Thursday, December 18, 2008

Rail on Vancouver Island

So far I have mainly touched on this issue with respect to transit in the Greater Victoria area and I remain very skeptical that the idea can make any sense financially for us in this region. I want to look at the bigger picture of the E&N railway on the island.

The line belongs to the Island Corridor Foundation now. They are looking at rebuilding the line and making it a functional rail line again.

One aspect they foundation is looking at is freight. I am not sure that there is much of case to be made for freight via rail on Vancouver Island any longer. Rail freight service works well for large volume bulk commodities such as coal, grains, raw ore, lumber and similar. Rail freight also works well for intermodal - carrying containers on trains from a port to another city. Much of the benefit of rail is over the long distances.

A few years ago I worked on developing a business plan to move logs via rail from one part of BC to another. There was enough of a price differential at the time that there was the possibility of making a profit. Timber in the north was selling for $45 to$50 a cubic metre and was selling for $57 to $62 a cubic metre where I lived.

The biggest problem with the idea was that by using rail to move the logs you needed to first have a truck to deliver them to the rail head at one end and then have another one pick them up at the other end. The cost of moving the logs from the trucks to the train and then off of the train and onto trucks again added $12 to $15 to each cubic metre of timber moved. For $10 a cubic metre you can get a truck to deliver timber 400 kilometres, trucking timber is paid by the hour. Rail shipping costs are based on distance but shorter distances are much more expensive than longer ones per kilometre. In the end using rail to move the timber only made sense if the distance involved was more 1100 km but by then the total price was too high to make any profit.

Problem one on Vancouver Island is that the rail line is too short to be able to be competive with trucking.

More rail freight tends to be very long trains of a single commodity, a 100 car train is not usual. The more cars you have, the lower your costs are per car. A single grain train filled at trackside elevators on the praries unloads in Vancouver into the elevators at the port which fill the ships. The long grain train has been made as effecient as possible and therefore is profitable to operate.

Problem two on Vancouver Island is that we do not have any commodities of large enough volumes to make up long trains. We also do not have the infrastructure to load and unload these trains. The nature of Vancouver Island has been to make use of all the great access to tidewater on the east side of the island. Most industrial operations have been built close to tidewater to make use of this unique resource.

Vancouver and Prince Rupert are ports for container traffic. The port facilities are contructed to allow containers to moved directly from the ships to the train. The trains then deliver the containers all over North America. There is a large fully integrated rail system in North America.

Problem three on Vancouver Island is that we are not connected to the rest of the rail network in North America. We also do not have the container faclities. The E&N line is one of the isolated lines in North America and that will always hamper the business model of the line.

For rail to make sense you need big industrial users, so who are the major industrial businesses on the island?:
  • The Quisam coal mine operated by Hillsborough Resources - they do need the rail line as they have a shipping terminal 32 km from the mine.
  • The Myra Falls mine operated by Breakwater Resources - they truck to the port in Campbell River. There is no rational reason to use rail. The mine is also currently shut down.
  • The Harmac pulp mill in Nanaimo is on the waterfront with a dock.
  • Catalyst had three pulp and paper mills on the island. The Elk Falls pulp mill is closed for good and had a deep water dock on site. The Crofton mill is operating but has a dock. The Port Alberni paper mill is close to dock facilities in Port Alberni, though might use the line to Nanaimo simply because they did so in the past.
  • TimberWest has no mills any longer and the rail line really does not offer any benefits to them for getting timber to the dryland sorts.
  • Western Forest Products is the biggest lumber producer on the island, but most of their mills are located on the water with shipping facilities and the distance from the mills without docks to the other makes no sense for rail.
  • Teal Jones has a shake mill in Port McNeil, but it is very far from the rail line.
  • Coulson operates mills in Port Alberni - in theory they could use the rail line to get it over the hump to Nanaimo, but that means not using the port facilities in Port Alberni.
  • Compliance Energy wants to open a coal mine to the south of Cumberland near Bulkley Bay, they would like to use rail to get the coal to a port. The mine still looks like a long shot.
I may have missed some possible industrial users, but the sectors I have outlined above account for 55% of all manufacturing on the island and all the biggest companies.

At the moment about the volume of freight moved on the line is very low. Only about 1200 cars per year or 4.6 cars per weekday. Realistically the line needs to have a volume of 200 or more cars per day to have a chance to be self sustaining. I have no idea where these numbers are going to come from.
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