Monday October 20, 2014

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Lower diesel prices trim grain freight rate index

A price index that helps set how much Canada's big two railways can make per year hauling Prairie grain will be pared back, based on lower-than-expected diesel fuel costs.

The Canadian Transportation Agency, which sets the annual Prairie grain revenue caps for Canadian National and Canadian Pacific Railways, announced Monday it has pegged the volume-related composite price index (VRCPI) at 1.2691 for the 2013-14 crop year, which starts Aug. 1.

The VRCPI's net decrease of 1.8 per cent from 2012-13 is "largely attributable to the actual price of diesel fuel being lower than the forecast in last year's determination," the CTA said in a release.

The new VRCPI will be applied when the CTA makes its revenue cap determinations by Dec. 31, 2014 for the 2013-14 crop year.

The VRCPI is meant to reflect a composite of forecast prices for railway labour, fuel, material and capital purchases and is one of "numerous" factors included in the formula used to calculate the revenue caps.

The VRCPI has grown at an average annual rate of two per cent since 2000-01, the CTA noted.

Fluctuations have reflected the volatility of fuel prices, a major downward adjustment in 2007-08 over the railways' hopper car maintenance costs and, last year, new methodologies meant to better recognize the cost of capital and the effect on the labour price index of "substantial payments" CN and CP have made to their pension funds.

The CTA's revenue caps on CN and CP apply to the movement of grain from Prairie elevators or from U.S. origins to terminals at Vancouver, Prince Rupert, B.C. and Thunder Bay, Ont. They also apply to CN's and CP's movements of grain bound for Eastern Canada or for export, up to either Thunder Bay or the CN station about 250 km north of the city at Armstrong, Ont.

Any grain freight revenue overages are paid into a fund benefiting Prairie grain research.

Related stories:
Grain freight cost index hiked for pensions, capital costs,
May 1, 2012
CN, CP slightly over limits on Prairie grain revenue,
Dec, 20, 2012


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