Western grain shippers will save $2.59 a tonne or $72 million per year after a Federal Court ruled against Canada’s two major railways in a battle over how much maintaining hopper cars should cost.
The Federal Court of Appeal rejected the railways’ argument that the Canadian Transportation Agency erred in the way it retroactively cut the amount of revenue the carriers could earn from shippers in the 2007-08 crop year.
The Nov. 24 ruling also rejected Canadian Pacific’s claim the regulators wrongly used rival Canadian National’s data to determine how much it cost both railways to maintain their share of the hopper car fleet.
The 12,000 cars are owned by the federal government but operated and maintained by the railways, and used to ship Prairie grain to seaports.
“This is awesome news,” Canadian Wheat Board director Ian McCreary said in an interview from his farm near Bladworth, Sask. “That’s a significant saving. That represents pretty much 10 per cent of the (railway’s) base revenue (they can earn hauling grain).
The savings to farmers are ongoing, said Sinclair Harrison, chair of the Farmers Rail Car Coalition (FRCC). It was the coalition, which drew attention to the fact that the railways were allowed to collect more for car maintenance than they were spending.
“Farmers will get the benefit of this for some years to come,” Harrison said.
Since 2000, Canada’s two major railways, Canadian National (CN) and Canadian Pacific (CPR), have been able to set their own freight rates for moving grain so long as the total earnings don’t exceed a cap set by the Canadian Transportation Agency (CTA) annually. The policy allows for rate flexibility to encourage efficiency, while protecting farmers from being gouged.
That cap allocated more than $4,000 a year to maintain Ottawa’s hopper cars, but the railways were only spending $1,700.
Last year Transport Minister Lawrence Canon requested the CTA remove the historical hopper car maintenance costs “embedded” in the revenue cap formula and replace them with the costs incurred. In June 2007, the CTA gave the public and railways advance notice that it intended to make the change sometime in early 2008 and it would be retroactive to August 1, 2007. The CTA made it official in February.
Both CN and CP asked the Federal Court of Appeal to overturn the CTA’s revenue cap change, but last week it dismissed the railways’ case, upholding the CTA’s actions.
“Farmers will get the benefit of this for some years to come.”
– Sinclair Harrison
In news releases both railways said they are considering their legal options, which may include asking the Supreme Court of Canada to rule.
E. Hunter Harrison, CN’s president and chief executive officer, estimates the change will cut CN’s revenue by $23 million a year.
“As a result, CN will have to carefully review its future investments in grain-related equipment and infrastructure,” he said. “CN is not in a position to cross-subsidize its grain movements with profits generated from the movement of goods in other sectors of the Canadian economy.”
“What can they possibly say to defend their actions?” said McCreary. “They were allowed to overcharge for 15 years, they were caught, they had it corrected, they fought it and lost.”
Sinclair Harrison said the FRCC, whose members include 17 western farm organizations, deserves credit for drawing attention to the car maintenance issue. “I don’t think it would have ever seen the light of day had we not pressed it,” he said.
In 1998 the FRCC learned from private car owners that only around $1,500 a year was spent on maintenance. Harrison said Transport Canada didn’t believe the figures at first but asked the CTA to investigate.
The FRCC was created in 1996 when the federal government announced it was selling its cars to help reduce its budget deficit. The FRCC argued since farmers would pay for the cars they might as well own them.
The Conservative government killed a deal to sell the cars to farmers, but Harrison said with Ottawa short of cash and talking about selling assets there yet could be an opportunity for the FRCC to buy the cars.
“We’re still very concerned about these cars going to the railroads and that’s where they’ll end up eventually,” he said. “He who owns the cars, owns the market power and that’s why the potash industry and the coal industry have their own cars so they have a good grasp of where they’re going and what they’re being used for.” [email protected]