The Canadian Transportation Agency has announced a decrease in the volume related composite price index, an inflation-related factor used to determine annual railway revenue caps.
The agency said in an April 30 news release that the VRCPI will decrease by 1.8 percent for the 2013-14 crop year.
The VRCPI is part of a formula is used to determine how much revenue Canadian National Railway and Canadian Pacific Railway can generate each year for transporting western Canadian grain.
It is based on forecasted prices for key items such as railway labour, fuel, material and capital purchases.
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The 1.8 percent decrease for 2013-14 is largely the result of diesel fuel costs that were lower than projected in 2012-13.
A reduction in leasing costs related to the withdrawal from service of CWB hopper cars was also a contributing factor.
CP is in the process of ending its leasing arrangements with CWB. By August, the railway intends to return all of CWB’s hoppers cars and enter new leasing arrangements with other third-party leasing companies.
The VRCPI has tracked up and down since the railway revenue cap program was introduced in August 2000.
It has grown at an average annual rate of two percent since the 2000-01 crop year.
The CTA announced a VRCPI increase of 9.7 percent last year, which prompted farm groups to call for a review of VRCPI calculation procedures.
That increase was expected to boost the railways’ grain related revenues by nearly $100 million in the 2012-13 crop year.
In 2011-12, the two railways generated gross revenues of $1.036 billion for moving western grain.
In recent years, VRCPI fluctuations have reflected the volatility of fuel prices, hopper car adjustments, capital costs and railway companies’ pension liabilities.
The rate was set at 1.2895 for 2012-13 and 1.2691 for 2012-14.
The reduced VRCPI will be applied in December 2014 when the Canadian Transportation Agency calculates revenue caps for 2013-2014 crop year.
