Canadian Pacific Railway used aggressive pricing incentives to boost its market share in the first quarter of the current crop year, says the federal grain monitor.
The railway carried 54.3 percent of the prairie grain shipped during the three months ending Oct. 31, 2003, well above its traditional level of 47 percent.
In its report for the first quarter of 2003-04, the monitor said CPR’s pricing policies have made it the “more cost-competitive carrier” in Western Canada.
However, officials with both national railways cautioned against reading too much into the first quarter figures.
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They say Canadian National Railway’s loss of market share was more a function of the lingering impact of the previous year’s drought, which had its greatest effect in areas served by CN.
In addition, the 2003 harvest got off to a later start in the northern Prairies where CN’s lines are concentrated, reducing its first quarter volumes.
“It’s hard to assess whether real shifts in market share have occurred or whether it is simply a reflection of which areas were hit harder by drought,” said Leah Olson of CPR.
The railway has adopted an aggressive approach to its rate structure in order to meet customers’ expectations, she said, but it’s too early to say whether it is having a permanent impact on market share.
“We’re hesitant to reach any conclusions,” she said.
CN spokesperson Jim Feeny said his company is confident the shift in business is temporary.
“One quarter does not a crop year make,” said Feeny. “We’ll wait and see what the final numbers are but we feel our market share has recovered.”
One grain industry analyst not affiliated with either railway agreed with that assessment, saying operational problems experienced by CPR in the second and third quarters will likely eat away much of its earlier gains.
“The situation will have shifted back since that first quarter,” said the official, who asked not to be identified.
In the drought year of 2002-03, CPR’s market share jumped to 58 percent as grain production declined most sharply in areas served by CN.
While that fell back to 54 percent in the first quarter of this crop year, the monitor’s report said that was less of a drop than expected.
“The moderate decline in this share … strongly suggests that CP has enhanced its market position,” said the report by Quorum Corp., the Edmonton-based consulting company that acts as the federal grain monitor.
In its report, the monitoring agency attributed the shift in market share to the fact that CPR was offering more attractive rate discounts than its competitor.
For example, CPR’s discount for moving 100-car trains this year is $7 a tonne, compared with CN’s $6 a tonne. For shuttle train service, CPR’s package of incentives could exceed $9 a tonne, while CN’s work out to about $7 a tonne.
“These pricing actions served to make CPR the more cost-competitive Class 1 carrier in Western Canada,” said the report.
Feeny said the fact that CPR’s rate discounts may be greater doesn’t necessarily provide it with a competitive advantage.
“Rates are not all that customers are looking at,” he said. “Service is another major factor, the ability to move grain in a timely fashion, and we’ve done well with service over the winter,” he said.
By contrast, CPR had some much-publicized problems meeting customer demand for several months beginning in November 2003.
The monitor’s report did acknowledge that it remained to be seen whether the shift in market share noted in the first quarter would endure.
