Thank you very much for the invitation to be here today to speak about the grain backlog. My name is Mark Dyck. I am the senior director of logistics for G3 Canada Limited.

G3 Canada Limited was formed through the combination of the former CWB and Bunge Canada's grain assets, funded by two strategic shareholders, Bunge and SALIC, with the long-term vision of establishing a state-of-the-art grain handling company in Canada and a new competitor for Canadian grain farmers.

The G3 transportation model was developed well in advance of the formation of G3 in 2015. G3's strategy was formed on the heels of the bumper crop in 2013-14, when the Canadian grain handling system's fundamental weaknesses were highlighted through shipping and rail backlogs. The government of the time intervened with Bill C-30 to further regulate the Canadian grain handling system with minimum volume requirements to address the short-term issue.

There were some unintended consequences. Service levels did increase; however, they may have at any rate, as that coincided with warmer weather and the reopening of the port of Thunder Bay. We believe the regulation never solved the fundamental problems in the industry.

Western Canada is blessed with an abundance of natural resources. The markets for those resources rely largely on Pacific export corridors, and grain must compete with other commodities for a scarce resource: rail capacity. G3 is making investments to address some of these issues to ensure grain handling remains competitive with other industries in Canada.

We believe the fundamental issues are as follows.

Insufficient improvements have been made in the grain industry to invest in efficiency improvements. The last major port terminal construction was in the early 1980s. Much of the port terminal infrastructure dates to the mid-1950s or earlier, when the industry was still moving grain in boxcars. They have been upgraded since, but not to the same standard as for other resources, such as coal and potash.

Inland primary elevators are of a newer vintage, with most dating from the mid-1990s to the early 2000s, but many small shippers still exist. The logistical technology that is incorporated at these elevators has failed to keep pace with other industries and is relying on ladder tracks and breaking trains apart. This slows the loading process for grain, which is exacerbated in the cold Canadian winters when it is difficult to air up the train when it is being reassembled.

The supply of grain does not enter the grain handling system in a steady state. Market conditions are such that demand for rail capacity is generally higher in the fall and winter months. The surge capacity required to effectively conduct these exports, particularly off the west coast, does not exist today. Terminals are generally operating at or near capacity, and this problem will continue to grow as the production level in Canada continues to increase.

Early this crop year we saw that farmers were tight holders of grain during what has historically been a very busy season immediately following harvest. The volumes started to shake loose at the same time that western Canada entered winter. The railroads did not have the capacity to service such a spike, following a slower than expected delivery in the early fall period.

If these are the fundamental issues, what are the solutions?

First, it's important to recognize that the situation is not as dire as it was in 2013-14. Production in western Canada in 2017 was 70.9 million metric tons, down about 1% from last year but about 3% above the five-year average. According to Quorum Corporation, the federally appointed grain monitor, total metric tons unloaded at the Vancouver, Prince Rupert, and Thunder Bay ports, which is where the vast majority of western Canadian grain is shipped, is 6% behind last year but on par with the five-year average.

In comparison to 2013-14, Quorum shows that the railways moved 25% more grain hopper cars—that's about 40,000 cars—to Vancouver, Prince Rupert, and Thunder Bay in 2017-18 versus 2013-14. That is from August through January. The February date is not yet available. While rail performance has not met industry's expectations this year, the situation is not as bad as it was in 2013-14. That said, the long-term issues need to be addressed with long-term solutions.

G3's long-term strategy was born out of discussions with industry experts, the railroads, and farmers alike. G3 is investing significant money in a new type of grain handling system featuring loop tracks, a feature not uncommon in the coal and potash industries. We load grain faster and more efficiently than ever before. In addition, we are constructing a new state-of-the-art grain terminal in Vancouver, with loop tracks that will be able to accommodate three fully loaded grain trains intact on the property. G3 is making investments that industry has not experienced in decades, investments that will create surge export capacity, rail efficiency, and velocity.

In periods when demand spikes and conditions become challenging, companies such as G3 will still be able to function at levels not seen anywhere else in the industry. We are able to load a full, 134-car unit train even in extreme cold weather by keeping the trains intact, with the railway locomotives on the train. When locomotive power is not left on the train, the railroads are forced to shorten train lengths to ensure they can properly air out the train for their braking systems. Our model creates a win for us as the grain handler, as well as for the railroads and for farmers.

G3's position is that its investments in efficiency will allow Canadian farmers to effectively reach world markets, allow railroads to function, and allow those grain handlers willing to make the investments to thrive in the long term. Competing exporters around the world—in the U.S., Latin America, the Black Sea, and Australia—have been investing in efficiency for decades. It is time that Canada does the same. We are leading by example in this regard.

The railroads have the responsibility to provide sufficient rail service to the grain handling system. Overall, we are supportive of Bill C-49, which introduces reciprocal penalties, as each party in the supply chain needs to be held accountable. We believe this will provide the motivation required for the railways to be adequately resourced to handle surges in rail demand and winter operating conditions. Further, Bill C-49 introduces the incentive for railways to invest in newer hopper cars, allowing for more grain to move on the same unit train. New, shorter cars will bring additional efficiency to the supply chain and allow companies such as G3 to load 150 cars on our loop tracks, where today we can only load 134. In addition, each car will be able to load about 2.5% more product. This represents a total increase of 16% for each train that arrives at one of our elevators. We would like to see Bill C-49 pass as soon as possible.

We are also supportive of the national trade corridor fund and hope to see some of this fund applied to projects that will further increase railway efficiency, specifically around the port of Vancouver.

In conclusion, I would like to thank you for the opportunity to share G3's unique perspective on the issues and potential solutions pertaining to grain handling in Canada.

Thank you.

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