Railway revenue cap to increase

Canada’s major railways have been given a green light to charge more for moving prairie grain during the 2014-15 crop year.

The Canadian Transportation Agency announced April 28 that a 4.2 percent increase has been approved for the volume related composite price index (VRCPI), which is an inflation-related factor used to determine annual railway revenue caps for grain.

Beginning Aug. 1, the VRCPI will increase to 1.3219 from 1.2691.

The higher rate will allow Canada’s major railway companies to increase by as much as 4.2 percent the amount of revenue that they derive from moving a tonne of prairie grain through regulated railway corridors, including Thunder Bay, Vancouver and Prince Rupert.

The VRCPI limits the amount of revenue that Canadian Pacific Railway and Canadian National Railway can charge for moving a unit of prairie grain, but it does not limit how much grain a railway can move.

VRCPI assesses inflationary pressures on a variety of railway costs, such as labour, fuel, maintenance, capital costs and pension liabilities.

The CTA said the 2014-15 increase in VRCPI stems from two main sources:

  • a 1.2 percent increase resulting from forecasted price changes for railway inputs
  • a three percent increase that was approved by CTA to compensate for inaccurate price forecasts used to calculate last year’s VRCPI

The CTA said the three percent correction is largely attributable to the agency having under-forecasted the change in railway fuel prices for the 2013-14 crop year.

“The agency’s forecasting models for railway fuel prices rely heavily on expert, third-party forecasts for the price of crude oil and the Canada-U.S. exchange rate,” the agency said.

“In addition, the 2013 forecasts for the Canadian dollar were higher than actually experienced and a lower dollar makes the cost of crude oil more expensive as it is purchased in U.S. dollars.”

The higher VRCPI will be applied in December 2015 when the CTA calculates CN’s and CP’s railway revenue entitlements for the 2014-15 crop year.

The CTA rejected an application by CP seeking additional VRCPI adjustments based on the cost of replacing leased hopper cars.

In 2013, CP informed the CTA that it was ending a leasing agreement with CWB and would return all leased CWB hopper cars to CWB by Aug. 1, 2013.

CP said the CWB cars removed from the fleet would be partially replaced by cars obtained through other agreements.

CP had asked that the 2014-15 VRCPI be adjusted higher to reflect the costs associated with acquiring non-CWB cars.

However, the CTA ruled that the methodology used by CP to calculate the number of replacement cars that were needed and the costs associated with obtaining those cars was “highly speculative.”

Canada’s major railways earned more than $1.1 billion moving western Canadian grain in 2012-13.

Both companies reported record revenues in 2012-13.

CP reported year-end 2013 revenues, from all sources, of $6.1 billion, up eight percent from 2012.

CN reported record full-year revenues of nearly $10.6 billion.

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