Rising fuel and labour costs may allow Canada’s two main railways to keep more revenue from Prairie grain freight in 2008-09.
The Canadian Transportation Agency (CTA) on Thursday announced it would boost the 2008-09 volume-related composite price index (VRCPI), a figure used to calculate the cap on western grain freight revenue, to 1.1493, up eight per cent from the 2007-08 index of 1.0639 for 2007-08.
“The increase stems mainly from high fuel prices in 2007, higher fuel prices forecast for 2008, as well as rising labour costs,” the CTA wrote in a press release Thursday.
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The VRCPI, determined by April 30 each year, is one of the factors the CTA uses in setting the Prairie grain revenue cap. Other costs involved in setting the VRCPI include materials, rail car leasing, depreciation and cost of capital.
The 2007-08 cap saw a $72.2 million downturn in February 2008, when the CTA ruled that the railways’ grain hopper car maintenance costs had declined in recent years and should be pegged based on railways’ actual costs, not a higher “embedded” figure.
The VRCPI is essentially an inflation factor that reflects forecast prices for railway labour, fuel, material and capital purchases by Canadian National Railway (CN) and Canadian Pacific Railway (CPR).
It’s now up to the CTA to determine, as it does every year, each railway company’s annual Prairie grain revenue and whether or not each cap has been exceeded by the railway. The caps apply to the movement of grain from Prairie elevators to terminals at Vancouver, Prince Rupert, Thunder Bay and Churchill.
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, barring an appeal by the railway.
