Thought required in reassessing revenue cap

There are no no quick fixes to the grain logistics backlog, but make no mistake, the primary source of the problem lies with the railways.

They haven’t supplied enough cars and locomotives to match the huge crop that needs to move. Even if they allocated more resources to grain movement, some observers say they don’t have enough trained engineers to run the additional trains.

No doubt west coast ports have their own issues, but export terminals have lots of empty space while scores of vessels wait to load. The grain just isn’t arriving in time to meet sales commitments.

Yes, there are system and communication issues involving the entire logistics chain, but the most pressing need is to increase rail capacity, and that leads to discussions about changing or removing the grain revenue cap.

Unfortunately, misconceptions abound over what the revenue cap entails and how it works.

The formula takes into account the amount of grain hauled and the average length of haul. Thus, the revenue cap is not a disincentive to move greater volumes. The cap rises in tandem with volume moved.

When the railways exceed the cap and have to pay the excess to the Western Grains Research Foundation, it’s because they set their rate per tonne a bit too high.

A volume-related composite price index is also part of the annual formula. It accounts for any increase or decrease in labour, fuel and other expenses.

Cost changes move the revenue cap up and down in relation to the base year of 2000-01, but a lot has changed since the cap was set.

Many argue that the railways have benefited from efficiency gains because of fewer elevators and more movement in large car blocks.

As a result, they say, there should be a new costing review.

Others are convinced that the only way to get better service is to let the railways charge higher rates. After all, they argue, high freight rates would be no worse than the ridiculously wide basis levels being subtracted from grain prices.

Elevator companies are paying demurrage on ships that have been waiting for weeks on end. A widening basis should be a disincentive for producers to sell, but producers have remained anxious to move grain despite dropping values.

As a result, many companies have stopped buying by posting no bids for nearby months.

It’s important to note that the revenue cap does not apply to grain moving into the United States and Mexico. Nor does it apply to grain moving to domestic destinations such as the Fraser Valley. And yet service outside of the revenue cap doesn’t appear to be any better.

And many other sectors also complain about rail service. For years, the Coalition of Rail Shippers, which comprises all the main ex-porters, fought for the right to have service level agreements with the railways.

Unfortunately, the legislation fell short of what is needed to actually make a difference.

People point to the United States, where there’s a bid system for cars, as proof that paying more means better service.

However, there are big differences between the two countries. America consumes much more of its grain domestically and it also has the Mississippi River system for a great deal of its exports.

Lots of questions need to be ad-dressed before we volunteer to open our wallets to the railways. Giving them the ability to charge what they want is no guarantee of improved service.

About the author



Stories from our other publications