Canada’s two national railways left $1.46 a tonne in freight revenue on the table in 2002-03.
Figures released by the Canadian Transportation Agency last week show that Canadian National Railway and Canadian Pacific Railway together collected $401.7 million from hauling grain during the year that ended July 31, 2003.
That’s $23.9 million less than the $425.5 million they were allowed to collect under the federal revenue cap.
“This is positive news for western grain farmers,” said Jim Riegle, manager of the CTA’s grain division. “It means that shippers paid $23.9 million less for transporting grain by rail than the act allowed.”
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Looked at on a per-tonne basis, that works out to railway revenue of $24.52 per tonne for an average length haul, which is $1.46 a tonne below the revenue cap of $25.98 a tonne.
However Riegle also acknowledged that the CTA’s figures don’t address the issue of how much of that $1.46 per tonne ended up in farmers’ pockets.
“It’s another question as to where those savings went to,” he said. “It’s the role of the federal grain monitor to try and indicate to what extent the savings have been passed on.”
The two railways performed quite differently in terms of maximizing their revenue under the cap. CN’s revenue was $2.38 a tonne below its revenue cap, while CP’s revenue was just 72 cents a tonne under its cap.
CN spokesperson Jim Feeny said the drought of 2002 and the closure of the port of Vancouver by a lockout disrupted regular grain traffic patterns and made it difficult to forecast volume and revenue.
But he said, “we have a directive from the government of Canada that we be under the cap and that is the first and primary objective that we have to achieve.”
The gap between the railways’ actual revenue and the revenue cap has increased sharply in each of the three years since the cap went into effect.
In 2000-01, the gap was 20 cents a tonne. It jumped to $1 a tonne in 2001-02 and then climbed to $1.46 last year.
Riegle said it’s not surprising to see the gap widen each year. The revenue cap is adjusted for inflation each year, but the cost of railway services may increase by a lesser amount or even decline.
He said the widening gap also tends to dispel the notion that the railways will adjust their freight rates as the year goes along to come as close to the cap as possible.
“So the fact that they came in well below the cap in 2002-03 certainly supports the conclusion that there is competition in the grain industry,” he said.
However others say the revenue cap is generous to the railways and the fact they come as close to it as they do suggests there is a lack of competition.
Critics say that the revenue cap was supposed to be accompanied by new measures to boost railway competition, such as joint running rights, but that has yet to happen.
As part of its revenue cap decision, the CTA also issued a ruling in a dispute with CN over demurrage charges arising from delayed unloading of rail cars at port.
Demurrage is not counted as revenue for purposes of calculating the revenue cap, so railways can increase their income by collecting more demurrage.
In February 2001, CN reduced the time before demurrage kicks in to two from 2.5 days. After reviewing the change, the CTA ruled that the new rules unfairly penalized grain shippers and additional demurrage collected as a result would be considered revenue under the cap.
The agency said it has reviewed that decision and came to the same conclusion for the 2002-03 crop year.
