14

Freight Transportation

Two chapters have already reported some freight transport activities: the chapter on Transportation Infrastructure and the one on Transportation and Trade. This chapter on Freight Transportation complements the Trade chapter. It approaches the question of freight transportation from a modal perspective.

A modal landscape of freight traffic gives a sense of the relative use made of the different modes. The overview of the most recent traffic information for each mode provides some commodity level details and, when possible, a regional breakdown. The information presented gives a sense of the inter-relationships between modes and markets, but falls short of developing an intermodal/ multimodal perspective. Changes in traffic level of a mode of transportation can come from either changes in traffic volumes, modal shifts or a mix of the two.

The coverage of modal freight activities is based on information available and is subject to the limitations imposed by data availability. Such limitations constrained the analysis. Yet it provides some of the background to understand the price, productivity and financial results findings presented in the last chapter of the report.

Rail Transportation

While rail freight traffic in 1998 did not reach the record levels of 1997, it was very strong compared with recent years. Decreased flows in key sectors, however, did lead to a drop in both tonnes and tonne-kilometres.

Aggregate traffic volumes decreased by about 3.6 per cent (compared with the over seven per cent increase in 1997). The forest product, coal, fertilizer materials and grain sectors accounted for over 50 per cent of total traffic (in tonnes) in 1998. Decreased traffic in each of these sectors, however, eclipsed increased flows in most other sectors.

For Canadian operations in 1997 compared with 1996, output increased by almost ten per cent for CN and by nearly seven per cent for CP Rail, with the Class I carriers' revenue tonne-kilometres reaching 161 and 118 billion, respectively. Class II output reached over 28 billion revenue tonne-kilometres, an increase of close to 11 per cent over the previous year.

For their systems in 1998, CN and CP Rail reported decreases in output, with revenue tonne-kilometres down 5.8 per cent to 113 billion, and 3.5 per cent to 102 billion, respectively. Estimated output for Canadian operations in 1998 was also down (based on three quarters of data on Canadian operations and four-quarters of system data): 148 billion tonne-kilometres for CN and 115 billion for CP Rail.

In 1998, Class II railways' estimated share of revenue tonne-kilometres was relatively small at less than nine per cent. Even so, Class II carriers carried approximately 30 per cent of freight by tonnage and accounted for about 25 per cent of track operated. Over 50 per cent of Class II traffic is iron ore carried by two railways: Quebec, North Shore & Labrador Railway (QNSL) and Cartier Railway.

Figure 14-1 shows output in revenue tonne-kilometres for the two Class I carriers and the Class II industry from 1986 to 1998. The major contributor to year-to-year fluctuations in revenue tonne-kilometres has been domestic traffic, while to a large degree, the basis for the generally increasing trend has been trade with the US.

Rail Traffic - Trade with the US

In 1997, northbound and southbound traffic together reached 67.6 million tonnes, a 14 per cent increase over the previous year. US imports and exports accounted for over a quarter of the tonnage moved over the Canadian railway system.

Exports

Southbound tonnage (mostly transported by Class I carriers) reached 52 million tonnes in 1997, a 12.8 per cent increase over 1996. Of this volume, 44.6 per cent originated from the Prairie provinces, and over 20 per cent in each of Ontario and Quebec. British Columbia was the source of a further eight per cent and 3.4 per cent originated from the Atlantic region. In fact, the Prairies have contributed the most to the increase in exports, with each province approximately doubling tonnage shipped to the US from 1987 to 1997.

Most growth in rail exports took place in the recent past, with average annual growth 4.3 per cent from 1987 to 1992, and 6.9 per cent from 1992 to 1997.

Table 14-1 shows 1997 export tonnage by province, and average annual growth of exports to the US from 1987 to 1992 and 1992 to 1997.

Forest products accounted for over 14.5 million tonnes (almost a third of the tonnage) shipped to the US in 1997. Shipments from British Columbia and Quebec accounted for about half of these exports, and Ontario and Alberta accounted for about a further 35 per cent. Fertilizer materials were the next most prominent exports (10.8 million tonnes), followed by grains (3.2 million tonnes), intermodal traffic (2.5 million tonnes) and road motor vehicles and liquid petroleum gas (about 1.5 million tonnes each).

According to trade data, the value of rail exports totalled $50.5 billion in 1996. For most of these commodity sectors, there is a disparity between the value of exports and total tonnage. For example, automotive products accounted for 48 per cent of exports by value, but only four per cent of tonnage.

Figure 14-2 compares tonnage and value for exports to the US for ten commodity sectors in 1996.

Imports

Northbound rail tonnage reached 15.6 million tonnes in 1997, up 18 per cent from 1996. Ontario accounted for 40 per cent of this total, Quebec 30 per cent, Prairies provinces over 19 per cent, with the remainder split between British Columbia and the Atlantic provinces. Since 1986, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan, Alberta and the Northwest Territories have each more than doubled their imports from the US. As with exports, most growth in imports has taken place in recent years: the average annual growth in imports was 3.6 per cent from 1987 to 1992 and 10.1 per cent in the next five years.

Table 14-2 shows 1997 import tonnage by province, and average annual growth of exports from 1987 to 1992 and 1992 to 1997.

In 1997, intermodal traffic accounted for 2.2 million tonnes of imports from the US. Plastics and motor vehicle engines and parts were the next most important imports, with 0.9 million tonnes of each entering from the US.

As with exports, there is a large disparity between the value of imports and total tonnage for the ten commodity sectors. The pattern is similar to that of exports, except in the metals/metal products and finished/semi-finished categories.

Figure 14-3 compares import tonnage and value for ten commodity sectors in 1996.

In 1996, average value per tonne was greater for exports than for imports in five sectors: mine products, metals/metal products, forest products, automotive products and finished/semi-finished products. In aggregate, however, average value was 14 per cent higher for imports than for exports.

Table 14-3 shows value per tonne for ten commodity sectors in 1996.

Traffic Sectors

The majority of railway traffic transported in 1998 can be categorized into seven major commodity sectors: grain, forest products, coal, ores and mine products, fertilizers and fertilizer materials, industrial products, and intermodal traffic. Traffic in six of these sectors - the exception being industrial products - was down from 1997 levels, likely because of effects associated with the economic downturn in Asia. In industrial products, despite a drop in the automotive sector, overall traffic was buoyed up by increased traffic in petroleum products, metals and chemicals.

Railway and Grain System Restructuring

Changes in traffic levels brought about by closure of manufacturing or processing facilities, by competition from trucking by reduced commodity demand and by fundamental reorientation of logistics systems are the principal factors influencing the economics of rail lines. Railway restructuring, like the structural changes that have been occurring in many other sectors of the economy is nothing new - only the character changes. In western Canada, for example, the number of grain elevators and the aggregate capacity of the grain elevation system has been declining since the 1970 peak of almost 5,000 elevators located at 2,000 delivery points. In 1984 the elevator population was about 2,000 and declined by a further 42% to about 1,150 in 1997 at about 800 delivery points. During the 1984-1997 period, the grain dependent prairie rail network shrank by about 32% with a noticeable drop occurring in mid-1996 reflecting the discontinuance of light steel (low volume) lines following the passage of the Canada Transportation Act. Interestingly, grain elevator capacity, although declining by about 18% in this period, has actually stabilized in the past several years. This phenomenon reflects the closure of low capacity elevators at many locations throughout the prairies and massive strategic investments by the grain industry in high throughput facilities at a smaller number of key locations. In fact, grain elevator closures or reductions in capacity are continuing to occur in areas which are served by rail lines with relatively low traffic volumes - lines whose economic future is questionable. Conversely, investment by grain companies in new high throughput facilities is occurring principally on high traffic volume rail lines. Essentially the same trends, then, are occurring in both the grain and rail industries (and in other sectors for that matter). Portions of both systems representing low throughput and marginal economics are being rationalized in favour of concentrating activity at a smaller number of higher volume, low unit cost facilities.

Total traffic started out with a strong first quarter, reaching volumes six per cent higher than in 1997. It then varied between 1996 and 1997 levels in the second and third quarters. By the end of the year, total traffic reached 257 million tonnes, 96 per cent of 1997's record levels, but 104 per cent of 1996 levels.

Figure 14-5 compares total monthly traffic for 1998 with that for 1997 and 1996.

The following sections briefly describe monthly rail traffic for each of the seven major sectors.

Grain

Most grain moves from the Prairies to British Columbia to be exported. Large volumes also move to the US and to the Port of Thunder Bay to be exported via the St. Lawrence Seaway.

After a bumper crop and increased loadings in 1997, grain shipments in 1998 fell closer to 1996 levels. Total annual tonnage reached only 28 million tonnes, 21 per cent less than 1997 levels, and seven per cent lower than 1996 levels. Although traffic over the first four months exceeded 1997 levels by three per cent, monthly loadings from May to August were each more than a million tonnes below corresponding 1997 levels. This drop occurred because production was not as exceptional as in 1997, and grain markets were slightly softer. Although traffic recovered in September, loadings in the last quarter were well below even 1996 levels.

While grain did account for 11 per cent of total tonnage moved in 1998, the drop in total grain shipments was the largest contributor to the drop in overall traffic.

Figure 14-6 shows monthly grain loadings since 1996.

Forest Products

In aggregate, forest products accounted for 39 million tonnes for 15 per cent of total traffic. The gains made in the processed forest products sector were offset by the traffic decrease in unprocessed forest products, resulting in total traffic almost seven per cent lower than in 1997.

Most traffic of unprocessed forest products - logs, pulpwood and pulpwood chips, woodpulp - is intraprovincial: within Quebec, within Ontario and within British Columbia. One-quarter of the traffic by tonnage is exports to the US.

Traffic of unprocessed forest products totalled 20 million tonnes in 1998, only 82 per cent of 1997 levels. While first quarter traffic increased by almost three per cent, second, third and fourth quarter shipments were 1, 11 and 16 per cent below levels in the same quarter of 1997. (See Figure 14-6.) Over 60 per cent of this drop was in shipments of pulpwood chips in Eastern Canada. This may reflect a five-month strike at Abitibi-Consolidated between June and November. Traffic in the last quarter did not recover.

Traffic of processed forest products - lumber, plywood, paper, newsprint and packaging - is dominated by exports from Ontario, Quebec and British Columbia to the US (about 60 per cent of traffic). US-bound shipments from other provinces and bridged traffic (originating in and destined for the US) account for much of the remaining flows. Domestic traffic is dominated by flows within and between Ontario and Quebec, and flows within British Columbia.

Annual traffic of processed forest products exceeded levels of the previous four years, reaching 19 million tonnes in 1998, eight per cent higher than in 1997. Monthly loadings fluctuated generally above 1997 levels, and net figures for each quarter were higher in 1998. Softness in the Asian market and lower exports to Japan, particularly of softwood lumber, did not appear to affect rail shipments.

Figure 14-7 shows aggregate (processed and unprocessed) traffic for 1996 to 1998.

Ores and Mine Products

This sector is comprised of copper, lead, zinc, aluminum, iron and other ores, and by sand, gravel and crushed stone, crude gypsum and asbestos, salt, cement and other mine products. As a whole, the sector's performance was similar to that of 1997. Aggregate traffic was down by less than one per cent, mostly because iron ore flows in the last quarter were down 18 per cent compared to 1997. Ores and mine products were the largest contributors to total traffic, accounting for 23.5 per cent of annual tonnage in 1998.

Iron ore dominates this sector, accounting for 39 million tonnes in 1998, or about 65 per cent of tonnage in this sector. Virtually all of this traffic flows from mines in northern Quebec and Labrador to ports on the St. Lawrence via Quebec, Northshore & Labrador Railway and Cartier Railway. Shipments of iron ore in 1998 were 0.6 per cent lower than in 1997.

The other ores and mine products make up the remaining 21.4 million tonnes in this sector. Flows in 1998 were down by just over one per cent from 1997 levels.

Fertilizers and Fertilizer Materials

In aggregate, transport of fertilizers and fertilizer materials was down by over three per cent in 1998. Whereas in the two previous years, June tonnage dropped by 30 to 37 per cent from April, the decline in June 1998 was only 14 per cent. This reflected more moderate flows throughout the entire year.

Potash, produced mostly in Saskatchewan, accounts for over 50 per cent of the traffic in this sector. Operation of the new potash terminal at the Port of Portland, Oregon, did not appear to affect 1997 rail tonnage moved to Vancouver for export - marine exports totalled 4.3 million tonnes, up from 3.6 million tonnes in 1996. However, in 1998, the
Port of Vancouver reported a 20 per cent drop in potash traffic, although rail tonnage dropped only two per cent to 13.9 million tonnes in that year.

In recent years, approximately 70 per cent of sulphur traffic has been from Alberta to British Columbia, with about three quarters of this destined to ports for export. Most of the remaining tonnage flows to the US, again from Alberta, but also in smaller quantities from New Brunswick, Ontario, Quebec, Saskatchewan and British Columbia. With 1998 prices lower than the cost to market their products, producers likely chose to build inventory. As a result, sulphur traffic dropped to 6.9 million tonnes in 1998, a decrease of six per cent.

In 1998, 6.1 million tonnes of phosphate rock and other fertilizer materials were also transported in Canada, down by 2.7 per cent from 1997.

Coal

Coal and coke traffic was strong in the first quarter of 1998, with flows 14.2 per cent higher than in the same quarter of 1997. Traffic dropped in the second and third quarters, however, and finished the year at 39.1 million tonnes, seven per cent below 1997 levels. Most coal flows from western Canada to the ports of Vancouver and Prince Rupert. As about a third of this is usually exported to Japan, much of the drop in shipments in 1998 can be attributed to sagging Japanese steel production.

Coal has been accounting for a slightly decreasing proportion of total rail traffic in recent years: 16.3 per cent of the total in 1996, 15.8 per cent in 1997 and 15.5 per cent in 1998. However this sector is still second in importance to ores and mine products in terms of tonnage transported.

Industrial Products

Industrial products include automobiles and parts, refined petroleum products, chemicals and metals. In aggregate, this sector accounted for 14 per cent of total traffic in 1998, up from 11.8 per cent in 1997.

Generally, about one half of automotive traffic flows from Ontario to the US, and about one quarter consists of flows from the US to Ontario and Quebec. Much of the rest moves from Ontario to other provinces and from Quebec to the US.

Total automotive traffic reached 3.7 million tonnes, down from 4.1 million tonnes in 1997. Automotive traffic accounted for 10 per cent of industrial traffic in 1998.

Automotive traffic started relatively strong in 1998. However, GM strikes at two plants in Flint, Michigan, in June and July affected CN automotive traffic and revenue. Total automotive traffic hit a low of 64 per cent of 1997 monthly tonnage in July. CN's second-quarter revenue was down 16 per cent from 1997, while third-quarter revenues were even lower, 31 per cent lower than 1997 levels. In the fourth quarter, traffic recovered, exceeding 1997 levels by over seven per cent.

Figure 14-8 shows trends in monthly automotive traffic from 1996 to 1998.

Alberta is the major origin of chemical traffic, followed by Ontario, Quebec, and Manitoba. Alberta shipments are destined for British Columbia and Ontario, while Quebec and Ontario shipments remain in the region. About 15 per cent of traffic originates in the US, most of which goes to Ontario and Quebec. The US, however, is the predominant destination for chemical traffic, receiving over one-third of total tonnage, mostly from Alberta, Ontario and Quebec.

Chemical traffic is the largest contributor to the industrial traffic sector, accounting for 41 per cent in 1998. Monthly traffic was consistently high and fairly moderate throughout the year. The annual tonnage reached 14.8 million tonnes, 8.6 per cent higher than in 1997.

Approximately one third of petroleum product traffic flows from the six central and western provinces to locations in the US. Other flows of significance are within and between Ontario and Quebec, and from Alberta to Ontario and British Columbia.

Petroleum products accounted for 24 per cent of industrial tonnage in 1998. The 1998 annual tonnage was 8.6 million tonnes, up from 5.2 million tonnes in 1997. Tonnage over the first five months was nine per cent higher than in 1997. In June, increased flows of liquid petroleum gas and miscellaneous refined petroleum products caused petroleum traffic to jump by over 100 per cent to 813,000 tonnes. Traffic remained at these high levels for the rest of the year.

The metals sector includes primary and manufactured metals, scrap and waste metals, and machinery and parts. One third of metals traffic is within and between Ontario and Quebec. Another third moves to the US from Quebec, Ontario, Saskatchewan,
British Columbia and Manitoba. Rail imports from the US to Alberta, Ontario and Quebec make up another ten per cent.

In 1998, metals accounted for 24.8 per cent of industrial traffic. Even though traffic in the last three quarters dropped closer to 1997 levels, a strong first quarter - 18 per cent higher than in 1997 - boosted the annual tonnage to 8.9 million tonnes, a 3.6 per cent increase overall.

Intermodal

For intermodal traffic, origin and destination statistics are similar in terms of both volumes and geography. Quebec and Ontario generate and receive about half of intermodal traffic. Nova Scotia (port traffic), Alberta and British Columbia collectively account for about one third. Intermodal imports from and exports to the US comprise the other major flow.

Intermodal traffic throughout 1998 generally followed the same trend as in 1997, but at slightly lower levels of tonnage. This sector accounted for 6.8 per cent of total traffic, almost the same proportion as recorded for 1997.

CP reported higher intermodal revenue for 1998, whereas CN suggested that labour negotiations might have reduced its intermodal revenue for the year.

Trailer-on-flat car (TOFC) tonnage continued to decrease, following the trend of recent years. The total annual tonnage was 1.4 million tonnes, 27.9 per cent lower than in 1997. The dramatic growth of container-on-flat-car (COFC) tonnage since the early 1990s was arrested in 1998, with annual tonnage at 16.2 million tonnes, just 2.8 per cent higher than the year before.

Freight Transportation

Rail Transportation

Trucking Transportation

Maritime Transportation

Air Transportation