CN Rail and CP Rail exceed grain revenue max despite drop in grain shipping

The country's two major railways exceeded their grain cap in 2017-18, despite shipping less of the stuff than last year, according to the Canadian Transportation Agency.

Canadian National Railway Co. reaped $1.05 million more than its maximum revenue entitlement of $787.01 million for the crop year, which ended July 31, the CTA said. Canadian Pacific Railway Ltd. took in $1.5 million beyond its entitlement of $707.99 million.

CN and CP have 30 days to pay back the excess revenue, on top of a five per cent penalty of $52,000 for CN and $75,000 for CP, the regulator said. The payments a drop in the bucket for companies with net earnings last year of $5.48 billion and $2.41 billion, respectively will go to the Western Grains Research Foundation, which funds research for Prairie farmers.

Revenue ceiling to protect from gouging

Federal legislation that came into effect last May adjusted the maximum revenue entitlement system, which places a ceiling on total revenue to be earned from moving grain by rail in any crop year to protect farmers from gouging. CN has said that prior to the revised legislation the system was a disincentive to invest in grain cars.

CN and CP carried six per cent less grain over the past crop year than in 2016-17, moving 40,618,285 tonnes, according to the CTA.

The railways have both said they believe beefed-up inventories of locomotives, hopper cars and extra staff will help to prevent a repeat of last winter's grain-shipping backlog, set in motion by frigid conditions that inhibited the hauling of crops to market.

Despite the lacklustre grain results earlier in the calendar year, both railways have roared back with record numbers.

Montreal-based CN reported the highest quarterly revenues in its 99-year history in October, spurred on by revenue growth of between 15 per cent and 25 per cent for grain and fertilizers as well as petroleum and chemicals, metals and minerals, forest products and coal.

Calgary-based CP moved 2.64 million tonnes of Canadian grain and grain products in October, a company record for monthly shipments that it nearly matched in November. It plans to have 1,000 new hopper cars in service by this spring.

New legislation

CN ordered 1,000 new grain cars within 24 hours of the Transportation Modernization Act coming into force in May. The wide-ranging Bill C-49 allows railways to deduct the full cost of grain car purchases from their grain cap, encouraging investment in more hoppers, CN chief executive Jean-Jacques Ruest said at the time.

The legislation also includes financial penalties for railways that fail to deliver promised rail cars for grain shipments on time. It requires railways to publicly report each summer on their abilities to move that year's grain crop, and to publish by Oct. 1 each year a winter contingency plan for keeping shipments moving regardless of bad weather.

The bill's passage came after CN and CP blamed severe winter weather and a larger-than-expected grain crop for a backlog in grain shipments that hit their profits and left grain farmers complaining about their service.

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