The index that determines how much Prairie grain handling revenue Canada’s big two railways get to keep will be raised in the coming crop year, mainly on way-higher-than-expected fuel costs.
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.
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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
