Prairie grain freight cost index adjusted upward

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Corrected, May 6, 2019 — Canada’s big two railways can expect a small raise in the amount of revenue they get to keep from hauling Prairie grain in the coming crop year.

The Canadian Transportation Agency (CTA) on Tuesday announced it will set the volume-related composite price index (VRCPI) at 1.4371 for Canadian National Railway (CN) and 1.5148 for Canadian Pacific Railway (CP) for the 2019-20 crop year starting Aug. 1.

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The 2019-20 crop year will be the first in which CN and CP get separate VRCPIs, following amendments passed last year to the Canada Transportation Act dealing with the maximum revenue entitlement (MRE) program, which sets revenue caps for Prairie grain freight.

Given the 2018-19 VRCPI of 1.4197, the new VRCPIs announced Tuesday represent hikes of 1.82 per cent for CN and 3.7 per cent for CP.

The VRCPI is an inflation factor, reflecting a composite of forecast prices for railway labour, fuel, materials and capital purchases.

The changes in the VRCPIs for 2019-20 stem mainly from “modest increases in the fuel and material components” of the VRCPI, and from the “recognition of costs for the acquisition of hopper cars.”

Specifically, the CTA forecasts fuel price increases of 2.25 per cent for CN and 2.79 per cent for CP, taking into account increases in “fuel-related taxes” along with a projected decline in the price of crude oil in 2019, to be offset in part by a “small projected increase” in 2020.

The agency also expects “moderate increases for fabricated metals products, refined petroleum and coal products.”

The CTA said it might also have to make further adjustments to CP’s VRCPI, because the railway handed in its projected cost figures for maintenance of hopper cars on April 5, leaving the agency “insufficient time to make an informed determination on this matter given the statutory deadline of April 30.”

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. The index numbers announced Tuesday will be used when the CTA sets the 2019-20 MREs, a decision due by Dec. 31, 2020.

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 CP and CN overtopped their 2017-18 MREs by about $1.5 million and $1.05 million respectively. — Glacier FarmMedia Network

Correction From Source, May 6, 2019 — An earlier version of this article cited the initial April 30 press release from the Canadian Transportation Agency which incorrectly listed the VRCPI for CN at 1.4373.

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