Wheat Growers seek review of grain
freight rates
The Western Canadian Wheat Growers
Association is seeking a review of
the railway revenue cap that is used
to determine freight rates on the
shipment of western grain. The Wheat
Growers are seeking the review in the
wake of Friday’s announcement by the
Canadian Transportation Agency that
the revenue cap will increase by 9.5%
in the upcoming crop year, starting
August 1, 2012.
“This represents a significant jump
in freight rates,” says Kevin Bender,
President of the Wheat Growers. “The
government needs to review the
components of the revenue cap and
come up with a better approach to
ensure farmers are not hit with
unwarranted freight increases.”
The 9.5% increase includes an
adjustment for increased pension
costs (4.6%), a cost of capital
adjustment (3.3%) and an inflation
component (1.6%).
The Wheat Growers note the duopoly in
the western rail industry allows the
two major railways to pass along cost
increases to shippers without the
usual discipline characterized by
competitive markets.
Instead of adjusting the revenue cap
to simply reflect railway cost
increases, the Wheat Growers maintain
the cap should be adjusted to reflect
costs that would otherwise exist if
competitive market forces were at
play.
For example, the allowance for wages
and benefits embedded in the revenue
cap should reflect averages for
similar type of work in the private
sector where competitive forces
prevail (e.g. the trucking industry).
This would provide the railways with
a greater incentive to keep labour
costs, including pension benefits, in
check.
“Simply allowing the railways to
automatically pass along their cost
increases is not an acceptable
market-based solution,” says Cherilyn
Nagel, Past President of the Wheat
Growers. “Ultimately we would like
to see rates set in a competitive
marketplace, but first we need to see
a lot more growth in local grain
processing and livestock feed
markets, so we are no longer captive
to exporting most of our grain by
rail.”
The Wheat Growers note the revenue
cap is based on a 1992 costing
review, with annual inflation
adjustments. One glaring deficiency
in the rate-setting process is that
the revenue cap is adjusted
automatically to take into account
increases in railway costs (mainly
labour, fuel and materials), but no
adjustment is made for productivity
gains.
Over the past two decades, the
railways have made significant
productivity gains through an
increase in the length of trains,
increased railcar capacity, and
investment in more fuel-efficient
locomotives.
“We applaud the railways for making
these investments,” says Bender.
“These investments lower the per-
tonne cost of shipping goods. The
railways should certainly profit from
these productivity gains, however
there needs to be a mechanism to
ensure a portion of these gains are
passed on to farmers through lower
freight rates.”
The Wheat Growers note that in
competitive markets, productivity
gains are passed on to consumers in
the form of lower prices. In farming
for example, technological and
management gains have resulted in a
decades-long decline in the real
price of wheat.
The Wheat Growers sent a letter today
to Hon. Denis Lebel, federal
Transport Minister, calling for a
review of the cost components of the
revenue cap and to ensure a mechanism
is introduced to ensure a portion of
railway productivity gains are passed
on to farmers.
For further comment, please contact:
Kevin Bender Cherilyn Nagel
President Past President
freight rates
The Western Canadian Wheat Growers
Association is seeking a review of
the railway revenue cap that is used
to determine freight rates on the
shipment of western grain. The Wheat
Growers are seeking the review in the
wake of Friday’s announcement by the
Canadian Transportation Agency that
the revenue cap will increase by 9.5%
in the upcoming crop year, starting
August 1, 2012.
“This represents a significant jump
in freight rates,” says Kevin Bender,
President of the Wheat Growers. “The
government needs to review the
components of the revenue cap and
come up with a better approach to
ensure farmers are not hit with
unwarranted freight increases.”
The 9.5% increase includes an
adjustment for increased pension
costs (4.6%), a cost of capital
adjustment (3.3%) and an inflation
component (1.6%).
The Wheat Growers note the duopoly in
the western rail industry allows the
two major railways to pass along cost
increases to shippers without the
usual discipline characterized by
competitive markets.
Instead of adjusting the revenue cap
to simply reflect railway cost
increases, the Wheat Growers maintain
the cap should be adjusted to reflect
costs that would otherwise exist if
competitive market forces were at
play.
For example, the allowance for wages
and benefits embedded in the revenue
cap should reflect averages for
similar type of work in the private
sector where competitive forces
prevail (e.g. the trucking industry).
This would provide the railways with
a greater incentive to keep labour
costs, including pension benefits, in
check.
“Simply allowing the railways to
automatically pass along their cost
increases is not an acceptable
market-based solution,” says Cherilyn
Nagel, Past President of the Wheat
Growers. “Ultimately we would like
to see rates set in a competitive
marketplace, but first we need to see
a lot more growth in local grain
processing and livestock feed
markets, so we are no longer captive
to exporting most of our grain by
rail.”
The Wheat Growers note the revenue
cap is based on a 1992 costing
review, with annual inflation
adjustments. One glaring deficiency
in the rate-setting process is that
the revenue cap is adjusted
automatically to take into account
increases in railway costs (mainly
labour, fuel and materials), but no
adjustment is made for productivity
gains.
Over the past two decades, the
railways have made significant
productivity gains through an
increase in the length of trains,
increased railcar capacity, and
investment in more fuel-efficient
locomotives.
“We applaud the railways for making
these investments,” says Bender.
“These investments lower the per-
tonne cost of shipping goods. The
railways should certainly profit from
these productivity gains, however
there needs to be a mechanism to
ensure a portion of these gains are
passed on to farmers through lower
freight rates.”
The Wheat Growers note that in
competitive markets, productivity
gains are passed on to consumers in
the form of lower prices. In farming
for example, technological and
management gains have resulted in a
decades-long decline in the real
price of wheat.
The Wheat Growers sent a letter today
to Hon. Denis Lebel, federal
Transport Minister, calling for a
review of the cost components of the
revenue cap and to ensure a mechanism
is introduced to ensure a portion of
railway productivity gains are passed
on to farmers.
For further comment, please contact:
Kevin Bender Cherilyn Nagel
President Past President
Comment