Canada's Rail Revenue Cap Hurts Small Shippers

VANCOUVER - Mar 3/07 - SNS -- Asserting that Canada's two major railways were fined for handling too much grain in 2006 turned out to be a mildly controversial statement.

On the face of it, such a statement does not reflect the intention of Canada's Transportation Act and the political compromise which brought the era of the Crow freight rates to an end.

Essentially, at the end of each year, Transport Canada calculates the average freight rate that each railway is allowed to charge to move western Canadian grain and it multiples that by the number of tons handled to come up with the gross revenue each railway is allowed to generate from moving grain.

The calculation takes into account all direct costs of moving grain and some indirect costs such as equipment maintenance and replacement. Revenue, however, does not include demurrage and other non-freight fees levied by the railways. The formula does not penalize railways for becoming more efficient nor does the formula consider actual rates charged by the railways during the year.

If gross revenue exceeds that amount calculated by Transport Canada, the excess revenue is clawed back. If gross revenue falls below that number, nothing happens.

Unlike the prior regime, when the railways were directly subsidized to haul grain, the system is supposedly volume neutral. Practically, this is not true.

Subscribers can read the full text of the article by Clicking here