By Trevor D. Heaver

Good asset utilization is crucial to efficient transport services. Too little use causes high cost. Too much use causes congestion and the associated costs. Across transport, agreements are found that enable better outcomes for providers and their customers.

Alliances are common in liner shipping. Alliances are the corollary of the optimal-sized ship necessitating inter-firm operating agreements to avoid the rate wars or mergers and acquisitions that would eventually leave just a few lines standing. Alliances have also enabled lines to meet the needs of shippers for more extended services while dealing with fewer, not more, service providers. Space sharing agreements enable lines to extend their networks and to add to the number of competitors on routes, without adding capacity and causing rate wars.

Shipping pools exist in bulk shipping to enable individual owners to realize benefits of a larger fleet of vessels to serve shippers better without adding to their own and the industry’s capacity.

Sharing can also make sense when capacity is constrained and costs escalate as a result. Obvious examples in British Columbia are the various sharing agreements between CN and CP. The Directional Running Zone through the Fraser Canyon is the most visible of the agreements; a system advocated by others well before the railways agreed that it would be beneficial. Other agreements relate to operations within the Lower Mainland. Yet the railways still suffer constraints, especially during winter, affecting their capacity and the availability of railcars.

And now to the grain, moving from rail to shipping in Vancouver!

The evidence that all is not well in asset utilization in the port of Vancouver is evident in the number of ships at anchor in Burrard Inlet and southern BC. This has been going on for some years. The time that ships wait is wasted time, much of it to the cost of exporters. The cost of demurrage for grain ships alone was about $32 million during the crop year 2017-2018. The time that ships wait has environmental costs, as articulated by members of the Gulf Islands Trust. That ships wait is also evidence of the challenges for the railways and terminals in having the right quantity of the right commodity on hand for the arrival of ships, which have somewhat uncertain arrival times, but are planned in the content of sales contracts. The problem is by far the greatest in grain. Grain ships account for about 50 per cent of the ship-days of anchorage in relation to the port’s trade.

The logistics of grain is really complex and dynamic. The demise of the Wheat Board has enabled farmers, grain processors, grain trading companies and transporters, mainly the railways, to be more innovative and to increase efficiency. However, the dynamic behaviour adds to the challenges of keeping the various elements in sync. The railways have continued to advance train length but they may split customers car blocks to fill out train lengths, with consequences for service. The variability of rail service aggravates the challenge for the grain trading companies to manage their inventories effectively to meet vessel loading schedules. While they can increase loading rates within their existing footprint, their ability to increase their storage capacity is restricted by their footprint.

Speaking at the Canadian Transport Research Forum at the end of May, James Clements, Vice-President, Strategic Planning and Transportation Services, Canadian Pacific Railway, asked, in relation to the west coast and port logistics, “How do we optimize the use of the assets?”

The operations of the railways and the terminals interrelate in a complex network that should provide a flow of goods for loading the ships in a timely way. This happens for a well-integrated chain like that of potash under Canpotex. It does not happen in grain logistics, fragmented by grain and grade, and terminals carrying a range of these ‘stock keeping units’ (SKUs).

It seems that the logistic problems of the Wheat Board have been replaced with the challenges of fragmented commodity flows under capacity constraints on the railways and in the terminals. The complexity of commodity flows and of inventory management are both increased greatly by the number of terminal destinations and the number of SKUs. Given the magnitude of potential benefits some modelling / simulation exercises seem warranted to test the waters of alliances among terminals to optimize the use of their capacities.

Given sharing agreements in shipping and rail, alliances among grain terminals may be warranted. Like the rail directional running agreement, it may only be a matter of time!

Trevor Heaver chaired the transport and logistics program at the University of British Columbia for over 30 years until his retirement in 1998. His research has focused on rail and maritime economics and policy. He was the co-recipient of the 2015 Onassis Prize in Shipping.