The Canadian Transportation Agency (CTA) on Thursday announced the volume-related composite price index (VRCPI) for Canadian National Railway (CN) for 2023-24 will be 1.8295, up 12.11 per cent from 2022-23.

CPKC’s (Canadian Pacific Kansas City), meanwhile, will be 1.7616, up 5.43 per cent.

The VRCPI is the major variable in the formula that decides the railways’ maximum revenue entitlements (MREs) each crop year. Set each year by the CTA, based on submissions from CN and CPKC, the VRCPI is an inflation factor based on a composite of forecast prices for railway labour, fuel, material and capital purchases.

For the 2023-24 crop year beginning Aug. 1, much of the difference between forecasted and actual cost increases that’s reflected in the increased VRCPI is “directly linked to unexpectedly high fuel and related material costs in 2022,” the CTA said in a release.

The CTA said its fuel model for 2022-23, based on third-party forecasts at the time, projected the railways’ fuel costs would rise by just over 30 per cent.

However, in 2022, those costs actually rose by over 63 per cent on “a notable shortage in the supply of diesel fuel in North America and increased global demand.”

Adjustments were also made for other cost components, including the railways’ “material component,” the CTA said. The agency already determined the cost-of-capital rates for each railway for the new VRCPI in separate rulings last Thursday (April 20).

With the VRCPIs now in place, the MREs — the upper-limit dollar figures on the revenue CN and CPKC can earn for shipping regulated grain in a given crop year — must be set by the CTA for 2023-24 by Dec. 31, 2024 at the latest.

The MRE limits the revenue CN and CPKC can earn for movement of western grain as far east as Thunder Bay or Armstrong, Ont., or up to Churchill, Man., or to ports in British Columbia.

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

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The Canadian Transportation Agency, which sets the maximum revenue entitlements (MREs) each crop year for Prairie grain handled by Canadian National Railway (CN) and Canadian Pacific Railway (CP), on Thursday ruled both railways overshot their maximums for the 2021-22 crop year.

The CTA’s determination found CN’s regulated grain revenue came in $3,068,088 above its MRE of $589,140,501 for the crop year, while CP’s came in $2,363,775 above its MRE of $513,144,863.

As per grain handling regulations, those overages must be forfeited in the next 30 days to the Western Grains Research Foundation (WGRF), along with penalties of five per cent ($153,404 for CN, $118,189 for CP) — for a combined payout of $5,703,456.

The CTA’s figures show CN and CP moved a combined 28.4 million tonnes of western grain in 2021-22 crop year — a “notable drop” of 46 per cent from their combined record 52.3 million-tonne handle in 2020-21, “due mainly to the drought conditions experienced in Western Canada during the (2021-22) growing season.”

The CTA’s calculations showed the average lengths of haul for CN and CP in 2021-22 to be 977 miles and 909 miles respectively, for a combined weighted average length of haul of 946 miles, down from 966 in 2020-21.

In 2020-21, by comparison, the CTA had found CN overshot its MRE by almost $2.4 million, while CP came in about $20.25 million below its MRE. Prior to that, both railways overshot their MREs in five of six crop years, except for 2018-19 when grain revenue came in below both railways’ MREs.

The MREs, commonly described as revenue caps, are calculated using a formula factoring in each railway’s annual grain handle 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 2021-22 crop year is the fourth in which CN and CP have separate VRCPIs, following amendments to the Canada Transportation Act in 2018.

CN’s 2021-22 VRCPI was set at 1.4572, up from 1.4441 in 2020-21, while CP’s was set at 1.4826, down from 1.5055.

Those figures were reached after both railways applied for, and received, adjustments to their previously-announced 2021-22 VRCPIs. CP sought an adjustment based on its purchases of 1,400 new hopper cars and CN, for purchasing and leasing 1,075 additional hopper cars — transactions which weren’t accounted for when the VRCPIs were first set.

The WGRF’s research fund, the agreed-upon beneficiary from MRE overages since 2000, is a Saskatoon-based, producer-directed fund that backs crop research to “enhance the profitability and sustainability” of western Canadian grain farmers. — Glacier FarmMedia Network

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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

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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

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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

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The Canadian Transportation Agency (CTA) on Tuesday announced it will set the volume-related composite price index (VRCPI) at 1.4371 for Canadian National Railway (CN) and 1.5148 for Canadian Pacific Railway (CP) for the 2019-20 crop year starting Aug. 1.

The 2019-20 crop year will be the second in which CN and CP get separate VRCPIs, following amendments passed last year to the Canada Transportation Act dealing with the maximum revenue entitlement (MRE) program, which sets revenue caps for Prairie grain freight.

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

The changes in the VRCPIs for 2019-20 stem mainly from “modest increases in the fuel and material components” of the VRCPI, and from the “recognition of costs for the acquisition of hopper cars.”

Specifically, the CTA forecasts fuel price increases of 2.25 per cent for CN and 2.79 per cent for CP, taking into account increases in “fuel-related taxes” along with a projected decline in the price of crude oil in 2019, to be offset in part by a “small projected increase” in 2020.

The agency also expects “moderate increases for fabricated metals products, refined petroleum and coal products.”

The CTA said it might also have to make further adjustments to CP’s VRCPI, because the railway handed in its projected cost figures for maintenance of hopper cars on April 5, leaving the agency “insufficient time to make an informed determination on this matter given the statutory deadline of April 30.”

The annual MREs for CN and CP are calculated each year using a formula based on total grain tonnage and average length of haul, along with the VRCPI. The index numbers announced Tuesday will be used when the CTA sets the 2019-20 MREs, a decision due by Dec. 31, 2020.

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.

The CTA in December found CP and CN overtopped their 2017-18 MREs by about $1.5 million and $1.05 million respectively. — Glacier FarmMedia Network

Correction from source, May 6, 2019 — An earlier version of this article cited the initial April 30 press release from the Canadian Transportation Agency which incorrectly listed the VRCPI for CN at 1.4373.

Correction, Jan. 7, 2021 — An earlier version of this article incorrectly stated 2019-20 would be the first year in which CN and CP received separate VRCPIs. In fact, the CTA had set a single VRCPI for 2018-19 in April 2018, but in October 2018 it re-determined the VRCPIs separately for the two railways for 2018-19, making 2019-20 the second year with separate VRCPIs. We regret the error.

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The Canadian Transportation Agency (CTA) announced Friday it will raise its volume-related composite price index (VRCPI) by 4.8 per cent, to 1.3275, for the 2016-17 crop year.

The VRCPI is the inflation factor in the annual maximum revenue entitlement (MRE) — that is, the revenue cap — imposed on Canadian National and Canadian Pacific Railways (CN, CP) for their handling of Prairie grain.

The increased VRCPI — a weighted composite of the CTA’s forecasted prices for railway labour, fuel, materials and capital spending — will be applied when the CTA sets the 2015-16 cap, a decision expected by Dec. 31, 2017.

“Nearly half” of the announced increase is owing to the sharp decline in the Canada/U.S. exchange rate between 2014 and 2015, and to forecasts for the Canadian dollar to decline “even further” in 2016, the agency said.

The weaker loonie increases the railways’ costs for materials used in “day-to-day operations,” the agency said, as CN and CP pay for many of those items in U.S. dollars.

Volatility in both the price of crude oil and the exchange rate make fuel prices “very difficult” for expert forecasters and the CTA to predict with a high level of accuracy, the agency said.

In the 4.8 per cent increase, the CTA said, 2.2 per cent is based on the use of “actual” preliminary data to replace last year’s forecasts of price changes, along with revised forecasts for 2016.

The CTA said its material price forecasting model last year “underestimated” the price change for railway materials, partly because the third-party forecasts it used for the Canada/U.S. exchange rate for 2015 and 2016 were too high.

Also, the CTA said, a weaker dollar increases the railways’ leased car costs, since lease rates are often negotiated in U.S. dollars.

Another 1.2 per cent is based on revised index weights, in turn based on the 2014 financial statements from CN and CP. The remaining 1.4 per cent increase is based on forecast price changes for “railway inputs” for the 2016-17 crop year. — AGCanada.com Network

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The Canadian Transportation Agency on announced Thursday it will cut its volume-related composite price index (VRCPI) by 5.6 per cent, to 1.2517, for the 2015-16 crop year.

The VRCPI is the inflation factor in the annual maximum revenue entitlement — that is, the revenue cap — imposed on Canadian National and Canadian Pacific Railways (CN, CP) for their handling of Prairie grain.

The revised VRCPI — a composite of the CTA’s forecasted prices for railway labour, fuel, materials and capital spending — will be applied when the CTA sets the 2015-16 cap, a decision expected by Dec. 31, 2016.

The bulk of the 5.6 per cent cut is a 4.1 per cent decrease due to the difference between the CTA’s forecasts for 2014 costs and “actual data,” and changing its forecasts for 2015 accordingly.

Specifically, the CTA said, it “over-forecasted” the expected change in the railways’ fuel costs for 2014-15, based on “third-party” outlooks for crude oil prices and the value of the Canadian dollar.

The third-party forecasts for the price of crude oil last year were higher than the actual 2014 price, and forecasts for the Canadian dollar were lower than actual levels, the CTA said. Crude oil, priced in U.S. dollars, is more expensive under a lower loonie.

Last year’s 2015 forecast for the price of crude oil was “much lower” than this year’s, the CTA said, while the 2015 forecast for the exchange rate was higher, which works to “partially offset” the forecast decline in crude oil prices.

This isn’t the first time the CTA has had to re-tweak the VRCPI based on fuel price volatility, which for the agency and its third-party experts makes rail fuel costs “very difficult to predict… with a high level of accuracy.”

The CTA also announced Thursday it will consult with industry stakeholders on developing a new methodology for adjusting the VRCPI to factor in CN and CP’s use of hopper cars leased out to the two companies’ U.S. subsidiaries.

The consultations follow an application from CN to adjust the 2014-15 VRCPI to factor in the railways’ costs of obtaining grain cars, as grain hopper cars from the federal government’s fleet age out of service. — AGCanada.com Network

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