Canada’s two major railways plan to rethink their grain services after an appeal court decision upheld a substantial cut in how much revenue they get to keep from hauling Prairie grain.
Both Canadian Pacific Railway (CPR) and Canadian National (CN) said Tuesday they will review their offerings for grain shippers, after the Federal Court of Appeal rejected their appeals of the Canadian Transportation Agency’s (CTA) adjustment to the grain revenue cap.
The CTA on Feb. 19 announced a retroactive adjustment to the two railways’ “maximum revenue entitlement” under the Canada Transportation Act. The cap requires revenue from Prairie grain handling that exceeds the annually-decreed maximum to be handed over to the Western Grains Research Foundation.
The CTA, a quasi-judicial federal agency, had ruled that “significant improvements” in railway operating efficiency had reduced the railways’ costs of maintaining federally-owned grain hopper cars. Those costs had previously been embedded into the revenue cap.
The CTA ruling, retroactive to Aug. 1, 2007, cut the overall cap by $72.2 million, which meant a revenue cut of $2.59 per tonne based on the two companies’ expected grain handle.
In CN and CPR’s separate filings to the Federal Court of Appeal within weeks of the CTA decision, they said the retroactive adjustment would mean a reduction of $23 million for each of them in terms of their expected revenue from grain in the 2007-08 crop year.
CN, in its appeal, claimed the CTA decision was “flawed” and that its retroactive application was “illegal,” the railway said Tuesday.
“No sound reason”
“The ruling transforms a business now generating slightly below average profits into CN’s least-profitable commodity group,” CN wrote in its release Tuesday. “It is especially frustrating to CN that the rate reduction is retroactive: rates that were set in the spring of 2008 are to be applied to grain that moved in August of 2007.”
“Rail rates for grain transport in Western Canada were already among the lowest in the world, and we can see no sound policy reason to lower them further,” CN CEO Hunter Harrison said in Tuesday’s release.
CN, he said, “is not in a position to cross-subsidize its grain movements with profits generated from the movement of goods in other sectors of the Canadian economy. As a result, CN will have to carefully review its future investments in grain-related equipment and infrastructure.”
CPR said on Tuesday it will also “review its products and pricing as it relates to this decision and will communicate this to customers in the near future.”
CN’s statement Tuesday was telegraphed last week during a conference on ag transportation in Winnipeg. Wayne Atamanchuk, CN’s assistant vice-president of bulk commodities, told reporters the company was “looking closely at grain-specific investments and waiting to see more clarity on where the future direction is going.”
Atamanchuk cited “creeping re-regulation” of the grain shipping industry as a reason for CN to put grain investments on hold. “We haven’t said we’d never make an investment, but we’re uncertain about where the future goes,” he said in an article by Allan Dawson in the Nov. 27 Manitoba Co-operator.