The Canadian Transportation Agency (CTA) on Thursday announced the volume-related composite price index (VRCPI) for Canadian National Railway (CN) for 2023-24 will be 1.8295, up 12.11 per cent from 2022-23.

CPKC’s (Canadian Pacific Kansas City), meanwhile, will be 1.7616, up 5.43 per cent.

The VRCPI is the major variable in the formula that decides the railways’ maximum revenue entitlements (MREs) each crop year. Set each year by the CTA, based on submissions from CN and CPKC, the VRCPI is an inflation factor based on a composite of forecast prices for railway labour, fuel, material and capital purchases.

For the 2023-24 crop year beginning Aug. 1, much of the difference between forecasted and actual cost increases that’s reflected in the increased VRCPI is “directly linked to unexpectedly high fuel and related material costs in 2022,” the CTA said in a release.

The CTA said its fuel model for 2022-23, based on third-party forecasts at the time, projected the railways’ fuel costs would rise by just over 30 per cent.

However, in 2022, those costs actually rose by over 63 per cent on “a notable shortage in the supply of diesel fuel in North America and increased global demand.”

Adjustments were also made for other cost components, including the railways’ “material component,” the CTA said. The agency already determined the cost-of-capital rates for each railway for the new VRCPI in separate rulings last Thursday (April 20).

With the VRCPIs now in place, the MREs — the upper-limit dollar figures on the revenue CN and CPKC can earn for shipping regulated grain in a given crop year — must be set by the CTA for 2023-24 by Dec. 31, 2024 at the latest.

The MRE limits the revenue CN and CPKC can earn for movement of western grain as far east as Thunder Bay or Armstrong, Ont., or up to Churchill, Man., or to ports in British Columbia.

If Prairie grain revenue in a given crop year overshoots their MREs, the two railways’ overages would then be payable to the Western Grain Research Foundation, the mandated beneficiary. — Glacier FarmMedia Network

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The Canadian Transportation Agency, which sets the maximum revenue entitlements (MREs) each crop year for Prairie grain handled by Canadian National Railway (CN) and Canadian Pacific Railway (CP), on Thursday ruled both railways overshot their maximums for the 2021-22 crop year.

The CTA’s determination found CN’s regulated grain revenue came in $3,068,088 above its MRE of $589,140,501 for the crop year, while CP’s came in $2,363,775 above its MRE of $513,144,863.

As per grain handling regulations, those overages must be forfeited in the next 30 days to the Western Grains Research Foundation (WGRF), along with penalties of five per cent ($153,404 for CN, $118,189 for CP) — for a combined payout of $5,703,456.

The CTA’s figures show CN and CP moved a combined 28.4 million tonnes of western grain in 2021-22 crop year — a “notable drop” of 46 per cent from their combined record 52.3 million-tonne handle in 2020-21, “due mainly to the drought conditions experienced in Western Canada during the (2021-22) growing season.”

The CTA’s calculations showed the average lengths of haul for CN and CP in 2021-22 to be 977 miles and 909 miles respectively, for a combined weighted average length of haul of 946 miles, down from 966 in 2020-21.

In 2020-21, by comparison, the CTA had found CN overshot its MRE by almost $2.4 million, while CP came in about $20.25 million below its MRE. Prior to that, both railways overshot their MREs in five of six crop years, except for 2018-19 when grain revenue came in below both railways’ MREs.

The MREs, commonly described as revenue caps, are calculated using a formula factoring in each railway’s annual grain handle and average length of haul along with the volume-related composite price index (VRCPI), an inflation index reflecting the railways’ costs for labour, fuel, materials and capital purchases.

The 2021-22 crop year is the fourth in which CN and CP have separate VRCPIs, following amendments to the Canada Transportation Act in 2018.

CN’s 2021-22 VRCPI was set at 1.4572, up from 1.4441 in 2020-21, while CP’s was set at 1.4826, down from 1.5055.

Those figures were reached after both railways applied for, and received, adjustments to their previously-announced 2021-22 VRCPIs. CP sought an adjustment based on its purchases of 1,400 new hopper cars and CN, for purchasing and leasing 1,075 additional hopper cars — transactions which weren’t accounted for when the VRCPIs were first set.

The WGRF’s research fund, the agreed-upon beneficiary from MRE overages since 2000, is a Saskatoon-based, producer-directed fund that backs crop research to “enhance the profitability and sustainability” of western Canadian grain farmers. — Glacier FarmMedia Network

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The Canadian Transportation Agency on Monday announced Canadian National Railway (CN) booked 2018-19 Prairie grain revenue of $933,357,710, a figure $371,116 below what the CTA set as the company’s maximum revenue entitlement (MRE) for the year.

Canadian Pacific Railway’s (CP) grain revenue for the same crop year came in at $862,734,965, or $764,101 below its 2018-19 MRE, the agency said.

CN and CP had both taken in grain revenue overages of seven figures above their MREs during each of the previous four crop years.

In such cases, their revenue overages, plus penalties of five per cent, were required to be paid to the Western Grain Research Foundation, the mandated beneficiary. However, “no overage-related payouts or penalties were assessed” for 2018-19, the CTA said Monday.

The annual MREs for CN and CP are calculated by the CTA using a formula involving the actual tonnage of Prairie grain hauled and the average length of haul for each railway, along with the volume‑related composite price index (VRCPI), which the CTA sets no later than April 30 every year.

The VRCPI is an inflation index, reflecting forecast changes to the railways’ costs for labour, fuel, material and capital purchases in a given crop year.

In 2018-19, CN and CP moved a combined 46,060,737 tonnes of Prairie grain were moved under the MRE program, up 13.4 per cent from the previous crop year, for an average haul length of haul of 979 miles, up 2.7 per cent.

More specifically, CN moved 24,059,409 tonnes of Prairie grain with an average haul length of 1,023 miles; CP moved 22,001,328 tonnes, with an average haul length of 931 miles.

The MRE varies with the tonnage moved, so a railway can come in under its cap so long as it doesn’t charge more than the average rate per tonne as set by the first part of the MRE formula.

Each tolled separately

Changes to federal regulations under Bill C-49, the Transportation Modernization Act, had previously been expected to take effect starting with the 2019-20 crop year, if the bill didn’t get royal assent until after Aug. 1, 2018.

But when C-49 got royal assent on May 23, 2018, it included a provision requiring the CTA to recalculate the VRCPIs for CN and CP for 2018-19.

With C-49 in play, 2018-19 becomes the first crop year in which CN and CP each get separately calculated VRCPIs.

C-49 also adjusted the VRCPI to subtract costs associated with regulated interswitching activities and containerized grain movements, which now won’t be included as revenues toward the MRE.

C-49 also requires the CTA, in its calculations, to recognize certain costs CN and CP incur to obtain and maintain the hopper cars they use to handle Prairie grain. — Glacier FarmMedia Network

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The Canadian Transportation Agency on Monday announced Canadian Pacific Railway and Canadian National Railway overtopped their maximum revenue entitlements (MREs) for the crop year by $1,500,513 and $1,047,285 respectively.

CN’s MRE-covered grain revenue for 2017-18 hit $788.06 million, while CP’s came in at $709.5 million, the CTA said.

The two companies now have 30 days to pay those MRE overages, plus penalties of five per cent (for CN, $52,364; for CP, $75,026), to the Western Grains Research Foundation (WGRF), the mandated beneficiary. Income from the WGRF’s endowment fund is directed to research work.

In all, the CTA said, the two railways moved 40,618,285 tonnes of MRE-covered western grains during 2017-18, down six per cent from the previous crop year. CN moved 20.98 million tonnes, while CP moved 19.63 million.

The CTA said the average length of haul in 2017-18 came in unchanged from 2016-17, at 953 miles (1,534 km), with CN’s at 1,007 miles and CP’s at 896.

The railways’ annual MREs are calculated by way of a formula factoring in the tonnage of grain and average length of haul along with the volume‑related composite price index (VRCPI), a figure the CTA determines by April 30 each year.

The VRCPI — an inflation index reflecting a “composite” of forecast price changes for railway labour, fuel, material and capital purchases — was set in late April last year at 1.3817, up 4.1 per cent from 2016-17, based mainly on an expected 3.5 per cent increase in forecast price changes for “railway inputs.”

That forecast hike was based mainly on expectations for a rise in West Texas Intermediate (WTI) crude oil values on average in 2017, the CTA said at the time.

The VRCPI’s increase for 2018-19, meanwhile, was limited to 2.8 per cent, due in part to the CTA replacing its 2017 railway input price forecasts with actual data.

Since 2000-01, the VRCPI has grown at an average annual rate of around two per cent.

In recent crop years, CN and CP both overshot their MREs in 2016-17 for a combined overage and penalties of almost $7.2 million; in 2015-16, for over $4.4 million; in 2014-15, for over $9.45 million; and in 2011-12, for over $672,000. CN overtopped its MRE in 2013-14, while CP exceeded its MREs in 2012-13 and 2010-11. — Glacier FarmMedia Network

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The Canadian Transportation Agency (CTA) on Wednesday announced it will set the volume-related composite price index (VRCPI) at 1.4197 for the 2018-19 crop year starting Aug. 1, a hike of 2.8 per cent.

The new VRCPI is to be applied when the CTA rules on the maximum grain revenue entitlements (MREs) for 2018-19 for Canadian National Railway and Canadian Pacific Railway (CN, CP) by Dec. 31, 2019 at the latest.

One of several factors used to set the annual MREs, the index is an inflation factor reflecting a “composite” of forecast prices for the railways’ labour, fuel, material and capital purchases.

The CTA said Wednesday the next VRCPI increase is based in part on a 3.2 per cent increase in forecasted prices for railway inputs in 2018–19.

Those forecast price hikes include “modest” increases in labour and material components. Projected increases in fuel costs and “railway investments” are seen factoring in “more robustly,” the agency said.

Offsetting those price increases, however, is a 0.4 per cent decrease the CTA reached by replacing its 2017 railway input price forecasts with actual data, and by revising its forecasts for 2018.

The annual MREs for CN and CP are calculated each year using a formula based on total grain tonnage and average length of haul, along with the VRCPI.

Any overages CN and CP make on Prairie grain in a given crop year, plus penalties, are paid into the Western Grains Research Foundation’s endowment fund, income from which is directed to research work.

The CTA in December found both railways overshot their 2016-17 MREs by a combined $6.85 million. — AGCanada.com Network

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The Canadian Transportation Agency (CTA) announced Friday it will raise its volume-related composite price index (VRCPI) by 4.8 per cent, to 1.3275, for the 2016-17 crop year.

The VRCPI is the inflation factor in the annual maximum revenue entitlement (MRE) — that is, the revenue cap — imposed on Canadian National and Canadian Pacific Railways (CN, CP) for their handling of Prairie grain.

The increased VRCPI — a weighted composite of the CTA’s forecasted prices for railway labour, fuel, materials and capital spending — will be applied when the CTA sets the 2015-16 cap, a decision expected by Dec. 31, 2017.

“Nearly half” of the announced increase is owing to the sharp decline in the Canada/U.S. exchange rate between 2014 and 2015, and to forecasts for the Canadian dollar to decline “even further” in 2016, the agency said.

The weaker loonie increases the railways’ costs for materials used in “day-to-day operations,” the agency said, as CN and CP pay for many of those items in U.S. dollars.

Volatility in both the price of crude oil and the exchange rate make fuel prices “very difficult” for expert forecasters and the CTA to predict with a high level of accuracy, the agency said.

In the 4.8 per cent increase, the CTA said, 2.2 per cent is based on the use of “actual” preliminary data to replace last year’s forecasts of price changes, along with revised forecasts for 2016.

The CTA said its material price forecasting model last year “underestimated” the price change for railway materials, partly because the third-party forecasts it used for the Canada/U.S. exchange rate for 2015 and 2016 were too high.

Also, the CTA said, a weaker dollar increases the railways’ leased car costs, since lease rates are often negotiated in U.S. dollars.

Another 1.2 per cent is based on revised index weights, in turn based on the 2014 financial statements from CN and CP. The remaining 1.4 per cent increase is based on forecast price changes for “railway inputs” for the 2016-17 crop year. — AGCanada.com Network

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The Canadian Transportation Agency on Tuesday ruled Canadian National Railway and Canadian Pacific Railway (CN, CP) exceeded their grain revenue entitlements for the crop year by $6,866,595 and $2,137,168 respectively.

The CTA’s decision gives the two railways each 30 days to pay those overages to the Western Grains Research Foundation (WGRF), plus penalties of five per cent worth $343,330 and $106,858 respectively.

CN’s and CP’s maximum revenue entitlements (MREs) for the year had been set at $738,202,311 and $721,908,606 respectively.

The two railways together moved 41,306,191 tonnes of western grain during the crop year, up 7.4 per cent from the previous crop year, the CTA said. The railways’ average length of haul during the year was 947 miles (1,524 km), up two miles.

Specifically, CN moved 20.35 million tonnes with an average haul length of 1,011 miles; CP moved 20.96 million tonnes, with an average haul length of 885 miles.

The Reuters news service on Tuesday quoted CP spokesman Jeremy Berry as saying the company plans to review the agency’s ruling. No official comment from CN was available.

The CTA said Tuesday its decision also takes into account four out of six adjustments CN sought to make in September and October to the Grain Traffic Database (GTDB) after its previous filings to the database in June.

CN’s other two requested adjustments “were more complex and constitute material changes that require more detailed examination,” the CTA said.

Those two changes involve mileage between CN’s Thornton Yard hub at Surrey, B.C. and various spots in the greater Vancouver area, and between its Neebing Yard hub at Thunder Bay, Ont. and various points in the area.

The CTA said it “intends to first consult with industry stakeholders, including railway companies, grain shippers, producer groups and associations, provincial governments and municipal associations” starting early in 2016, given the “potential significance” of the requested changes.

Thus, the CTA said, those two requests won’t be considered in this year’s MRE findings but will be deferred to the agency’s decision on 2015-16.

Federal transportation law since 2000 has required the CTA to determine each railway’s MRE each crop year and whether the two companies exceeded those entitlements.

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

MREs are calculated by way of a CTA formula taking in elements such as the volume‑related composite price index (VRCPI), which the CTA calculates before April 30 each year based on forecasted price changes for railways’ labour, fuel, material and capital purchases.

The CTA in April last year raised the VRCPI by 4.2 per cent for 2014-15, and in April this year cut the index back by 5.6 per cent for 2015-16.

The index, along with the tonnage of grain hauled and the average length of haul during the crop year, is used to work out the railways’ yearly entitlements.

Government regulations name the WGRF, a checkoff-financed, farmer-directed Prairie grain research foundation, as the recipient of any overages.

CN was found in 2013-14 to have come in $4,981,915 above its MRE, while CP was $1,653,714 below its MRE in that crop year. — AGCanada.com Network

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The Canadian Transportation Agency on announced Thursday it will cut its volume-related composite price index (VRCPI) by 5.6 per cent, to 1.2517, for the 2015-16 crop year.

The VRCPI is the inflation factor in the annual maximum revenue entitlement — that is, the revenue cap — imposed on Canadian National and Canadian Pacific Railways (CN, CP) for their handling of Prairie grain.

The revised VRCPI — a composite of the CTA’s forecasted prices for railway labour, fuel, materials and capital spending — will be applied when the CTA sets the 2015-16 cap, a decision expected by Dec. 31, 2016.

The bulk of the 5.6 per cent cut is a 4.1 per cent decrease due to the difference between the CTA’s forecasts for 2014 costs and “actual data,” and changing its forecasts for 2015 accordingly.

Specifically, the CTA said, it “over-forecasted” the expected change in the railways’ fuel costs for 2014-15, based on “third-party” outlooks for crude oil prices and the value of the Canadian dollar.

The third-party forecasts for the price of crude oil last year were higher than the actual 2014 price, and forecasts for the Canadian dollar were lower than actual levels, the CTA said. Crude oil, priced in U.S. dollars, is more expensive under a lower loonie.

Last year’s 2015 forecast for the price of crude oil was “much lower” than this year’s, the CTA said, while the 2015 forecast for the exchange rate was higher, which works to “partially offset” the forecast decline in crude oil prices.

This isn’t the first time the CTA has had to re-tweak the VRCPI based on fuel price volatility, which for the agency and its third-party experts makes rail fuel costs “very difficult to predict… with a high level of accuracy.”

The CTA also announced Thursday it will consult with industry stakeholders on developing a new methodology for adjusting the VRCPI to factor in CN and CP’s use of hopper cars leased out to the two companies’ U.S. subsidiaries.

The consultations follow an application from CN to adjust the 2014-15 VRCPI to factor in the railways’ costs of obtaining grain cars, as grain hopper cars from the federal government’s fleet age out of service. — AGCanada.com Network

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