Almost two years after it began, a dispute over rail car demurrage charges levied by Canadian Pacific Railway has reached the end of the line.
And the railway has come out on top.
At issue was whether demurrage fees collected by CP in crop years 2001 and 2002 should count as revenue under the federal government’s railway revenue cap, which went into effect in August 2000.
Income from demurrage charges is officially not considered to be statutory revenue for the purpose of calculating a railway’s grain-hauling revenue under the cap.
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But two years ago the Canadian Transportation Agency ruled that demurrage rates imposed by CP were “unreasonable” and should be included in the annual revenue cap calculation.
That ruling was prompted by a change in CP’s demurrage policy that boosted its average monthly demurrage income by 900 percent to more than $75,000.
CP appealed the agency’s ruling to the Federal Court and won a favourable decision in June 2003.
The court sent the case back to the CTA and last week the agency reversed its earlier decision and revised CP’s revenue cap numbers for those years accordingly.
Jim Riegle, the agency’s grain division manager, said while the decision changes the revenue cap calculation, it won’t have a direct impact on how much shippers and farmers pay in demurrage.
“This affects the amount of revenue we recognize as revenue under the cap,” he said.
“When demurrage occurs, the railway will still assess the shipper for charges and the shipper will presumably pay them.”
As a result of the new ruling, the agency recalculated CP’s cap revenue for crops years 2001 and 2002, this time without including demurrage revenue.
The amounts of money involved were small, representing a fraction of CP’s grain-hauling revenues of $363.3 million in 2000-01 and $277.8 million in 2001-02.
Here is the sequence of events that culminated in last week’s decision.
- Traditionally CP’s policy had been to assess a demurrage penalty if a shipper failed to unload a car within 48 hours, and to provide credit if it was unloaded in less than 48 hours. The penalties and credits were balanced off, resulting in what is called “average” demurrage.
- On July 1, 2001, CP switched to what is called “straight” demurrage, whereby shippers continued to pay the $60 a day penalty, but no longer received credit for early unloading.
- As a result, CP’s average demurrage revenue increased from $7,600 a month to $75,700 a month.
- In a 2-1 decision released in December 2001, the agency said any demurrage revenue above $7,600 a month was unreasonable and not exempt from the revenue cap.
- CP took the case to the Federal Court of Appeal, which ruled that the CTA had exceeded its authority.
“The agency’s mandate is to determine only whether any amount may reasonably be characterized as being demurrage,” said federal court judge J. A. Rothstein.
“The agency does not have the power to determine the reasonableness of demurrage revenues, limit increases in a rail company’s demurrage revenues or determine that any portion of demurrage revenues it finds to be unreasonable be included in the railway company’s revenue subject to its revenue cap.”
He specifically rejected a Canadian Wheat Board argument that a section of the Canada Transportation Act requiring that services must be “commercially fair and reasonable to all parties” applied in this case.
He said that only applies to rates or conditions of service established by the agency, which is not the case with demurrage.
In its decision last week, the CTA said it reserved judgment on whether it might in the future compel CP to provide access to commercial contracts to assess whether its grain demurrage charges are in line with other commercial rates.
