CN Rail and Louis Dreyfus: Failure and Pricing in Grain Transportation in Winter 2013-2014

Serious delays faced by CN Rail in transporting grain to British Columbia’s western ports, combined with the harsh conditions of the 2013-2014 winter, left the company facing millions of dollars in compensation liabilities. In his decision published on November 25, Federal Judge Alan Diner found the national railroads liable to the agricultural operations of the Louis Dreyfus Company, turning this case into a precedent-setting delay case.

While shipments to the ports of Vancouver and Prince Rupert increased due to the winter season during the 2013-2014 period, when the highest harvest in Canadian history was achieved, discussions about CN Rail’s capacity commitments grew. The government’s executive order issued on March 7, 2014 mandated transportation of certain minimum grain volumes in Western Canada; Despite this, Diner revealed that CN was unable to meet this demand. The cold weather and the heavy winter in the prairie regions put existing shipments under even more special pressure; The number of wagons shipped that month fell to 2,700, well below the capacity required for Dreyfus.

While the Louis Dreyfus Company operated six grain silos on the CN line, it was effectively vulnerable to rail disruptions because some silos were managed solely by CN. Under the secret contract, CN was required to provide sufficient railcars to transport grain from domestic elevators to British Columbia and global markets. Failure to provide the service at the level specified in the contract posed the risk that the company would not be able to fulfill its sales contracts. As a result, winter conditions and rail disruptions led to cargo backlogs at BC ports and an increase in ship delay fees; Louis Dreyfus filed a lawsuit claiming the loss amounted to over $21.6 million in land and over $4 million in demurrage fees, as well as $3.5 million in reputational damages.

In its decision, an evaluation supported by Diner expert opinions found that CN failed to meet the level of service established both under the federal decree and under its secret agreement with Louis Dreyfus. This failure directly hindered the company’s potential profits, and as a result it was decided that CN Rail should cover some of the lost profits and ship delay fees. However, the court did not require him to pay most of the total amount requested; ordered him to cover part of the demurrage costs and rejected his claim for $3.5 million in reputational damage. Although this decision reflects the operational difficulties experienced in the grain transportation sector in general in the winter of 2013-2014, he emphasized that CN Rail’s mistakes had more severe consequences specific to Burkina.