The VRCPI for the Canadian National Railway is set at 1.9734, an increase of 1.72 per cent over last crop year. For Canadian Pacific Kansas City Railway, the VRCPI is set to 1.9349, an increase of 3.11 per cent from the previous crop year, the CTA said in a news release on Wednesday.

The VRCPI is an inflation factor determined based historical price information for railway inputs like labour, fuel, material and “other capital items,” the CTA said. Future changes in railway price components are also factored in.

The indices are used to determine the railways’ maximum revenue entitlements for movement of Western Canadian grain in the 2025-2026 crop year.

If the railways exceed their maximum revenue entitlement, they must pay the excess, plus a penalty, to the Western Grains Research Foundation.

In 2024, CPKC exceeded its revenue cap by a bit more than $1.8 million. CN did not exceed its maximum revenue entitlement.

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That’s as per the Canadian Transportation Agency’s (CTA) ruling, announced on Christmas Eve in a news release.

• CN’s grain revenue of $1,213,732,435 was $34,329,653 below its entitlement of $1,248,062,088.
• CPKC’s grain revenue of $871,716,922 was $1,824,083 above its entitlement of $869,892,839.

CPKC has 30 days to pay the excess revenue, plus a five per cent penalty of $91,204, to the Western Grains Research Foundation.

The CTA determines the two railways’ annual revenue entitlement as a form of economic regulation, the CTA said.

The total amount of Western Canadian grain moved in 2023-2024 was a bit more than 43.7 million tonnes. This was down 3.5 per cent from the previous crop year, which the CTA attributed to lower crop exports for the year.

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In a decision handed down yesterday, the Canadian Transportation Agency ruled that the Canadian National Railway Company (CN) exceeded its maximum grain revenue of  entitlements in crop year 2022-23 by nearly $3.5 million. Its limit is $1.08 billion, the CTA said in a news release.

The Canadian Pacific Kansas City Railway Company (CPKC) exceeded it’s revenue limit by almost $3.4 million. Its revenue is capped at $940.5 million.

CN and CPKC have 30 days to pay the overage, plus a five per cent penalty.

By regulation, these payments go to the Western Grains Research Foundation, the news release added.

The railways moved some 60 per cent more grain this year than last year, with over 45.3 million tonnes freighted across the country. Last year, the trains moved 28.4 million tonnes.

The increase can mainly be attributed to recovery after the droughty 2021-22 season, CTA said.

In the last season, both railway firms also exceeded their revenue caps, chipping in $5.7 million to grain research.

Over the 2022-23 season, the bulk of grain moved went to Vancouver, with CN carrying a bit more than 15.1 million tonnes, and CPKC moving just over 15.4 million, according to the CTA’s written decision.

CN brought 4.8 million tonnes to Prince Rupert, just over 1.5 million to eastern Canada, totallying 24.2 million tonnes with an exchange switching adjustment.

CPKC brought 4.6 million tonnes to Thunder Bay, and nearly 861,000 tonnes to Eastern Canada with a total of 21.1 million tonnes moved, including the exchange switching adjustment.

—Geralyn Wichers is associate digital editor of AGCanada.com. She writes from southeastern Manitoba.

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Transport Minister Pablo Rodriguez announced Tuesday that his department will review the deal under the mergers and acquisitions provisions of the Canada Transportation Act, starting with a “public interest assessment” which can run up to 250 days — that is, until June 2, 2024 at the latest.

The deal is “of significant national interest in Canada’s transportation sector and the broader supply chain,” he said, as both companies hold ownership interests in port terminals across the country.

“Healthy competition in the transportation sector is necessary to ensure fair pricing and access for users, especially for Canadian farmers,” he said.

The public interest assessment, he said, will include consultations with Canada’s ports and marine industry as well as other industry stakeholders, government departments and other levels of government, as well as Canadians generally.

Such an assessment is required under the Transportation Act, which says the minister must assess whether a proposed transaction involving a “federal transportation undertaking” raises issues of the public interest in national transportation.

The public interest, from the Act’s perspective, is “a broad concept” and individual transactions may raise different public interest issues or concerns, depending on each deal’s “unique facts and context.”

If, during the minister’s assessment, the deal is shown to raise public interest issues, the Canadian Transportation Agency or any other appointed person can then be tasked with further examining those specific issues.

Bunge’s assets in Canada include oilseed crushing operations and part-ownership, with a Saudi state-owned grain firm, in Prairie grain handler G3.

G3, created in 2015 with the assets of the privatized Canadian Wheat Board, today has port grain terminals at Vancouver, Thunder Bay, Hamilton, Trois-Rivieres and Quebec City as well as a network of 19 Prairie grain elevators.

Viterra, meanwhile, has its Cascadia and Pacific terminals at Vancouver plus terminals at Prince Rupert and Montreal and two at Thunder Bay plus a substantial grain elevator network.

Transport Canada’s review is independent of a review by the federal Competition Bureau, which in June said it will also review the deal. That review also has yet to be completed.

According to Transport Canada’s review guidelines, potential impacts on prices and access to services and facilities are “of prime interest” in any deal that involves a transport undertaking.

“In fully competitive markets these issues will be of lesser concern,” the department says, while “in markets characterized by less competition, such impacts may take on a higher level of significance.”

Other impacts to be considered in such a review could include the “financial viability of the entity resulting from the merger or acquisition” as well as “whether a transaction may adversely affect one or more transportation sectors.”

For its part, Bunge last month announced it has scheduled an “extraordinary general meeting” of its shareholders, to be held virtually on Oct. 5, to approve the acquisition of Viterra.

Bunge said in June it expects to close the merger of the two firms by mid-2024, pending approvals from regulators in countries where the companies operate, and approval from Bunge shareholders.

Separately, the Oct. 5 meeting will seek approval to move Bunge’s “place of incorporation and residence of the ultimate parent company,” to Switzerland from Bermuda. — Glacier FarmMedia Network

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The CTA’s report stated that CN’s revenue from transporting Western Canadian grain was nearly C$1.045 billion and was C$2.4 million over its entitlement. The railway must now pay a five per cent penalty of nearly C$120,000 to Western Grains Research Foundation.

Conversely CP’s grain revenue amounted was in excess of C$1.014 billion, and C$20.25 million under its cap.

The CTA noted 2020/21 saw record grain movement of more than 52.33 million tonnes, up nine per cent from the previous year. The agency issued its ruling on Dec. 22.

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The Canadian Transportation Agency on Wednesday released its determination that CN’s 2021-21 Prairie grain revenue of $1,044,909,345 came in $2,399,676 above its maximum revenue entitlement (MRE) for the year.

CN’s rival Canadian Pacific Railway, meanwhile, booked 2020-21 Prairie grain revenue of $1,035.175,212, which put it $20,248,072 below its MRE for the crop year.

The CTA’s decision gives CN 30 days to pay out its overage — plus a five per cent penalty of $119,984 — to the Western Grains Research Foundation, the mandated beneficiary when either railway exceeds its annual revenue cap.

The CTA noted the 2020–21 crop year was a record year for the railways in terms of combined Prairie grain handle at 52,334,795 tonnes of western grain — the “highest volume ever on the record” and nine per cent over the 2019-20 handle.

CN moved 26.36 million tonnes of Prairie grain during the crop year, the CTA said, while CP moved 25.98 million.

CN and CP recorded average weighted haul lengths of 1,018 and 913 miles respectively during the crop year — a combined average of 966 miles, up 0.1 per cent on the year.

Commonly called the “revenue cap,” the MRE for each of the two railways varies with the tonnage of grain moved. A railway company can keep within its MRE, the CTA said, “so long as it does not charge more, overall, than the average rate per tonne as set by the first part of the MRE formula.”

The MRE formula factors in the tonnage each railway hauls, the average length of haul and the volume-related composite price index (VRCPI), an inflation index set each year by April 30 to reflect each railway’s costs for labour, fuel, materials and capital purchases.

The VRCPIs for CN and CP for 2020-21 were first set in April last year at 1.4202 and 1.4205 respectively — both down from 2019-20. However, both were later increased as the two railways sought to get additional costs factored into the VRCPIs. Among those were:

• costs CN incurred obtaining hopper cars, as per 10 car supply agreements and three purchase agreements;
• CP’s cost of capital, after an April 9 ruling from the Federal Court of Appeal that the CTA should determine CP’s cost-of-capital rate for 2020-21 with the same methodology used for 2019-20; and
• CN’s decision to extend its lease by three months to the end of the 2020-21 crop year on a fleet of G3 hopper cars, rather than return them at the end of April 2021 as originally planned, “given notable grain volume increases this crop year.”

The final VRCPIs used to set the MREs for CN and CP for 2020-21 were 1.4441 and 1.5055 respectively. — Glacier FarmMedia Network

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The Canadian Transportation Agency (CTA) on Dec. 22 ruled Canadian National Railway (CN) and Canadian Pacific Railway (CP) each overshot their maximum revenue entitlements (MREs) for the year, by $3,170,615 and $2,170,010 respectively.

The overages, plus respective five per cent penalties of $158,531 and $108,501, are payable to the Western Grains Research Foundation (WGRF), the agreed-upon beneficiary, within 30 days of the ruling date, the agency said.

The railways’ allowable MREs for the crop year were $930,331,426 and $997,060,798 respectively.

CN’s qualifying Prairie grain movements in 2019-20 totalled 23,525,161 tonnes, while CP’s reached 24,498,737. Their average lengths of haul came in at 1,013 and 918 miles respectively, the CTA said.

Combined, their grain handle was up 4.3 per cent on the year, while their combined average length of haul, at 965 miles, was down 1.4 per cent, the agency said.

The two railways’ annual MREs, commonly described as their revenue caps, are calculated using a formula factoring in their grain handles 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 CTA in May 2019 set the 2019-20 VRCPIs at 1.4371 for CN and 1.5148 for CP, both up from 2018-19. Both railways later sought and got adjustments from the agency, which raised CN’s 2019-20 index to 1.4498 and CP’s to 1.5311.

The 2019-20 crop year marked the second in which CN and CP have separate VRCPIs, following amendments to the Canada Transportation Act in 2018.

The CTA in May 2019 said the increased VRCPIs for 2019-20 were based mainly on “modest increases in the fuel and material components” of the index, and from the “recognition of costs for the acquisition of hopper cars.”

CN and CP in 2018-19 both came in below their MREs, after both booking overages of seven figures above their MREs during each of the previous four crop years. — Glacier FarmMedia Network

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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.

The 2019-20 crop year will be the second 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.

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.

Correction, Jan. 7, 2021 — An earlier version of this article incorrectly stated 2019-20 would be the first year in which CN and CP received separate VRCPIs. In fact, the CTA had set a single VRCPI for 2018-19 in April 2018, but in October 2018 it re-determined the VRCPIs separately for the two railways for 2018-19, making 2019-20 the second year with separate VRCPIs. We regret the error.

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The limitation, according to Mark Hemmes, Canada’s grain monitor and president of Quorum Corporation, is the ability to move the crop between country elevator and port terminal by rail.

“Grain companies generally do not market grain based on global market demand, but on what rail capacity they think they can obtain,” read a slide Hemmes presented during a talk at CropConnect in Winnipeg Feb. 13.

So if the railways provided enough capacity to meet grain companies’ full demand would it increase competition among companies for farmers’ grain?

Yes, says Wade Sobkowich, executive director of the Western Grain Elevator Association (WGEA).

“If grain companies can move more during the peak period (when international prices are their highest) they will be competing more aggressively to attract that grain from the farmer during that same period,” he said in an interview Feb. 15.

Sobkowich has often said WGEA members — some of Western Canada’s biggest grain companies — sell based on what they think the railways can deliver. When they book export sales beyond that it results in demurrage and cancelled contracts, costing grain companies millions of dollars and tarnishing their reputations as reliable suppliers.

During peak demand grain companies could fill twice as many cars as the 5,500 and 4,000 a week Canadian National (CN) and Canadian Pacific (CP) are each offering, during non-winter and winter months, respectively, Sobkowich said in an interview last year.

“We don’t expect the railways to gear up to provide 18,750 rail cars a week right off the bat, but it should be a number that they’re striving for,” he said Aug. 22.

The WGEA has long maintained the railways don’t move all the grain the companies want to ship at certain times because as functional monopolies they don’t have to. Grain companies have few economic alternatives to rail. The railways don’t invest in costly surge capacity knowing they’ll move most of that grain eventually when capacity is available, according to the WGEA.

The railways counter that they are continually investing in additional capacity, but demand from grain and other products fluctuates. They must balance shipper needs with costs.

Hemmes agrees lacking rail competition affects grain shipping.

“It’s in the interest of the railway to have the same amount of traffic moving every week, 52 weeks a year,” he said in an interview after his presentation. “But that’s not the way commodities get sold.”

The WGEA is generally pleased with rail service this crop year, Sobkowich said. CN and CP supplied a combined 87 per cent of hopper cars ordered in grain week 27, the Ag Transport Coalition’s weekly report issued Feb. 8 said.

The railways are close to meeting the targets they set for themselves, not what the companies would ship if the railways could meet the demand, Sobkowich said.

Record grain volumes were shipped to port up until December, Hemmes said.

There were issues getting cars into and unloaded at Vancouver in December — severe enough to prompt the Canadian Transportation Agency to investigate.

That was followed by two derailments on CP and bitterly cold weather, which results in shorter trains, he said.

“So all things considered I think so far this year we’ve been doing really well with those isolated exceptions,” he said.

But not only are the railways not fully meeting grain shippers’ seasonal demand, they’re slipping when it comes to meeting annual demand, Hemmes said.

Over the last six years Canadian grain production has been growing by 2-1/2 to three per cent a year, he said.

“We’ve had this the last four years where we’re seeing this gradual increase in the carry-out (of Canadian grain) and what that says is that every year we’re failing to move a certain portion of our crop,” Hemmes said. “Somewhere between two million and three million tonnes last year could’ve moved. It could have been sold. We didn’t because the capacity to move it to a port position wasn’t there.

“I think in the long term we’ve got some things to keep a watch on and be mindful of all the things that can go wrong, things that could almost be read as systemic issues.

“And it’s not a problem in the country and it’s not a problem at the port. So what’s left? It’s got to be right in the middle (the railways).”

West Coast car cycles had typically been 13 to 14 days in recent years, Hemmes said.

“We’re seeing car cycles that are 16 days, and some months they’re going up to 18 days,” he said. “That’s not going to get you the capacity that you need.”

The longer car cycles are likely a combination of too few rail crews and locomotives and increasing total traffic, he said.

“You’re seeing increases in container movements, in coal movements and potash wants to move more,” Hemmes said. “So with those increasing demands puts a greater stress on the railways and they’re just having to catch up.”

The impact from oil is minor, accounting for just two to five per cent of total traffic, compared to grain at 17 (CN) and 22 (CP) per cent, he said.

The railways say they are gearing up to meet the growing demand to ship more grain by hiring more staff, buying more locomotives, adding more track, buying new, high-capacity cars and running longer trains.

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Canadian National and rival Canadian Pacific Railway were rationing space on trains travelling in the Vancouver area and prioritized some commodities over others to deal with congestion, causing complaints from shippers.

Canada is a top shipper of crops, fertilizer, oil and pulp, but has in recent years needed government intervention to keep commodities moving, as new free trade deals with European and Pacific nations drive up demand.

Fluidity in Vancouver improved this month because of actions taken by CN and other companies in the supply chain, CN spokesman Jonathan Abecassis said in a statement. He was not immediately available for comment on whether CN is continuing to ration space and prioritize some commodities.

The Canadian Transportation Agency is holding a hearing next week in Vancouver for shippers to voice concerns about congestion at the port in late 2018 and early this month.

— Rod Nickel is a Reuters correspondent covering the ag and mining sectors from Winnipeg.

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