SASKATOON – Elevator investment plans are being put under the microscope in the wake of the railways’ decision to scale back incentive rates.
Richard Wansbutter, manager of marketing and transportation for Saskatchewan Wheat Pool, said his company, and he suspects other grain handlers, are reviewing their new elevator construction plans now that fewer savings are available.
“This will significantly, materially affect our plans,” he said. “I’m not saying we’re not going to build them, but we’re going to have to evaluate what size they are and certainly what the track configuration is going to be.”
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Independent inland terminal companies could be particularly hurt by the new incentive rates. The ability to take advantage of rate discounts has been a key factor in the development of many new projects.
“Some of the cash flow numbers that have been worked out for these projects involved incentive freight rates,” said Dwayne Anderson, chair of the Canadian Inland Terminals Association.
Bert Gibbs, manager of accounting and administration for Weyburn Inland Terminal Ltd., said the new incentive rate structure changes the economics of inland terminal operations significantly.
‘Re-crunching’ of numbers
Projects that are still in the planning stages may be jeopardized by the new rates.
“I think they have to go back through and re-crunch their numbers and take a whole fresh look as to the economics of it,” he said.
In recent years, grain companies have built new elevators and upgraded old ones in large part to take advantage of the lower rates that were expected to be widely available in the post-Crow world.
But when Aug. 1 rolled around, the railways did the unexpected and reduced the rate discounts on multiple car loadings and unit trains.
Gibbs said it’s ironic that as soon as the Crow is gone, the railways cut back on one of the main incentives to build a more efficient grain gathering system.
“The feeling at one time was that when Crow disappeared and we went to full freight rates in the country, if anything the incentive rates might be increased,” he said. “I think this was a big surprise.”
