Diesel fuel costs are lower than expected, but the decrease will likely only save farmers about half a loonie per tonne
The maximum revenue Canada’s two main railways can earn from shipping Prairie grain next crop year will fall by 1.8 per cent.
That could potentially save grain farmers millions on their 2013-14 freight bills, but on average only knock half a buck off a tonne. And it doesn’t come close to offsetting the record 9.5 per cent increase that came into effect this crop year.
The Canadian Transportation Agency announced the 1.8 per cent reduction in its Volume-Related Composite Price Index, which it uses along with other factors to determine the railways’ revenue caps. The index reflects a composite of the forecasted prices for labour, fuel, material and capital purchases. The drop in the coming year is mainly due to lower-than-forecast diesel fuel prices, the agency said.
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Predicting precisely how much farmers will save is almost impossible as the revenue cap changes every year to reflect the number of tonnes of grain shipped and the distance they are hauled. As well, the railways might not collect all the revenue they are entitled to — although most years they’re just under or over the cap. If they go over the cap, the railways must remit the difference, plus a five per cent penalty, to the Western Grains Research Foundation.
Based on 2011-12 grain movement and tonnage, a 1.8 per cent reduction would cut the $1-billion total cap for the two railways by $19.2 million, or about 57 cents a tonne.
Based on last year’s cap, the average per-tonne cost for shipping grain was $31.37. What farmers in fact paid varied, depending on where they delivered their grain and the deals they struck with grain buyers.
Many farm groups have long argued for a federal government review of what it costs the railways to ship grain to see if they have passed on the savings from having fewer, more efficient elevators on fewer branch lines.
When grain freight rates were deregulated in the mid-1990s farmers expected to share in the savings from a more efficient grain handling and transportation system, which for many added to their costs because of longer trucking distances.
The current revenue cap formula is adjusted to reflect higher railway costs for fuel and labour but not improved rail efficiency.
The federal government introduced the cap in 2000 so the railways could set their own freight rates, while protecting farmers from being gouged. The railways said competition would keep revenues well under the cap, although that hasn’t happened most years.
Meanwhile, farmers and other rail shippers are waiting for Ottawa to pass legislation aimed at improving rail service. Bill C-52 is supposed to compel the railways to reach service level agreements with shippers making it easier to resolve service complaints.
In March, shippers complained rail service was the worst it has been in three years.
