Cost index for Prairie grain freight rises with fuel bill

Rising fuel prices have led to another hike in the cost index that helps cap how much Canada’s two main railways can charge per year for hauling Prairie grain.

The Canadian Transportation Agency on Thursday announced it has approved a 3.5 per cent increase in its volume-related composite price index (VRCPI) to 1.1777 for the 2011-12 crop year starting Aug. 1.

The VRCPI is an inflation factor that reflects forecasted changes in Canadian National Railway (CN) and Canadian Pacific Railway’s (CP) costs for labour, fuel, material and capital purchases.

Thursday’s increase in the index follows a seven per cent rise in 2010 to 1.1384, and a 7.4 per cent decrease in 2009 to 1.0638 due to a drop in fuel prices.

The index is set each year following CTA consultations with the railways, farmer groups, the Canadian Wheat Board, shipper organizations, grain companies, and various federal, provincial and municipal government departments.

The index, which must be set each year by the end of April, is one factor in the CTA’s revenue caps on CN and CP. Each railways can set its own rates for grain freight as long as its total grain revenue each year is below its cap.

It’s now up to the CTA to determine, as it does every year, each railway company’s maximum allowable Prairie grain revenue and whether each cap has been exceeded by the railway.

The caps apply to the movement of grain from Prairie elevators or from U.S. origins to terminals at Vancouver, Prince Rupert, B.C., Thunder Bay, Ont. and Churchill, Man. They also apply to CN’s and CP’s movements of grain bound for Eastern Canada, up to either Thunder Bay or the CN station about 250 km north of the city at Armstrong, Ont.

If the agency rules one or both of the railways’ annual revenue from handling Prairie grain has exceeded its cap in a given crop year, the railway has 30 days to pay the excess amount plus a five per cent penalty to the Western Grains Research Foundation.

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