The Western Canadian GHTS 2013-14 Update

March 2014

Overview2

GHTS Background GHTS Background The Playing Field Performance Historyy

GHTS This Year Production Performance Challenges

Oth I Other Issues Revenue Cap

Who is Quorum?

Transportation and Logistics consulting firm with a focus on p g gNorth American surface modes – rail, truck, container, bulk commodity and grain Established 1999 Established 1999 Have developed a specialization in transportation data management

with a strong IT back shop Three Subs Quorum Corp QGI and QTMS Three Subs – Quorum Corp, QGI and QTMS

Grain Monitor for the Federal Gov’t since 2001 QGI Consulting selected to provide services in theQGI Consulting selected to provide services in the

preparation of stats and information for the Rail Freight Service Review

Grain Monitoring Program

Activity and Performance Measuresy Industry volumes, activity and performance metrics Farm gate to ocean vessel departure Sets the industry benchmark Used by broad cross section of the industries stakeholders

Comprehensive ongoing assessment and Comprehensive, ongoing assessment and analysis of the measures and industry events

The Grain Monitor strives to retain a neutral andThe Grain Monitor strives to retain a neutral and balanced position on issues … but we call it like we see it

The Canadian “Playing Field”5

•Exports 27-31 MMT/ annually•Worth $21 Billion Annually

•Carry Canadian grain to over 1 000 destinations•Carry Canadian grain to over 1,000 destinations

3/12/2014

The Canadian “Playing Field”

15 port

392Primary & process

2 MajorRailways

with

bulk terminals at 4 Ports

1,500+Ocean Vessels

30,000Producers

process facilities

17,000 miles of

track

88 Container terminals

3/12/2014

Licensed Elevators – August 1999

1,004 elevators in 685 communities

Licensed Elevators – 2014

392 elevators in 271 communities

Country Network - Ownership Changes9

3/12/2014

GHTS Rail Network: 1980

CNCPRegional/ Shortlines

GHTS Rail Network: 2014

CNCPRegional/ Shortlines

Production – 1980 -2013 (Tonnes)

80,000.0

50 000 0

60,000.0

70,000.0

30,000.0

40,000.0

50,000.0

10,000.0

20,000.0

30,000.0

-

Cereals Canola Special Crops Other Total Linear (Total)Cereals Canola Special Crops Other Total Linear (Total)

West Coast Volumes

25,000.0

Last four years averaged 21.3 MMT – up 58% from the average 12 15 000 0

20,000.0

from the average 12 years ago and about 30% the 25 year average 10,000.0

15,000.0

Is this the new normal?-

5,000.0

How much can it grow?VANCOUVER PRINCE RUPERT Total West Coast

Changing Markets14

Africa Oceania0 5% 1990

Eastern E

Africa8%

Oceania< 0 1% 2010

Eastern Europe

19%

7% < 0.5% 1990

Western Europe

10%

Europe< 0.1%

8% < 0.1% 2010

Asia52%

Western Europe

%Asia47%

10%

Western Hemisphere

Europe6% Western

Hemisphere35%

Hemisphere16%

Last 20 years has seen the decline of trade with Europe andgrowth of Western Hemisphere

Increased focus on West Coast ports

West Coast Drivers

Changing Global Demand: Depleted global g g p greserves, rising standard of living in Asia Pacific markets and fluctuating production levels in competitor countries

Logistical Economics: Spreads on ocean and rail freight are significant drivers on the routing choice for sellers of Canadian grain making West Coastfor sellers of Canadian grain, making West Coast routing a preference.

GHTS Performance

2013 Production

June

• Concerns

July

• Good

August

• Ripening

September

• ContinuedConcerns about late seeding/ slow development/ l t h t

Good Moisture

• Relatively ild

Ripening delayed, grains continue to fill

Continued good harvest conditions

R itilate harvest

• Expectation of an

mild temperature

• Prolonged

• Expectations of a bumper crop

• Recognition of a record level crop

of an average Crop

Prolonged reproductive stage for most crops

crop

• No early frost

Record Breaking Crop and Capacity Planning

Stats Canada September Estimate = 65 million ptonnes in Western Canada

Railways and Shippers meet to discuss capacity –railways plan for 5,000 – 5,500 cars/ week per railwaySt t C d N b fi l ti t 75 9 MMT Stats Canada November final estimate = 75.9 MMT in Western Canada

Where are we now?

2013 5 Yr Var %Average

Production 75.9 55.4 +37%Carry In 4.9 8.1 -39.5%yTotal Supply 80.8 MMT 63.5 MMT +27.2%

Total Supply (2013-14) 80.8 Domestic use/ US movement (5 Yr Avg) 29.3Shipments to port (5 Yr Avg) 26 1Shipments to port (5 Yr Avg) 26.1Total Marketings (5 Yr Avg) 54.4Expected Carry out in 2014 (without additional marketings) 25.4 MMTadditional marketings)

GMP Dashboard

2010 11 2011 12 2012 13Year/YearChange2010-11 2011-12 2012-13 Change

Total Time in System: 52.3 47.1 46.2 -1.9%Loaded Transit Time: 6.0 5.6 5.4 -3.7%

Time In Store – Country: 30.8 27.6 26.5 -4.0%Time in Store – Terminal: 15.5 13.9 14.3 +2.9%

Vessel Time in Port: 9 9 6 6 9 7 47 0%Vessel Time in Port: 9.9 6.6 9.7 +47.0%Elevator Turnover Ratio:

Country: 5.7 6.0 5.8 -3.3%Terminal: 9.9 11.1 11.1 -

Total Car Cycle: 14.3 13.9 14.0 +0.9%

Time in the System

100.0

60 0

70.0

80.0

90.0

30 0

40.0

50.0

60.0

-

10.0

20.0

30.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Country Elevator Storage Time (days) Railway Loaded Transit Time (days) Terminal Elevator Storage Time (days) Total (days) Linear (Total (days))

Railway Loaded Transit

0.500 10.0

0.400

0.450

8.0

9.0

0 300

0.350

6 0

7.0

0.250

0.300

5.0

6.0

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1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Loaded Transit Time (days) Coefficient of Variation Linear (Loaded Transit Time (days)) Linear (Coefficient of Variation)

The Current Issues

Average Weekly Stocks in Store (Feb 23-14)

Country Stocks4 000

1 0001,5002,0002,5003,0003,5004,000

Tonn

es (0

00)

2012-13

2013-14

T i l St k

0500

1,000

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21/22 23 24 25 26 27 28 29Grain Week

5 Yr Avg

Terminal Stocks

800 01,000.01,200.01,400.01,600.0

s (0

00)

0.0200.0400.0600.0800.0

Tonn

es 2012-13

2013-14

5 Yr Avg

Grain Week

Total Unloads – YTD Week 29(Cars)

Vancouver Prince R t

West C t

Thunder B Churchill TotalRupert Coast Bay

5 Yr Avg 97,988 28,800 126,788 35,188 5,574 167,550

2012-13 103 232 31 390 134 622 42 906 4 906 182,4342012 13 103,232 31,390 134,622 42,906 4,906 182,434

2013-14 100,185 30,601 130,786 34,541 6,156 171,483 Var % to 5 Yr

2% 6% 3% -2% 10% 2%Avg

2% 6% 3% 2% 10% 2%

Var % to Last Year

-3% -3% -3% -19% 25% -6%

Vessel Lineups (to week 30)

•Vessel lineups have 35

40pgrown rapidly since new crop availability.

•Reports from terminals Vanc

ouve

r

10

15

20

25

30

35

Waiting

Berthed/Loading

at Vancouver would indicate that rail pipeline coordination f d t t l i

0

5

10

52/5

3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Grain Week

Rup

ert

of product to vessel is sub-optimal creating problems in terminal operations and 8

1012141618

Prin

ce operations and

extending loading times and increasing vessel wait times.

02468

52/5

3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Grain Week

Waiting

Berthed/Loading

vessel wait times.

Railway Allocation vs. Unloads

7,000

•A critical issue is the numbers of

5,000

6,000 cars allocated by the railways (committed to the grain companies for country spotting) as compared to the numbers of

3,000

4,000 as compared to the numbers of cars unloaded at port

•YTD in 2013-14 CY actual cars

1,000

2,000

•YTD in 2013-14 CY, actual cars unloaded in the Vancouver corridor for both railways is 23% lower than the cars allocated and

-

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 3 6 9 12 15 1821

/22 25 28 31 34 37 40 43 46 49 52

2012-13 2013-14

Var Alloc Van U/L Pr RAlloc Pr R U/L

lower than the cars allocated and 8% lower in the Prince Rupert corridor

Var Alloc Van U/L Pr RAlloc Pr R U/L

Weekly Port Unloads - 10 year average

9000

•Over the last 10 years we

7000

8000 continue to see a decrease in the numbers of cars unloaded through the winter months.

5000

6000

Prince Rupert

Vancouver

Churchill

•The movement leading through the period before the Christmas break consistently slows and

2000

3000

4000Churchill

Thunder Baybreak consistently slows and does not recover until well into the latter parts of spring.

0

1000

2000

•Demand does not normally follow this same pattern and normally stays strong through to

1 3 5 7 9 111315171921232527293133353739414345474951 the late spring.

Weekly Port Unloads - 5 Yr Average

9000

•When viewed from a 5 year

7000

8000 average in comparison to the 10 year view, an increase in overall capacity offerings from the railways becomes apparent

5000

6000

Prince Rupert

Vancouver

Churchill

railways becomes apparent

•The seasonal cycle and impact of winter operations continues to

2000

3000

4000Churchill

Thunder Bayof winter operations continues to reveal itself and in fact becomes worse when viewed in the shorter time period

0

1000

2000 shorter time period

1 3 5 7 9 111315171921232527293133353739414345474951

Weekly Port Unloads - 3 yr Average

9000

•As in the five year scenario, the

7000

8000 increased capacity offering by the railway continues to grow.

As noted in the five year

5000

6000

Prince Rupert

Vancouver

Churchill

•As noted in the five year scenario, the winter operating impact worsens in the more recent years

2000

3000

4000Churchill

Thunder Bayrecent years

0

1000

2000

1 3 5 7 9 111315171921232527293133353739414345474951

Railway Competitiveness

• 4 facilities are dual served14 capable of interswitching• 14 capable of interswitching

• These 18 facilities represents 9.6% of total system capacity

• 3 of 4 dual served facilities are unit train capable

• 8 of 14 interswitching facilities are unit train capablecapab e

Dual Served InterswitchingSole Served

CN-CP Market Share Shifts

25.0%100%

•Market share between the two

10.0%

15.0%

20.0%

70%

80%

90% railways averages out at 50-50 over the past 13 years

Shifts in market share are

-5 0%

0.0%

5.0%

40%

50%

60%•Shifts in market share are caused by geographic/ regional impacts of production as impacted by draught flooding or

-15.0%

-10.0%

5.0%

20%

30%

40% impacted by draught, flooding or other climatic effects on crop yield

-25.0%

-20.0%

0%

10%

CN CP Annual Change

What does it all Mean?

F• Falling Prices• Widening BasisFor

Producers• Widening Basis• Lack of Delivery opportunities• Cash flow crunch• Bins full• Bins full

For G i

• Widening Basis• Vessel Demurrage• Contract Extension costsGrain

Companies

Contract Extension costs• Lost opportunity for add. Volumes• Pressure to revisit shipper protection

legislationg

For Railways

• Guaranteed volumes 18 months out• Enhanced revenues• Focus attention on Revenue Entitlement (Cap)Railways• Long term capacity question/ strategic choices

Other Issues

What is The Revenue Cap or “Entitlement”

The term “Revenue Cap” is a misnomer as it does NOT l b l t “ ” ilNOT a place an absolute “cap” on railway revenues.

What it does do is: Provide a statutory limit on the amount of revenue a …Provide a statutory limit on the amount of revenue a

prescribed railway can earn from the movement of regulated grain in western Canada.

…Provide an effective dynamic control mechanism limiting the y gamount of revenue per tonne that a railway company may derive from the movement of regulated grain

… It does not penalize the railways for:… It does not penalize the railways for: Handling more grain; length of haul Inflationary effects

Rail Freight Rates since 1980

•Four rail freight rate regimes have been used over the last 30have been used over the last 30 years:

•The Crow rate•The Western Grain Transportation Act/ Agency

•The Maximum rate scale•The Maximum Revenue Entitlement - MRE (Rev Cap)

O th i d f 1980 h•Over the period from 1980, when the Crow Rate was still in effect, to 2013, the rail freight has increased from $5/ tonne to overincreased from $5/ tonne to over $47.

Single Car Rates – Quarterly Trends with the MRE

55.00 • In the early years of the MRE,

45.00

50.00 the railways moved rates in a manner that was consistent with one another, with only minor differential pricing being

35.00

40.00

differential pricing being undertaken

• In the 2007-2008 CY the

25 00

30.00

• In the 2007-2008 CY, the railways began pricing differentially based on seasonal, commodity and corridor factors.25.00

AU

G 1 Q1

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1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

Vancouver CN Vancouver CP Prince Rupert CN

commodity and corridor factors.

Prince Rupert CP Thunder Bay CN Thunder Bay CP

Single Car Rates – Last 5 Years

50 00

55.00

VRCPI 8 0% 7 4% 7 0% 3 5% 9 7%

35.00

40.00

45.00

50.00 VRCPI = +8.0% -7.4% +7.0% +3.5% +9.7%

Allowable

25.00

30.00

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Rate/ Tonne = $30.94 $28.93 $30.58 $31.35 $34.18

Vancouver CN Vancouver CP Prince Rupert CN Prince Rupert CP Thunder Bay CN Thunder Bay CP

•VRCPI = the Volume related composite price index, as set by the Canadian Transportation Agency annually is the maximum allowableCanadian Transportation Agency annually, is the maximum allowable annual rate increase that the railways can apply without penalty

•The Allowable rate per tonne is the total average annual rate charged by the railwaysthe railways

Going Forward?

Impacts of record western Canadian cropp p Challenges continue into next crop year due to huge

carry over stock Enhancements to the GMP announced Feb. 3rd: Railway order fulfillment data Fleet size Port terminal unload performance Greater granularity - weekly data Greater granularity weekly data Reported monthly

Thank You