targeted, however, it seems likely that the stoppages will soon spread to other major exporters. In the meantime, industry insiders are left to wonder how the reduction in agricultural exports will affect the Canadian economy and what can be done to limit the impact on the Canadian trade industry going forward. While further information continues to come out daily, pressure will be on the Canadian federal government to work with the Chinese to try and resolve the issues going forward.