Freight rate discounts being offered by the railways this year will provide more incentive to grain companies to ship grain in large car blocks from high throughput elevators.
That could accelerate the trend of recent years that has seen a rapidly growing percentage of prairie grain shipped in 50- and 100-car blocks.
The new rates could also result in more competition between Canadian Pacific and Canadian National railways in some prairie locations, say grain industry officials.
“I think these changes will create some competitive opportunities, where CP may have greater incentives than CN,” said Fran Malecha, vice-president of Saskatchewan Wheat Pool’s grain group.
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“I’m sure grain companies will try to take advantage of that.”
Here are the rate discounts the two national rail companies are offering this year:
- CP Rail has increased the discounts on 112- and 100-car blocks by $1 per tonne to $7.50 and $6.50 respectively.
The discount on 50 cars remains unchanged at $4 a tonne.
For 25-car blocks, the discount has been cut in half to 50 cents a tonne.
Incentives ranging from $7.50-$9.37 a tonne are also being offered for shipping “shuttle trains”, which move as a unit from a single prairie point to export position and back again.
- CN Rail has left the discounts on 50- and 100-car blocks unchanged at $4 and $6 a tonne respectively, but has eliminated the $1 a tonne discount that had previously been available on 25-car blocks.
CN has also increased its shuttle train rebates by 50 cents a tonne, on top of the $6 block discount.
“You’re starting to see a divergence here (between CN and CP) for the first time and it will be interesting to see how it plays out,” said Mark Hemmes, president of Quorum Corp., the federal government’s grain monitoring agency.
Malecha said the increased discounts on CP could play a role in determining which elevators grain companies direct cars to in those areas where the grain companies have a choice.
“If the grain is between CN and CP, you now have a bigger area to draw from for CP,” he said.
CP officials could not be reached for comment, but CN spokesperson Jim Feeny said his company won’t be at a competitive disadvantage.
He said the differences between CN and CP discounts reflect the fact that grain is a “dynamic marketplace” in which market share has an effect on the rate structure.
Other factors cited by industry officials to explain the divergence in incentive rates include the impact of the federal government’s grain revenue cap and differences in the grain elevator infrastructure on the two company’s lines.
“There is a little bit of difference in the infrastructure development on the two networks, and I think they may have tailored the rates to reflect that a little bit,” said Canadian Wheat Board director and transportation spokesperson Ian McCreary.
As farmers well know, the trend toward shipping in large rail car blocks out of big elevators has been one of the major features of the prairie grain handing and transportation system in recent years.
In 2002-03, more than 60 percent of the grain shipped off the Prairies moved in units of more than 50 cars, up from 27 percent three years earlier.
Conversely, shipments in blocks of fewer than 25 cars made up 24 percent of the movement, down from 49 percent in 1999-2000.
“In just four years that’s a remarkable change,” said Hemmes.
The financial incentive to load 100-car blocks is significant, he added, with a $7-a-tonne discount translating into savings of $50,000-$60,000.
