Monday, May 19, 2014

Globe & Mail sticks it to farmers

Barrie McKenna has a story on the front page of the business section today bemoaning the injustice of Bill C-30, aka the "Fair Rail for Grain Farmers Act".

In McKenna's view, fairness is a zero-sum game. "What's fair for farmers is by implication less fair for every other business that uses the rails to move goods..."

I think what's unfair is writing an article purportedly about the railways' lack of capacity to move grain, without mentioning that CP Rail has idled 400 locomotives and 10,000 rail cars since US hedge fund Pershing Square bullied its way into control of the company. You don't need a PhD in logistics to conclude that would reduce capacity.

And McKenna is either naive or disingenuous when he writes "Ottawa could also have simply let the market fix the problem. When there is excess demand and short supply of rail capacity, freight rates will naturally go up... it would give the railways more revenue to make badly needed investments, helping resolve capacity constraints."

What foolishness! Why would the railways want to reduce capacity constraints that increase freight rates and profitability? What the management of CP Rail has shown is a commitment not to investing in the railway, but in maximizing the amount of money they can take out of it.

Back in March the company announced their intention to spend close to a billion dollars on a share buy back. That's an expenditure that does absolutely nothing for rail capacity and won't get one bushel of grain to market one minute sooner. It's an expenditure designed to boost the share values of stock-holders, nothing more and nothing less.

Bill C-30 may well be a heavy-handed solution to a rare and unforeseen problem, but when the invisible hand of the free market isn't working, sometimes the heavy hand of regulation is needed to move things along.

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