Farmers across Western Canada may be happy with a Canadian Transportation Agency decision to reduce rail rates by eight per cent, but E. Hunter Harrison the President and CEO of CN Rail, isn’t particularly pleased with the CTA’s largesse to the farming community at the expense of his railway's financials.
Harrison says that the decision, a retroactive one that goes back to August 1st of 2007, will turn the grain transportation sector of CN Rail into the railways least profitable commodity group.
To that end, the railroad is seeking to appeal the decision, with plans to take their case to the Federal Court of Appeals.
As Hunter sees it, with the decision the Federal government appears to be returning to the days of subsidizing the grain industry, while he would prefer to see the marketplace dictate the pricing structure for the transportation of grain from farm to ports which include B. C.'s two main terminal destinations Prince Rupert and Vancouver.
The Daily News provided some background on the situation and how it could play out for CN Rail and by extension for Prince Rupert Grain.
CN Says Grain decision will hurt business
The Daily News
Tuesday, March 4, 2008.
Pages one and three
Canadian National Railway is seeking leave to appeal a decision by the Canadian Transportation Agency (CTA) to cut the rail revenue entitlement for grain transportation under the Canada Transportation Act.
The Montreal based company which owns Canada’s largest railway, is appealing a decision by the CTA to cut rail grain rates by eight per cent under the revenue cap and make it retroactive to Aug 1, 2007.
CN President and Chief Executive Hunter Harrison said rail rates for grain transport in Canada are among the lowest in the world and significantly less than those in the United States, where CN has extensive operations.
“With the latest CTA decision, the government of Canada is effectively transferring income from one sector of the economy – railways – to another – farmers – in what we believe is an unfair ruling on rate cap inputs,” Harrison said.
“Unless amended by the Federal Court of Appeal of Canada, the CTA ruling will permanently damage CN’s grain business.
“It will turn the grain business- now producing slightly below average profits – into our least-profitable commodity group.”
Harrison suggested the government seems to be returning to the days when it subsidized producers for the movement of grain. In the 1970’s, the regulated cost-based grain rate system teetered and almost crashed, forcing government to upgrade branch lines and to acquire thousands of hopper cars at taxpayers’ expense to keep the system going.
“There is no sound policy rationale for arbitrarily lowering railway grain rates, nor is there any fairness of equity in favouring grain producers over rail shippers from all other sectors who have to pay market rates consistent with a privately funded railway industry” he said.
“I can understand why farmers would like to pay lower freight rates. Everyone would like to pay less for what they buy. But the fact is that prices are normally set in the marketplace – it’s true for gasoline at the pumps, food at the grocery store, and yes, it’s also true for grain, which is currently commanding record high prices because of supply and demand dynamics.”
CN Rail moves grain along the northwest corridor to Prince Rupert Grain at the Port of Prince Rupert among other ports.
Prince Rupert Grain shipped five million tones of grain in 2007 – its best year since 1994. Shipments were up 706 per cent compared to 2006 and 87 per cent about 2005 levels.
Harrison says that the decision, a retroactive one that goes back to August 1st of 2007, will turn the grain transportation sector of CN Rail into the railways least profitable commodity group.
To that end, the railroad is seeking to appeal the decision, with plans to take their case to the Federal Court of Appeals.
As Hunter sees it, with the decision the Federal government appears to be returning to the days of subsidizing the grain industry, while he would prefer to see the marketplace dictate the pricing structure for the transportation of grain from farm to ports which include B. C.'s two main terminal destinations Prince Rupert and Vancouver.
The Daily News provided some background on the situation and how it could play out for CN Rail and by extension for Prince Rupert Grain.
CN Says Grain decision will hurt business
The Daily News
Tuesday, March 4, 2008.
Pages one and three
Canadian National Railway is seeking leave to appeal a decision by the Canadian Transportation Agency (CTA) to cut the rail revenue entitlement for grain transportation under the Canada Transportation Act.
The Montreal based company which owns Canada’s largest railway, is appealing a decision by the CTA to cut rail grain rates by eight per cent under the revenue cap and make it retroactive to Aug 1, 2007.
CN President and Chief Executive Hunter Harrison said rail rates for grain transport in Canada are among the lowest in the world and significantly less than those in the United States, where CN has extensive operations.
“With the latest CTA decision, the government of Canada is effectively transferring income from one sector of the economy – railways – to another – farmers – in what we believe is an unfair ruling on rate cap inputs,” Harrison said.
“Unless amended by the Federal Court of Appeal of Canada, the CTA ruling will permanently damage CN’s grain business.
“It will turn the grain business- now producing slightly below average profits – into our least-profitable commodity group.”
Harrison suggested the government seems to be returning to the days when it subsidized producers for the movement of grain. In the 1970’s, the regulated cost-based grain rate system teetered and almost crashed, forcing government to upgrade branch lines and to acquire thousands of hopper cars at taxpayers’ expense to keep the system going.
“There is no sound policy rationale for arbitrarily lowering railway grain rates, nor is there any fairness of equity in favouring grain producers over rail shippers from all other sectors who have to pay market rates consistent with a privately funded railway industry” he said.
“I can understand why farmers would like to pay lower freight rates. Everyone would like to pay less for what they buy. But the fact is that prices are normally set in the marketplace – it’s true for gasoline at the pumps, food at the grocery store, and yes, it’s also true for grain, which is currently commanding record high prices because of supply and demand dynamics.”
CN Rail moves grain along the northwest corridor to Prince Rupert Grain at the Port of Prince Rupert among other ports.
Prince Rupert Grain shipped five million tones of grain in 2007 – its best year since 1994. Shipments were up 706 per cent compared to 2006 and 87 per cent about 2005 levels.
Photo taken from CN Rail website photo media image centre
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