Farmers pay a mountain of cash for grain transportation, but we don’t directly see the bill.
Back in the days of the Canadian Wheat Board, the average freight rate cost in each province was noted along with each pool return outlook, but now we don’t even see that bit of information.
Different grain shippers are paying dramatically different freight costs depending upon their agreements with the railway, the number of cars they ship at a time and their distance to port position. Like other costs, freight bills keep rising every year, but with it deducted from the price of grain, it becomes part of the basis and farmers never actually see it.
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Farm groups, grain shippers and the two major railways are now being asked by Transport Canada for feedback on a range of rail related issues. In addition to written submissions, a series of meetings has been scheduled. The discussion points are issues affecting the interaction between grain shippers and the railways, but farmers have a direct financial stake.
The pilot project on extended interswitching from one railway to another is among the topics. So are the winter contingency plans that railways are required to file each year. Transport Canada is also asking for feedback on the Maximum Revenue Entitlement that directly impacts freight costs.
The MRE is not a rate cap. It’s the maximum overall amount the railways can charge for bulk grain movement and it’s governed by a complex formula that takes inflation and the volume of grain into account.
At the end of each year, the railways are typically near or above their MRE. When they exceed the MRE, the overage plus a small penalty is paid to the Western Grains Research Foundation. For 2021-22, a total of $5.7 million went to WGRF.
The railways would like an end to the MRE, but if that happened, freight rates would no doubt increase. Grain exporters have no viable alternatives. They are captive to rail and have little negotiating leverage.
Would service be better without the MRE? Probably not. Grain movement south to the U.S. is not covered by the MRE and there’s little evidence of better service for that corridor.
Are the railways making a reasonable return on grain movement with the MRE in place? No one really knows without a detailed costing review, but many observers point to all the efficiency gains made in recent decades with larger unit trains, loop tracks and fewer delivery points. These efficiency gains are not captured in the MRE formula.
If the grain industry wants to retain the MRE, shippers and farm groups will need to be united and use their best arguments. In the meantime, the industry should raise a stink over the fuel surcharges being levied by the railways.
Surcharges are outside the MRE. They don’t require approval by the Canadian Transportation Agency and the amounts don’t follow any public formula. Observers say fuel surcharges have become a new revenue stream for the railways and there’s no way for shippers to challenge them.
What’s happening with fuel surcharges is a good indication of what could happen with grain freight rates without the regulatory protection of the MRE.
With a new federal transport minister recently installed and with the government nearing the end of its mandate, major changes in grain transportation are unlikely over the short term. However, it’s still important to delineate issues of concern during this Transport Canada rail review, because eventually issues come to a head.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.
