CN to purchase hundreds of grain cars as transportation bill becomes law

MONTREAL — Canadian National Railway is preparing to purchase hundreds of new grain hopper cars to get shipments moving after a bill that encourages railways to make investments to avert service disruptions became law Wednesday.

CN Rail expects to buy new grain cars to replace some 200 to 300 that are replaced annually, its chief financial officer told an investor conference Wednesday morning, before the bill that imposes financial penalties on railway companies received royal assent.

Ghislaine Houle explained that the company was waiting on the passage of the omnibus bill to go out and buy the cars.

The wide-ranging Transportation Modernization Act includes financial penalties for railways that fail to deliver promised rail cars for grain shipments on time. It also requires railways to publicly report each summer on their abilities to move that year’s grain crop, and to publish by Oct. 1 each year a winter contingency plan for keeping shipments moving regardless of bad weather.

The bill’s passage comes after Canadian Pacific Rail and Canadian National blamed severe winter weather and a larger-than-expected grain crop for a backlog in grain shipments that have hit their profits and left grain farmers complaining about their service.

It also requires the installation and use of locomotive voice and video recorders,the replacement of temporary extended interswitching with long-haul interswitching, and changes the grain cap to encourage hopper investments.

Houle said the maximum revenue entitlement system — which places a ceiling on the total revenue to be earned from moving grain by rail in any crop year — has been a disincentive to invest.

“That now fixes it where if we invest in grain cars, we’ll get 100 per cent of our investment coming to us,” he said.

A spokesman for CP Rail says while not perfect, the bill brings some further certainty to the grain supply chain.

Jeremy Berry said the company “stands ready to make over a $500 million investment over the next several years in new cars which will increase the overall hauling capacity per car in our fleet.”

The act raises the individual ownership limit in Canadian National Railway to 25 per cent, from 15 per cent. That could open the door for billionaire Bill Gates to increase his stake.

It also starts the process for a new air passenger bill of rights and increases foreign ownership limits on Canadian airlines.

The act doesn’t actually create an air passenger bill of rights, but starts consultations at a federal agency that would eventually lead to a detailed set of rules airlines would have to follow in a host of situations, including when passengers are bumped from flights or have flights cancelled.

The Senate bowed to the will of the Trudeau government Tuesday by dropping their insistence on amendments to the bill.

It was passed by the House of Commons in November but the Senate last month sent it back to the elected chamber with 18 amendments.

The bill received royal assent Wednesday after the Liberal majority in the Commons voted Tuesday to reject additional amendments and sent the bill back to the Senate once again, where this time all but Conservative senators agreed to end the standoff.

“The Government of Canada understands the importance of an efficient and reliable rail system for moving Canadian grain and other commodities to market and we are going even further to ensure that producers and shippers of all commodities, from grain to forest products to minerals…have the tools they need to thrive,” Transportation Minister Marc Garneau said in a statement.

After a challenging winter that resulted in the replacement of CN’s chief executive, the country’s largest railway said it is seeing volumes strengthen in May and pricing for contract renewals to increase.

Meanwhile, CN Rail said Wednesday that its 1,800 locomotive engineers in Canada ratified a new five-year collective agreement.

The railway said the contract with the Teamsters Canada Rail Conference (TCRC) includes annual wage and benefit improvements in line with the industry. The company also says work rules that were of concern to CN and engineers have been modified.

The approval stands in contrast with the expected result of a contract offer by CP Rail. Train operators and signal workers represented by two unions are voting until Friday at noon on a company offer that union negotiators recommended be rejected.

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Companies in this story: (TSX:CNR, TSX:CP)

Ross Marowits, The Canadian Press