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

The post CN over, CP well under 2020-21 grain revenue caps appeared first on Manitoba Co-operator.

The Canadian Transportation Agency (CTA) on Thursday announced its decisions on the volume-related composite price index (VRCPI) for 2021-22. The index is the major variable in the formula that decides the railways’ maximum revenue entitlements (MREs) each crop year.

For the new crop year starting Aug. 1, Canadian National Railway’s VRCPI will be 1.4505, up 0.5 per cent from its figure for 2020-21, while Canadian Pacific Railway’s will be 1.4787, down 1.78 per cent.

Set each year by the CTA based on submissions from CN and CP, the VRCPI is an inflation factor based on a composite of forecast prices for railway labour, fuel, material and capital purchases.

Both railways expect to pay higher prices for fuel in 2021-22, but for CN, fuel prices were offset by relatively “moderate” increases in labour costs and material prices and a “projected decline” in its cost of capital, the agency said.

For CP, “expected declines in labour prices and cost of capital more than offset projected increases in fuel prices.”

With the new VRCPIs now in place, the MREs — the upper-limit dollar figures on the revenue CN and CP can earn for shipping regulated grain in a given crop year — must be set by the CTA for 2021-22 by Dec. 31, 2022 at the latest.

If Prairie grain revenue in a given crop year overshoots their MREs, the railways’ overages would then be payable to the Western Grain Research Foundation, the mandated beneficiary.

Revisions

The 2020-21 VRCPIs for both CN and CP have both shifted upward this year since they were first set in a CTA ruling in April 2020.

CN, in January this year, asked that its 2020-21 VRCPI be recalculated to account for costs it incurred obtaining hopper cars, “pursuant to 10 car supply agreements and three purchase agreements,” the CTA said.

The agency said March 24 it would bump up CN’s 2020-21 VRCPI from 1.4202 to 1.4433.

CP’s 2020-21 VRCPI, meanwhile, was reset Thursday in the wake of an April 9 decision by the Federal Court of Appeal, quashing a decision the CTA made in April last year over the rate at which it sets CP’s eligible cost of capital.

The appeals court ordered the CTA to set CP’s 2020-21 cost of capital rate using the same methodology it used for 2019-20 — a reset which bumps up CP’s 2020-21 VRCPI from 1.4205 to 1.5055.

The new 2020-21 VRCPIs will be used when the CTA calculates the railways’ 2020-21 MREs, a decision due by Dec. 31 this year.

The CTA said it had run consultations in late 2020 and early 2021 dealing with cost-of-capital issues, “with a view to addressing differences between the reporting of CN and CP through a single standard for both railway companies.”

Now, however, following the Court of Appeal’s decision, the CTA said it will run more consultations between now and late summer with CN, CP and “other interested stakeholders,” on the issue of whether to allocate the big two railways’ “general purpose” debt to their Canadian rail operations.

If the new round of consultations leads to a new reporting standard that would change how the agency determines CP’s cost of capital rate, the CTA said it will go back and review Thursday’s decision on the railways’ 2021-22 VRCPIs. — Glacier FarmMedia Network

The post Cost index up for CN, down for CP in grain revenue formula appeared first on Manitoba Co-operator.

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

The post Railways overshoot grain revenue limits for 2019-20 appeared first on Manitoba Co-operator.

The Canadian Transportation Agency last week announced it will set the volume-related composite price index (VRCPI) at 1.4202 for Canadian National Railway (CN) and at 1.4205 for Canadian Pacific Railway (CP) — down 2.04 and 7.22 per cent respectively from 2019-20.

The VRCPI is a factor in the formula used to set each year’s maximum revenue entitlement (MRE) — the caps on the overall annual revenue CN and CP can earn shipping regulated grain.

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

For the 2020-21 crop year, which begins Aug. 1, the decreases in the VRCPIs are based mainly on “expected declines in fuel and labour costs,” the CTA said in a release April 30.

The bigger decline in CP’s VRCPI can be chalked up to “debt raised for the purposes of share buyback,” the CTA said. Such activity is accounted for when determining the railways’ cost of capital.

Both CN and CP are projected to see increases in general wages, the CTA said — but for CN, those are expected to be offset by declines in “wage-related” items, such as bonuses, and a “small decline” in fringe benefits. For CP, wage increases are expected to be “more than offset by a large projected decline in fringe benefits, including pension-related items.”

As for fuel costs, the CTA forecasts a 3.95 per cent decline for CN and a 3.75 per cent decline for CP in 2020–21 crop year, based on a “significant decrease” in the price of crude oil in 2020 and “associated fluctuations” in the Canada-U.S. exchange rate. But the CTA also expects crude oil prices to recover in 2021, offsetting the 2020 decrease.

The new VRCPI will be applied when the CTA determines the MRE for the 2020-21 crop year, a decision due by Dec. 31 next year.

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.

CN and CP had both taken in grain revenue overages of seven figures above their MREs during each of the four crop years prior to 2018-19.

Both railways came in under their MREs for 2018-19 — partly because calculations for the VRCPIs and MREs were adjusted in the federal Transportation Modernization Act in May 2018. — Glacier FarmMedia Network

The post Fuel, labour to pull grain freight cost indices lower appeared first on Manitoba Co-operator.

The Canadian Transportation Agency on Monday announced Canadian National Railway (CN) booked 2018-19 Prairie grain revenue of $933,357,710, a figure $371,116 below what the CTA set as the company’s maximum revenue entitlement (MRE) for the year.

Canadian Pacific Railway’s (CP) grain revenue for the same crop year came in at $862,734,965, or $764,101 below its 2018-19 MRE, the agency said.

CN and CP had both taken in grain revenue overages of seven figures above their MREs during each of the previous four crop years.

In such cases, their revenue overages, plus penalties of five per cent, were required to be paid to the Western Grain Research Foundation, the mandated beneficiary. However, “no overage-related payouts or penalties were assessed” for 2018-19, the CTA said Monday.

The annual MREs for CN and CP are calculated by the CTA using a formula involving the actual tonnage of Prairie grain hauled and the average length of haul for each railway, along with the volume‑related composite price index (VRCPI), which the CTA sets no later than April 30 every year.

The VRCPI is an inflation index, reflecting forecast changes to the railways’ costs for labour, fuel, material and capital purchases in a given crop year.

In 2018-19, CN and CP moved a combined 46,060,737 tonnes of Prairie grain were moved under the MRE program, up 13.4 per cent from the previous crop year, for an average haul length of haul of 979 miles, up 2.7 per cent.

More specifically, CN moved 24,059,409 tonnes of Prairie grain with an average haul length of 1,023 miles; CP moved 22,001,328 tonnes, with an average haul length of 931 miles.

The MRE varies with the tonnage moved, so a railway can come in under its cap so long as it doesn’t charge more than the average rate per tonne as set by the first part of the MRE formula.

Each tolled separately

Changes to federal regulations under Bill C-49, the Transportation Modernization Act, had previously been expected to take effect starting with the 2019-20 crop year, if the bill didn’t get royal assent until after Aug. 1, 2018.

But when C-49 got royal assent on May 23, 2018, it included a provision requiring the CTA to recalculate the VRCPIs for CN and CP for 2018-19.

With C-49 in play, 2018-19 becomes the first crop year in which CN and CP each get separately calculated VRCPIs.

C-49 also adjusted the VRCPI to subtract costs associated with regulated interswitching activities and containerized grain movements, which now won’t be included as revenues toward the MRE.

C-49 also requires the CTA, in its calculations, to recognize certain costs CN and CP incur to obtain and maintain the hopper cars they use to handle Prairie grain. — Glacier FarmMedia Network

The post CN, CP come in under 2018-19 grain revenue caps appeared first on Manitoba Co-operator.

The Canadian Transportation Agency on Monday released its determination on “possible freight rail service issues in the Vancouver area” last fall. The regulator said it has ordered CN to submit a plan of response for “future traffic surges” in the area and to “avoid, or minimize, the use of embargoes.”

The CTA said its determination also lays out criteria for railways’ lawful use of embargoes, specifying they have to be imposed only on an “exceptional basis,” targeted at “specific challenges” and also lifted as soon as possible.

CN, in a separate release Monday, said it “disagrees with the CTA’s conclusions” and plans to appeal the agency’s decision at the Federal Court of Appeal.

In a first for the CTA under authority granted to it in May last year, the agency launched an “own motion” investigation on the matter on Jan. 14, based on “information received from shipper associations and other parties.”

The CTA said its probe found “shortfalls or delays” in traffic mainly affecting terminals on Vancouver’s North Shore, which evidence suggested were due “in part” to congestion at CN’s Thornton Yard at Surrey in October and November 2018.

For examples, the CTA said, the record showed Cargill got 83 per cent of its planned scheduled deliveries in the period from October 2018 to January 2019 at its North Shore terminal, and Richardson International got 80 per cent of such deliveries in the period from October 2018 to December 2018.

Cars dwelling in Thornton Yard destined for the North Shore rose by 186 per cent from Oct. 1, peaking on Dec. 13, CTA said. The agency said the record showed an 11 per cent increase in grain cars and 16 per cent increase in wood pulp cars destined for the North Shore in that time frame at Thornton Yard, alone with a 16 per cent increase in intermodal cars and 18 per cent increase in cars bound for BNSF interchanges.

CN, the CTA said, announced its intention to impose embargoes on wood pulp shipments in September 2018, several months before rail congestion and other challenges emerged in the Vancouver area, and imposed those embargoes in December 2018.

The agency found CN imposed those embargoes “rather than making every reasonable effort to deal with those challenges before unilaterally restricting the transportation of the shippers’ traffic.”

Canadian Pacific Railway (CP) and BNSF were also investigated but were found to have not breached their service obligations, the CTA said Monday.

CP had also imposed three embargoes in December, CTA said, but noted that according to CP, those embargoes were a “direct response to CN embargoes, which created undue pressure on the CP system.”

“Through this investigation, the CTA was able to quickly look into possible issues with rail service in the Vancouver area that were brought to its attention in late 2018 and early 2019,” CTA CEO Scott Streiner said in the agency’s release Monday.

“The determination provides all parties (with) greater clarity on when rail service embargoes are, and are not, lawful.”

In its defense of the embargo at issue, CN said Monday it “maintains that this was an appropriate and necessary measure in the circumstances.”

CN on Monday said its regulated flow of traffic at Thornton Yard was found by the CTA to be “justified in the circumstances, as the traffic increases and congestion issues which prompted the embargoes were beyond CN’s control.”

The CTA, CN said, also recognized the company’s efforts last fall to reduce congestion “through the deployment of extra crews and locomotive power.” — Glacier FarmMedia Network

The post Regulator rips CN’s use of freight embargoes at West Coast appeared first on Manitoba Co-operator.

That move prompted Canada’s transport regulator last week to start an investigation into rail services around Port Metro Vancouver, after shippers complained of “discriminatory treatment of certain commodities” by Canadian National Railway (CN) and Canadian Pacific Railway (CP).

Canada is a top shipper of crops, fertilizer, oil and pulp, but has in recent years needed government intervention to keep commodities moving, from ordering railways to clear grain backlogs to Alberta’s crude oil curtailments this month due to full pipelines.

Free-trade deals with the European Union and Pacific nations are boosting demand for commodities, adding further strain to Canada’s transportation infrastructure. Currently, the U.S. and Mexico account for at least 75 per cent of Canadian exports.

Both railways last month rationed the volume of traffic around Vancouver by restricting movement of some commodities, such as peas, lentils, pulp and paper, according to shipper notices seen by Reuters.

The restrictions, called embargoes, are usually a tool of last resort for railways to ease congestion by temporarily limiting traffic. But in December, shippers allege that CN and CP used them more often than normal, harming some commodity sellers more than others in an effort to push through the maximum overall volume.

CP imposed embargoes on three specific transloaders — facilities that empty rail cars into containers for loading onto vessels. These transloaders handle peas and lentils, but were prevented from doing so in December for days at a time, said Greg Northey, director of industry relations at Pulse Canada.

‘Total mess’

The delays caused some containers to miss their vessels, triggering contract breach penalties, Northey said.

“It was a total mess,” he said.

Embargoes also added costs for pulp and paper producers, who are trying to bolster ties with Asian buyers amid ongoing tariff disputes with the United States.

For a second consecutive year, the railways imposed more embargo restrictions on pulp and paper than usual in December, leading to shipping delays, according to the Forest Products Association of Canada, whose members include Canfor and West Fraser Timber.

“We can’t do business like this if we want to diversify markets,” said association CEO Derek Nighbor. “It’s just a missed opportunity.”

Poor rail service costs the forest products industry $500 million annually, the association said. December’s problems cost mills as much as a further $1 million each, it said.

Several shippers said the transportation agency will be asked at a hearing in late January to consider whether the railways discriminated against shippers that fill manifest trains — those carrying a variety of products. The investigation could also consider whether the railways violated their common carrier obligations to haul a full range of freight.

For CN and CP, the investigation raises the risk of further regulation in an industry where they already complain of too much government control.

In a statement, CN said the transportation agency’s investigation should examine the full supply chain and take into account the impact that rain and wind had on operations late last year.

CN said freight shipments are up 10 per cent from November to mid-January year-over-year.

CP CEO Keith Creel said he takes “great exception” to CP being included in the agency’s investigation, adding in a statement that he is not aware of formal complaints.

Since the railways’ embargo and permit system was implemented in December to clear backed-up freight, the flow of cars to grain terminals has improved. But it is unclear how the backlog happened in the first place, said Wade Sobkowich, executive director of Western Grain Elevator Association. It indicates that railways have failed to invest in adequate capacity to move goods at peak times, he said.

Canpotex, the offshore sales arm of potash producers Nutrien and Mosaic Co., has also been affected by congestion and delays around Vancouver, spokeswoman Natashia Stinka said.

— Reporting for Reuters by Rod Nickel in Winnipeg; additional reporting by Susan Taylor in Toronto.

The post Railways ration space as commodity congestion problems worsen appeared first on Manitoba Co-operator.

The Canadian Transportation Agency on Monday announced Canadian Pacific Railway and Canadian National Railway overtopped their maximum revenue entitlements (MREs) for the crop year by $1,500,513 and $1,047,285 respectively.

CN’s MRE-covered grain revenue for 2017-18 hit $788.06 million, while CP’s came in at $709.5 million, the CTA said.

The two companies now have 30 days to pay those MRE overages, plus penalties of five per cent (for CN, $52,364; for CP, $75,026), to the Western Grains Research Foundation (WGRF), the mandated beneficiary. Income from the WGRF’s endowment fund is directed to research work.

In all, the CTA said, the two railways moved 40,618,285 tonnes of MRE-covered western grains during 2017-18, down six per cent from the previous crop year. CN moved 20.98 million tonnes, while CP moved 19.63 million.

The CTA said the average length of haul in 2017-18 came in unchanged from 2016-17, at 953 miles (1,534 km), with CN’s at 1,007 miles and CP’s at 896.

The railways’ annual MREs are calculated by way of a formula factoring in the tonnage of grain and average length of haul along with the volume‑related composite price index (VRCPI), a figure the CTA determines by April 30 each year.

The VRCPI — an inflation index reflecting a “composite” of forecast price changes for railway labour, fuel, material and capital purchases — was set in late April last year at 1.3817, up 4.1 per cent from 2016-17, based mainly on an expected 3.5 per cent increase in forecast price changes for “railway inputs.”

That forecast hike was based mainly on expectations for a rise in West Texas Intermediate (WTI) crude oil values on average in 2017, the CTA said at the time.

The VRCPI’s increase for 2018-19, meanwhile, was limited to 2.8 per cent, due in part to the CTA replacing its 2017 railway input price forecasts with actual data.

Since 2000-01, the VRCPI has grown at an average annual rate of around two per cent.

In recent crop years, CN and CP both overshot their MREs in 2016-17 for a combined overage and penalties of almost $7.2 million; in 2015-16, for over $4.4 million; in 2014-15, for over $9.45 million; and in 2011-12, for over $672,000. CN overtopped its MRE in 2013-14, while CP exceeded its MREs in 2012-13 and 2010-11. — Glacier FarmMedia Network

The post CP, CN overshoot annual grain revenue caps appeared first on Manitoba Co-operator.

Federal Trade Diversification Minister Jim Carr and Northern Affairs Minister Dominic LeBlanc announced the Arctic Gateway Group Limited Partnership has bought the Hudson Bay Rail Co., the Hudson Bay Port Co. and the Churchill Marine Tank Farm from U.S. shortline company OmniTrax for an undisclosed sum.

The Arctic Gateway Group is a private/public partnership including the northern communities’ consortium Missinippi Rail Ltd. Partnership, Toronto investment firm Fairfax Financial Holdings and AGT Limited Partnership, an arm of Regina pulse crop processor AGT.

The Hudson Bay rail line, which runs from the northwestern Manitoba communities of The Pas and Flin Flon northeast through Thompson to the Port of Churchill, Man. on Hudson Bay, hasn’t operated since May 2017, following flooding and washouts along the stretch between Amery (about 45 km northeast of Gillam) and Churchill.

The railway’s operator declared force majeure and an indefinite suspension of operations on the line on June 9 last year, later saying repairs would cost as much as US$60 million and it wasn’t prepared to pay without government assistance.

The Canadian Transportation Agency (CTA) in June this year ordered the Hudson Bay Rail Co. to get repair work underway by July 3 at the latest.

In response to statements from HBR that actual repairs wouldn’t begin without a cash infusion — either from proceeds of a sale of the business, or from federal funding — the CTA on Aug. 21 issued a “show cause” order. It required the company to show by Aug. 27 why the agency shouldn’t find HBR had failed to comply with the June order.

HBR had been in talks toward a sale earlier this spring, resulting in what the federal government described in late May as an agreement in principle, but HBR announced July 3 that its “transaction has fallen apart,” then announced a week later that negotiations with the proposed consortium had “resumed.”

Government officials on Friday said “construction crews have been mobilized” and work would begin “immediately” and repairs, adding “all efforts will be made to restore the rail service before winter 2018.”

In the meantime, the government said, “community support programs for food, fuel and economic development will remain in place until rail service resumes.”

“All those involved agree that this generational project has the potential to create northern jobs as well as ensure that northern communities have the goods and supplies they require, while at the same time restoring and increasing trade and export capacity for natural resources and agricultural commodities through a north gateway,” Paul Rivett, director of the Arctic Gateway Group, said in Friday’s release.

The group’s partners, he said, “are committed to working with the government of Canada, provinces and the private sector to build an Arctic gateway for Canada to the world.”

Financial terms of the group’s deal were not released Friday.

Phase one of the project, Rivett said, “will be to repair the rail line (and) undertake safety and rehabilitation upgrades to the port and the railway assets.”

The group, he said, will “do all we can to restore service expeditiously and safely,” but added “we are racing against time. We will immediately begin our work to make the broader project also a reality.”

“We are hopeful the repair of the rail line can occur as soon as possible so that service can be resumed before freeze-up,” Manitoba Premier Brian Pallister said in a separate statement Friday.

“However, we want to reassure the people of Churchill and the surrounding northern communities that we have already made the financial commitments and logistical arrangements necessary to ensure propane resupply for the winter.”

The rail line, completed in 1929, and the port facility, built by 1931, were set up to serve northern communities and provide an alternate shipping route into and out of Western and central Canada.

Restoring the line in time for winter would allow freight traffic such as food, fuel and other goods to resume to Churchill and other communities near the line, but a deal comes too late to allow Prairie grain exports out of Churchill during the 2018 shipping season.

From an export perspective, railing grain from certain areas of Saskatchewan and Manitoba up and out through Churchill, rather than east to Thunder Bay, is believed to shave up to three days off voyages to some ports in Western Europe.

But Churchill’s grain handle declined in the five years after the deregulation of its main customer, the Canadian Wheat Board. OmniTrax shut down the port facility and laid off its staff before the 2016 grain shipping season.

The port’s ice-limited shipping season, typically July through October, has been a benefactor of global warming in recent years, but warmer weather also makes the rail line, much of which is built on permafrost, less stable.

Denver-based OmniTrax had bought the government-owned port and Canadian National Railway’s (CN) rail line from The Pas to Churchill in 1997. The federal government has said its funding commitments in a 2008 agreement with OmniTrax called for the company to maintain and operate rail service through to Churchill until 2029. — Glacier FarmMedia Network

The post Hudson Bay rail line repairs to start ‘immediately’ appeared first on Manitoba Co-operator.

The CTA — the quasi-judicial tribunal and regulator for the Canadian transport sector — on Wednesday granted a request filed by an unnamed representative of Manitoba’s provincial opposition New Democrats to order OmniTrax Canada’s Hudson Bay Railway Co. (HBR) to begin repairs on the line.

The rail line, which runs from the northwestern Manitoba communities of The Pas and Flin Flon northeast through Thompson to the Port of Churchill on Hudson Bay, hasn’t operated since May 2017, following flooding and washouts along the stretch between Amery (about 45 km northeast of Gillam) and Churchill.

OmniTrax declared force majeure and an indefinite suspension of operations on the line on June 9.

The application from the Manitoba NDP caucus alleged HBR is in violation of its level-of-service obligations and asked the CTA to order the company to compensate residents along the line for job losses and rising costs of goods, and to either repair the line or undertake the same transfer/discontinuance process other railways are required to follow.

The CTA found HBR has been in breach of its obligations since November 2017 and must “initiate repair of the rail line by July 3, 2018 and resume its operation as expeditiously as possible.”

HBR also must file progress reports on the line’s repair once a month starting Aug. 1 “until operation of the rail line has resumed.”

“This is the first order forcing HBR and OmniTrax to repair the line that any level of government has received,” provincial NDP leader Wab Kinew said in a release Friday.

The shutdown of the line and port “has caused severe and ongoing economic losses to the town, including significant job losses,” the party said in its release. “Families have been struggling to afford the rising costs of food, household items and building materials.”

In its ruling, the CTA noted the NDP representative’s argument that even if flooding was found to be a “force majeure” event — in which unforeseeable circumstances prevent a party from meeting its agreed-upon obligations — it would only entitle HBR to claim a “reasonable pause” in operations, not to discontinue service altogether.

The NDP representative said OmniTrax in July last year claimed the damage could be repaired by the end of October that year for between $20 million and $60 million. However, the party rep was quoted as saying in the ruling, “a more fulsome investigation” might have found another cost estimate to cover the “immediate” repairs needed.

The CTA, citing an “undisputed” report by AECOM on the condition of the line, found “immediate” repairs include 21 track washouts, a culvert washout, two bridges with washout damage, two with “other” damage and one with heaving, plus three “unstable areas.”

Other “immediate but non-essential” repairs, the CTA said, include 33 culvert sites to be replaced or repaired and 11 with washout damage, 46 wooden box-type culverts to be replaced, eight bridges in need of repair or “further investigation” and three “unstable areas.”

However, the agency said, HBR claims it “cannot be compelled to bankrupt itself in order to provide reasonable service” and its service obligations “must be tempered by economic considerations.”

HBR cited precedents including a 2017 CTA case, brought by Univar Canada against Canadian Pacific Railway (CP), over the railway’s level-of-service obligations following a fire damaging a rail bridge leading to Univar’s Richmond, B.C. plant.

In the Univar case, the agency said it accepted that a force majeure event could make it impossible for a railway to provide service for “a period of time it termed a reasonable pause.”

However, the agency added, it “specifically rejected the notion that a railway company can be permanently relieved of its service obligations without following the transfer and discontinuance process.”

Any rail company that doesn’t avail itself of the transfer and discontinuance process, the CTA said, “has ongoing obligations… including service obligations.” HBR thus is “not permanently relieved from its level of service obligations” as they relate to the damaged line.

The CTA, referring again to the AECOM report, “which HBR itself commissioned,” found the Hudson Bay line could have been returned to operations for the “safe passage of light loaded trains” in November last year, thus the period of “reasonable pause” runs only until then.

The agency said it doesn’t have authority to order HBR to compensate other affected parties for expenses they incurred after the line was shut down.

It temporarily had such authority, it noted, when the Fair Rail for Grain Farmers Act was in effect from May 2014 until August 2016, and it has such authority again after the passage of the Transportation Modernization Act into law on May 23 this year.

An order for HBR to repair the line, however, is “clearly warranted in the circumstances of an ongoing service breach.”

The federal government on May 30 announced a deal in principle for the sale of the Hudson Bay line and Churchill port facilities to a buying group including Toronto investment firm Fairfax Financial Holdings; Regina pulse crop processor AGT Food and Ingredients; and Missinippi Rail Partners, a joint operation of Missinippi Rail Limited Partnership and OneNorth, representing northern communities in Manitoba and Nunavut. That deal has yet to be finalized.

Denver-based OmniTrax has owned the port and rail line since 1997. The rail line, completed in 1929, and the port facility, built by 1931, were set up to serve northern communities and provide an alternate shipping route into and out of Western and central Canada.

From a grain export perspective, railing grain out of certain areas of Saskatchewan and Manitoba up and out through Churchill instead of east to Thunder Bay is believed to shave up to three days off voyages to some ports in Western Europe.

But the port’s grain handle declined following the deregulation of its main customer, the Canadian Wheat Board. OmniTrax shut down the port facility and laid off its staff before the 2016 grain shipping season.

The port’s ice-limited shipping season, typically July through October, has been a benefactor of global warming in recent years, but warmer weather also makes the rail line, much of which is built on permafrost, less stable. — AGCanada.com Network

The post Transport agency orders Hudson Bay Railway to start repairs appeared first on Manitoba Co-operator.