Prairie grain freight cost index to rise with fuel prices

An “expected sharp rise” in fuel costs in 2017 compared to 2016 may help raise the cap on how much money Canada’s big two railways can charge to move Prairie grain in 2017-18.

The Canadian Transportation Agency — the tribunal which, among its other duties, sets the annual maximum revenue entitlements (MREs) on Prairie grain freight for Canadian National Railway (CN) and Canadian Pacific Railway — on Friday announced a volume-related composite price index (VRCPI) of 1.3817 for the crop year starting Aug. 1.

The new VRCPI is to be applied when the CTA rules on the railways’ maximum grain revenue entitlements for 2017-18, as expected by Dec. 31, 2018 at the latest.

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The VRCPI is “essentially an inflation factor” for the forecast prices that CN and CP pay for labour, fuel, material and capital purchases.

The 4.1 per cent increase in the VRCPI from 2016-17 is based mainly on an expected 3.5 per cent increase in forecast price changes for “railway inputs” in 2017-18, the CTA said.

Those expectations come mainly from a forecast for West Texas Intermediate (WTI) crude oil values to rise to US$53.70 per barrel on average in 2017, from US$43.30 in 2016, the agency said.

The VRCPI has grown at an average annual compounded growth rate of 1.9 per cent over the 2000-01 to 2017-18 period, the CTA said, tracking up and down with “exceptional fluctuations” in recent years due in part to fuel price volatility.

The CTA last April set the 2016-17 VRCPI at 1.3275, a 4.8 per cent increase from the previous year, citing recent and further expected declines in the Canada/U.S. currency exchange rate.

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

The 2015-16 VRCPI had been cut in April 2015 to 1.2517, based in part on a sharper-than-expected drop in fuel costs, but was later raised slightly to 1.2668 after CN sought an adjustment.

CN and CP in January this year were found to have exceeded their 2015-16 MREs by over $4.4 million combined. — Network



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