Rail cap cut could reduce farmer costs

Canada’s grain transportation overseer has ordered a $72.2 million reduction in the 2008-09 revenue cap for grain.

If that order survives court challenges from the railways, farmers will see their freight rates permanently decline by $2.59 a tonne.

While the order came from the Canadian Transportation Agency, most of the credit for the freight savings should go to the Farmer Rail Car Coalition, said a number of industry officials.

“The FRCC didn’t get to buy the cars, but they did get this freight cut,” said Canadian Wheat Board director Ian McCreary, who has worked on rail issues for the board.

“This is their legacy.”

The Canadian Transportation Agency last week ruled that the two national railways have been overpaid for hopper car maintenance by $300 million over the past six years.

It found that while the railways were being paid $4,379 per car per year under the revenue cap to cover maintenance costs, they were spending only $1,371.

Put another way, the amount embedded in the revenue cap for maintenance in 2007-08 was $105.1 million, while the actual cost incurred by the railways was $32.9 million, a difference of $72.2 million.

As a result, the agency reduced the 2007-08 revenue cap by that amount, which translates into a saving of $2.59 a tonne, based on forecast tonnage of 27.85 million tonnes.

The reduction is retroactive to Aug. 1, 2007, and will carry forward into future years.

Both railways immediately announced they would appeal the decision to Federal Court.

Canadian National Railway spokesperson Mark Hallman described the ruling as “unjust and unreasonable,” particularly the retroactive aspects.

Canadian Pacific Railway president Fred Green said the company will “vigorously challenge” the ruling.

“We believe the decision to make the adjustment retroactive is not supportable, based on the legal advice we have received,” he said.

Depending on the outcome of those appeals, which will likely take months, the size of the rate reduction could change, although there is no question the revenue cap will be reduced by some amount.

The issue of hopper car maintenance costs was first raised by the FRCC in the late 1990s, when the coalition of farm groups began working on a plan to buy the federal government’s fleet of 13,000 cars.

The coalition concluded that the railways were receiving $3,000 more per car per year, a number almost identical to the one announced by the CTA last week.

“It’s right in line with what we’ve been saying for 12 years,” said FRCC president Sinclair Harrison.

“This demonstrates what you can do with a united force and 12 years of hard work. It’s a great day for farmers and the FRCC.”

The CTA’s review of the issue dated back to May 2006, when the federal government announced plans to make a one-time adjustment to the Canada Transportation Act to deal with hopper maintenance costs. Those amendments were introduced into Parliament in June 2007.

On Aug. 1, 2007, the agency issued an interim ruling that had the effect of reducing the freight rate index for this crop year by $2 a tonne.

That means the $2.59 reduction will apply from the date of the decision going forward, while an additional 59 cents will be applied retroactively to the first six months of the crop year.

“With the interim index already in place, the final decision won’t have that big an impact,” said a CTA official.

Harrison said the ruling shouldn’t have come as a surprise to the railways, given the fact that the agency had announced the $2 interim reduction Aug. 1.

A number of farm groups welcomed the CTA ruling. Keystone Agricultural Producers said the reduction in the revenue cap will bring farmers’ shipping costs more in line with the actual costs incurred by the railways.

“Farmers will be saving money when they ship their grain, thanks to the CTA’s decision and the hard work of the FRCC,” said KAP vice-president Robert McLean.

McCreary said not only will the decision result in a reduction in the cost of shipping export grain, it will have a ripple effect on other types of movement.

“The domestic industry pays a rate competitive with export minus freight, so on that basis it really applies to all grain that’s shipped,” he said.

“It’s a huge number.”

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