New Options for Rail Access in Western Canada
The Canadian Transportation Act (CTA) recently made some changes to zone interswitching in the provinces of Manitoba, Saskatchewan, and Alberta. In creating a 5th interswitching zone, the CTA has increased the shipping options for most regions within the prairie provinces. This new access creates options for shippers that did not exist. Zone 5 interswitching increases competition between rail service providers and opens up new opportunities for routing to different destinations and customers.
What is Zone Inter-switching?
Zone interswitching is where a shipper that is serviced by one railroad (Railroad “A”), can request a quote from another railroad (Railroad “B”) that has an interchange location within a designated distance from the shipper’s rail siding.
Zone interswitching has existed between railroads in Canada since 1904 but recently, a much larger and extensive zone was created in 2014. The new Zone 5 was created within the three prairie provinces (Alberta, Saskatchewan and Manitoba) with a radius of 160 kilometres from an interchange point. Previously, the furthest distance that could be used for zone interswitching was only 30 kilometres. While most products are designated for interswitching not all commodities are accepted and the regulatory guide should be consulted (read more). Zone interswitching increases the opportunities supply chain players have in their network designs.
Zone interswitching allows a shipper to move their product with another railroad that does not serve their facility. If Shipper “1” is limited to Railroad “A” and is within 160 kilometres of an interchange between Railroad “A” and Railroad “B”, they have the choice to ship with either railroad. This allows for the shipper to find the most competitive rates to move their goods and could reduce their supply chain costs. Zone interswitching creates possibilities for shippers that weren’t there in the past, and increases the amount of competition possible within the rail industry.
Examples of Zone 5 Inter-switching
A shipper in southern Alberta looking to ship through a northern British Columbia port would now be able to get a rate quote and make the decision to route their traffic with a different railroad. This may have a longer route but could avoid other issues such as congestion as well as provide access to different ocean vessels and shorter ocean shipping time to Asia.
In another example, in the case of a shipper in northern Alberta who wants to ship to the state of Colorado on the BNSF (Burlington Northern Sante Fe Railroad) would have to route the car either through the Vancouver region or Minnesota/Wisconsin to the BNSF with a two-line haul (rail distance is much greater) or perform a three-line haul. This shipper can now route the car a much shorter distance and interchange with the BNSF in southern Alberta with a two-line haul. The overall differences in distance can be very large and by moving straight through Alberta to Coutts/Sweetgrass can provide mileage savings of 800 to 1000+ miles (depending on the previous routing), leading to lower rail costs as well as lower fuel surcharge.
Benefits of Zone 5 Interswitching
There are costs associated with zone interswitching that need to be paid as part of the overall freight bill. These costs can be overcome if Railroad “B” can provide a hauling cost that, combined with the interswitch fees, is less than, or similar to, the overall cost provided by Railroad “A”. The zone costs for single cars and cars in blocks (60 railcars or more) are provided below:
The disadvantages of zone interswitching are the associated costs that are incurred for the switch fees as well as the time required to switch the railcar(s) from one railroad to the other. The advantages can be more options for shipping routes, lower costs, as well as the potential to a shorter shipping time if the distance is lessened by shorter routing (as in the case above with northern Alberta to Colorado).
In the long run, Zone 5 interswitching can lead to more routing options, lower costs and potentially shorter shipping times if the routing is optimized. Shipping times are more likely to be longer if the routing is similar or distance is similar as well. It may not work for every shipper looking for other options but it could also provide contract bargaining power when it comes time to negotiate rates.
If you are interested to learn more about zone interswitching or any other rail topics to help save you money or time, please contact us for a free strategy call.