(The Saskatchewan News Network circulated the following on February 21.)
REGINA — The Canadian Transportation Agency (CTA) has reduced the revenue cap for the movement of western grain for the 2007-08 crop year by $72.2 million, or $2.59 per tonne based on forecasted tonnage of 27.85 million metric tonnes.
The decision will lower grain transportation revenues for the Canadian National Railway (CN) and the Canadian Pacific Railway (CPR), which should result in lower freight rates for shipping western grain to export markets, the agency said.
Both CN and CPR said Wednesday they disagreed with the CTA’s decision, and would appeal the reduction in the revenue cap to the federal court.
Western grain movement in Canada is regulated by the CTA through the setting of revenue caps, which compensate the railways for costs associated with operating the government’s fleet of 12,000 to 13,000 grain hopper cars.
The revenue cap is calculated, in part, by a composite price index — an inflation factor that reflects the cost of labour, fuel, material and capital purchases.
“There was a perception that what was in the revenue cap wasn’t reflective of the actual cost to CN and CPR for maintaining those cars,” said Marc Comeau of the CTA.
Last year, the federal transport minister asked the agency to adjust the revenue cap to reflect the costs incurred by CN and CPR for maintenance of the grain hopper car fleet.
The CTA determined the actual maintenance costs for the 2007-08 crop year were $1,371 per car, rather than the cost of $4,379 per car.
Canadian Pacific said Wednesday it disagreed with the CTA regarding the adjustment to the revenue cap, which is retroactive to Aug. 1, 2007.
“We disagree, among other things, with the retroactive component of the CTA’s adjustment, and we will vigorously challenge it,” said Fred Green, CP’s president and CEO.
CP estimates the revenue cap adjustment could reduce the company’s earnings outlook in 2008 by five cents per share, while the retroactive portion of the ruling could cut earnings by a further eight cents per share.
CN spokesperson Mark Hallman said the company was “disappointed with the CTA decision and we’ll seek leave to appeal that decision to the Federal Court of Canada. We believe the decision is unjust and unreasonable, particularly the retroactive application of the (Canada Transportation Act) to Aug. 1, 2007.”
But farm groups applauded the CTA decision.
“It’s a step in the right direction,” said Glenn Blakley, president of Agricultural Producers Association of Saskatchewan (APAS).
“They’re reducing their revenues by $72 million, but in the last two years we’ve seen both railroads significantly pass the revenue cap by hundreds of millions of dollars.”
Blakley said the government needs to undertake a complete review of the operating costs, not just maintenance costs.
Sinclair Harrison, president of the Farmer Rail Car Coalition, which attempted to purchase the hopper cars a few years ago, said he was “very pleased” with the CTA ruling.
“We are happy that these savings are coming back to farmers and we look forward to participating in the level of service review by the federal government, which is expected to start within the next few months,” Harrison said in a release.