VANCOUVER – Western Canadian producers have been lamenting the loss of the Crow Benefit since the rail transportation subsidy ended in 1995, but an industry analyst says its replacement is no slouch.
“The revenue cap is working. It’s doing what it was intended to do,” said Mark Hemmes, president of Quorum Corp., the federal grain monitor.
He showed delegates attending the 21st annual Canadian Special Crops Association convention a chart demonstrating that grain freight rate increases have closely mirrored Canada’s overall inflation rate since the cap was introduced in the 2000-01 crop year.
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Rail rates have increased 11 percent during the first five years of the revenue cap era. By contrast, crop input prices soared 31 percent over that same time.
“We’re able to keep freight rates for grain in check,” said Hemmes.
He also showed that Canadian Pacific Railway’s grain freight rates have risen 7.3 percent during the past three years, less than any other major commodity moved by the rail line and 10 percent lower than the average increase.
“Other commodity groups are seeing considerably higher increases in their freight,” said Hemmes, noting that CPR’s coal rates went up 50.2 percent over that same period.
It’s a similar story at Canadian National Railway. CN’s grain freight rates rose 8.3 percent over the past three years, compared to an average increase of 13.4 percent. Automotives as well as petroleum and chemicals were the only two commodity categories that experienced lower rate increases.
For shippers who required further proof of the merits of the revenue cap, Hemmes put up a slide comparing American and Canadian rail rates to west coast ports from similarly located origins on both sides of the border in 2006.
With all figures in Canadian dollars, it showed that a shipper from Hensel, North Dakota, paid $52.41 per tonne for that trip compared to $46.81 for a shipper in Agassiz, Man., a 12 percent variance in rates.
The gap widened as the comparisons moved throughout Saskatchewan and into Alberta, with the final example revealing that a shipper in Joplin, Montana, paid $41 per tonne compared to $28.08 for his counterpart in Lethbridge, a 47 percent difference in favour of the Canadian origin.
“Is the revenue cap doing any good in controlling the rates? There is no doubt,” said Hemmes.
One special crops shipper noted that the cost analysis was conducted when the Canadian dollar wasn’t as strong as it is today, meaning the variances would be tighter in 2007 than they were in 2006.
Hemmes conceded that point. But the exchange rate factor wouldn’t make up for differences that in many cases exceeded 40 percent.
Regardless of the statistics, the bottom line is that interviews have shown both large and small shippers are “unequivocal” in their praise of the revenue cap.
“They don’t want to get rid of it,” said Hemmes.
His other message to growers and shippers is that many people are left with the mistaken impression that the revenue cap is a fixed number and once the railways hit it, they shut down their grain operations.
Those people need to understand that the revenue cap is determined after the crop year, not before it begins. Railways have become adept at figuring out what the cap will be but they don’t manage volumes. They take as much traffic as they can and manage their revenue by using tools like multi-car incentives and single car rates, he said.
