Canada’s two national railways were keeping mum last week on the prospect of a full governmental review of their costs of hauling grain.
Shippers have been asking for such a review for years, saying it’s needed to determine whether the rail companies are passing efficiency savings back to shippers and farmers.
The last full review was in 1992; a limited review was undertaken before introduction of the rail revenue cap in 2000.
On April 19, the Canadian Transportation Agency announced that, for the first time, it would formally pass their request on to Transport Canada, raising hopes among shippers that a review may actually take place.
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Officials with the railways had little to say when asked if a full costing review is necessary.
Canadian National Railway spokesperson Kevin Franchuk said CN believes the current system is “performing satisfactorily” and moving grain as intended by the Canadian Transportation Act.
“The system in place since 2000 is a reasonable compromise that is fair to all parties in the grain industry,” he said, adding CN works with the CTA and provides it with information on an ongoing basis.
No comment could be obtained from Canadian Pacific Railway.
Shippers say it’s unfair to adjust the revenue cap every year to compensate the railways for inflation-related increases while no adjustment is made to reflect productivity gains accrued by the rail companies since 2000.
Sinclair Harrison, president of the Farmer Rail Car Coalition, said there is no question a full review is needed.
“You’re applying a cost index to a 1992 value,” he said. “It’s just tinkering with a base that is inaccurate.”
Wade Sobkowich, executive director of the Western Grain Elevator Association, said that while his group hasn’t specifically asked for a costing review, it supports the proposal.
“It makes sense to have as accurate information as possible,” he said. “If the government is prepared to undertake a review, that makes sense to us.”
He said a costing review could be done in conjunction with a detailed review by Transport Canada of the level of service provided to the grain industry.
Paul Earl of the University of Manitoba’s department of supply chain management said a costing review could be seen as a retreat from the policy of deregulation that has been applied to Canada’s railway industry for more than a decade.
“No other commodity is subject to that kind of review,” he said. “Rates are set in the marketplace.”
The whole point of the revenue cap was to move grain transportation into a more commercial environment, he said, in which the railways would compete and costs to their customers would decline.
Earl acknowledged that doesn’t seem to have happened, with the railways matching or exceeding the revenue cap and earning record profits while freight rates continue to increase.
