The final tally is in and Prairie farmers spent more than $1.3 billion on rail transportation in the last crop year.
The average bill was $33.69 a tonne for the 2013-14 crop year (a drop of 30 cents per tonne from the previous year) and the total cost was almost exactly what’s allowed under federal regulation.
CP Rail was within $2 million of its $647-million entitlement while CN Rail exceeded its $667-million entitlement by $4.98 million. (The excess will go to the Western Grains Research Foundation, plus a five per cent penalty of $249,096.)
The numbers are further evidence the railways are not competing to drive grain freight rates down, farmers and grain companies said.
“The transportation industry on rail will never be an open market,” said Irma producer and Alberta Wheat Commission chair Kent Erickson.
“When you have a monopoly, or a closed system, there have to be measures in place. There has to be some legislation, which is a means of keeping those costs in check.”
Part of that should be reciprocal penalties, so the railways, just like farmers and grain handlers, would be penalized when they don’t fulfil obligations, said Erickson, adding the current system (which is based on service-level agreements) isn’t adequate.
Erickson is one of many farm leaders calling for change.
“When you see the way this plays out, it says to me there isn’t much competition and there is no incentive for the railways to undercut anybody else because they have no real natural competitors,” said Doug Chorney, president of Keystone Agricultural Producers, Manitoba’s main farm group.
The federal transport minister has set up a blue-ribbon panel (headed by former cabinet minister David Emerson) to review the Canada Transportation Act (CTA) and farm groups have put reciprocal penalties at the top of their wish list.
“This puts the onus on CP or CN when they’re promising 500 cars a week to a company, that there are real-time penalties or discounts if they don’t fulfil those obligations,” said Erickson. “The second component of the whole review is transparency, so farmers can see where grain is moving and where grain is coming from.”
American producers can go to a government-mandated website detailing grain movement, and Canadian farmers should be able to access that sort of information so they can see how well the system is, or isn’t, working, said Erickson.
Many observers expect the railways will use the CTA review to argue for an end to the revenue cap and a more free-market approach.
But that would send freight costs for farmers even higher, said Wade Sobkowich, executive director of the Western Grain Elevator Association.
“We know the railways try to meet the cap, and that means they are trying to earn as much revenue as they can,” said Sobkowich. “If it was gone you can be sure that they would well exceed the ceiling that the cap would otherwise have in place.”
The grain transportation system has been working much better in Alberta this winter, thanks to a series of federal orders-in-council which set minimum grain movement levels, said Erickson.
But some problems remain, particularly for elevators on branch lines, in remote areas, and those unable to handle unit trains, he said.
“Smaller shipment sizes like five cars or 10 cars are getting delayed while they are fulfilling the 100-car low-hanging fruit, as some people in the industry would call it,” he said. “They still weren’t able to manage the whole logistics or the whole system very well. That’s what we have to address in the next year through the transportation review and some of the measures that we’ll be putting in place.”
Still, CN and CP moved the most grain in a single crop year since regulations establishing the revenue entitlement (which is based on a volume- and distance-related formula) were implemented in 2000-01 — 38.76 million tonnes were moved to export ports in the 2013-14 crop year.
The Canadian Transportation Agency adjusts the maximum revenue entitlement for inflation, but the formula is based on railway costs from 20 years ago and doesn’t account for efficiency gains. A 2010 study estimated the railways received an extra $4.61 and $8.81 a tonne in the crop years 2007-08 and 2008-09 because the formula was based on old railway costs.
Nevertheless, one or both railways have exceeded their revenue entitlement 10 out of the last 14 crop years, resulting in railway payments to the Western Grains Research Foundation totalling more than $82 million. Most years the overage and penalties are small. The biggest transfer — $66.6 million — occurred in 2007-08, when both railways exceeded their entitlements.