Continued erosion of CN grain profits is unwarranted, will discourage future investment in the sector
CN, saying it’s compelled to oppose the continued erosion of its grain profits by creeping re-regulation, urged the Canadian government to stay the course toward a commercial framework for grain transportation.
CN raised the issue as it seeks leave from the Federal Court to appeal the Feb. 19, 2008, decision of the Canadian Transportation Agency (CTA) to reduce rail revenue entitlement for grain transportation under the Canada Transportation Act. The CTA decision cutting rail grain rates by eight per cent under the revenue cap is retroactive to Aug. 1, 2007.
E. Hunter Harrison, president and chief executive officer, said: ‘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.
‘Rail rates for grain transport in Canada are among the lowest in the world and significantly less than those in the United States,’ 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.
‘If unchecked, the continued erosion of grain profits by re-regulation will force CN to review investment decisions in grain transportation and to restructure its services for the sector.’
Harrison said the creeping re-regulation of grain transportation runs counter to long-standing government policy.
‘Government policy for years has called for gradual deregulation of the grain handling and transportation system in Canada. This policy followed the failure of the regulated cost-based grain rate system that teetered and almost crashed in the 1970s, forcing governments to upgrade branch lines and to acquire thousands of hopper cars at taxpayers’ expense to keep the system going.
‘But new legislation that amended the Canada Transportation Act last year, and recent CTA decisions appearing to favour re-regulation, are turning back the clock. The government seems to be returning to the days when it subsidized producers for the movement of grain. There is no sound policy rationale for arbitrarily lowering railway grain rates, nor is there any fairness or 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.
‘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.
‘Let’s not forget that deregulation revived the Canadian rail industry over the past decade, producing lower rates and improved service, while allowing railways to generate sufficient profits to significantly step up investment in their networks.
‘We need a commercial framework and clearer rules of the game if the rail industry is to continue playing its vital role in the Canadian economy. Accordingly, we urge the government to stay on the path toward a deregulated grain sector.’