Keeping lumber on track

The rail system is an essential link in the supply chain for Canadian lumber producers, and industry associations are stressing that the system needs to be maintained and reviewed to get the best service—especially as the industry seeks to develop overseas markets, and get lumber to ports.

By S. J Trotton

As one of Canada’s heaviest users of the country’s transportation links, operating in hundreds of rural and northern communities, the $67 billion a year forest products industry is inextricably linked to the country’s railways. Reports in recent years show the forest industry is the third most important user of rail service in Canada, transporting more than 55 million tonnes of product per year, and accounts for 12 per cent of Canada’s manufacturing Gross Domestic Product (GDP).

Looking at where the country’s forest operations are located—and how many of those products are exported—clearly shows why the dependency on access to efficient transportation routes and carriers is so apparent. Firstly, forest mills are typically located in rural and remote communities that rely on access to dependable transport. Secondly, reports show the sector’s national export market accounts for approximately $30 billion in manufactured goods that get distributed to more than 180 countries, and that does not account for the push to expand and diversify the sector’s overseas market potential. As well, Canada’s rail system is frequently the only transportation choice for the industry as trucking is often not a viable alternative due to the volumes of loads, distances and nature of the products the industry is shipping.

The forest industry is further challenged by the fact few competitive forces within the rail sector exist and railways tend to capitalize on this, using differential pricing and transfer costs when working with industries that may have less negotiating power than others.

As a result, and for several years, industry associations have banded together to ensure the country’s transportation system is maintained and reviewed so that challenges can be addressed. They have been particularly vocal about the rail system when it doesn’t always have the shipping capacity the industry needs, which often results in goods not getting to their intended markets and sales being dramatically impacted as a consequence.

The Forest Products Association of Canada (FPAC) has led the charge when it comes to ensuring the federal government recognizes the importance of keeping the country’s transportation system running smoothly. In the spring of this year, the association was particularly enthusiastic about new federal rail legislation that had been put forward. Transport Minister Marc Garneau tabled legislation that puts emphasis on new data reporting requirements for railways on rates, service and performance and timely remedies for shippers on service and rates in support of fair negotiations. In addition, the legislation incorporates long haul inter-switching which is a new mechanism for providing captive shippers across all sectors and Canadian regions with access to a more competitive railway system.

“Our sector’s relationship with our supply chain partners in rail, marine and trucking are very important to us,” said FPAC CEO Derek Nighbor, following the legislation announcement. “Transportation costs represent one third of total costs for the average forest products company. When we presented our industry’s recommendations, we emphasized the need for more reliable service and competitive rates in rail, marine and trucking. Most of our mills are in rural and northern communities and have few options on how to get products to market.”

Other forestry associations are echoing their support of FPAC’s position.

Alberta Forest Products Association President and CEO Paul Whittaker describes Canada’s transportation system as a “critical component” of the industry’s global competitiveness position, and estimates 30 to 35 per cent of the industry’s total production costs are connected to the industry’s reliance on transportation.

“We could be the world’s most environmentally responsible industry in the world. But at the end of the day, if we can’t get our products to market, we can’t function,” says Whittaker.

Over the coming months, he explains improvements to Canada’s transportation system should be grouped into three priorities.

The first of those priorities, he explains, would be maintaining ongoing investment into the system. The commitment to strengthening Canada’s transportation infrastructure from the federal government as of late was promising, adds Whittaker.

“It has been somewhat better in the past few years in terms of getting rail cars but at the end of the day, our portage structure and road network depend heavily on the timeliness and cost-effectiveness of delivery.”

Next, says Whittaker, would be the federal government ensuring they provide appropriate oversight on issues that may be regulatory or physical in nature.

Finally, he adds, the federal government, with support from all of the provinces, needs to ensure they are responsive to any transportation issues that arise and are “ready to address all users equally.”

“In the past, government response has been sometimes exclusive to things like agriculture,” he adds.

In Ontario, Ministry of Transportation spokesperson Bob Nichols says the provincial government “understands the critical role that transportation plays with our forest industry and the challenges that can sometimes be faced in transporting wood products to market.”

He elaborates further to say he hears from the industry about its struggle with establishing new supply chain logistic systems when venturing into new markets. Nichols adds his ministry also hears about the industry’s need for more storage facilities to be established near major ports to facilitate the anticipation of volumes more efficiently, as well as more rail cars and services to get the products to market.

Susan Yurkovich, President and CEO of B.C.’s Council of Forest Industries, notes that the B.C. forest industry has long been the cornerstone of the provincial economy and one of the largest employers in province, with about 145,000 jobs depending on the industry.  “Transportation routes are the lifeline that connect our high-quality forest products to our customers here in North America and abroad,” said Yurkovich.

The associations’ explanations of how government and industry need to work together for further system improvements are aligned with the 2016 final report on the review of Canada’s Transportation Act. Submitted to the current Minister of Transport for review and recommendations, the report defines Canada’s international trade performance as having an “inseparable relationship” with the nation’s transportation and logistics systems. “As a small geographically dispersed trading economy, access to a globally competitive transportation system is vital to the prosperity of the country, the competitiveness of industry, the sustainability of communities and the ease with which Canadians can travel,” the report outlines.

Many of the recommendations outlined in the report are aimed at less legislative restrictions and regulatory frameworks in general. The report states: “Governments must also adapt policy and regulatory approaches to secure the competitive position of the country.”

Among those report recommendations is the Government of Canada taking action to increase the competitiveness of Canadian shipping and competition by “phasing out operating restrictions” and beginning that process with container services.

In the second half of the transportation act review, numerous recommendations for improvements to Canada’s railway system are outlined. Among them is the identification that weaknesses in the rail transportation system have less to do with railway service delivery problems and more to do with supply chain weaknesses, congestion due to high demand for rail services and a lack of railway infrastructure. Another recommendation in the report is the elimination of special rail freight concessions “for certain agricultural products that puts a cap on rail company revenue in that sector.”

The federal government has started to take action, though it is on transportation on a broad front, rather than being focused on rail. This past July, Minister of Transport Marc Garneau announced $2.1 billion for the Trade and Transportation Corridors Initiative (TTCI) to build stronger, more efficient transportation corridors to international markets. The core element of the TTCI is the merit-based National Trade Corridors Fund (NTCF), which will provide $2 billion over 11 years to strengthen Canada’s trade infrastructure, including ports, waterways, airports, roads, bridges, border crossings, rail networks and the interconnectivity between them.

“Investments through the Trade and Transportation Corridors Initiative will make a big difference for Canadian businesses,” said Garneau.” It will allow them to get better access to international markets by addressing critical bottlenecks and ensuring that Canada’s transportation networks remain cost competitive and efficient.”