Court tosses CP’s appeal on U.S.-bound grain interswitching

Confirming that a deal is as good as a fixed asset, a Prairie grain handler gets to keep using a lower-price rail route from Alberta into Montana, now that a Federal Court ruling has shot down an appeal from the railway taking grain down to the border.

Writing on Jan. 2, Judge J.D. Denis Pelletier of the Federal Court of Appeal dismissed Canadian Pacific Railway’s (CP) appeal of a May 2013 ruling from the Canadian Transportation Agency (CTA) that favoured Winnipeg agrifood firm Parrish and Heimbecker (P+H).

The Western Canadian Wheat Growers Association on Monday hailed Pelletier’s decision as granting P+H “the ability to gain competitive access to BNSF” for U.S.-bound grain shipments.

The fact that a federal court has upheld this aspect of federally-enforced interswitching rules “introduces a modest but important element of competition in the rail sector,” Wheat Growers president Levi Wood said in a release.

The CTA decision and CP’s appeal followed an unresolved dispute between CP and P+H over rates for CP to take P+H’s grain cars from the Parrish elevator at Milk River, Alta. to the Canada/U.S. border at Coutts, Alta., about 20 km south. P+H’s grain cars would then be handled by U.S. railway BNSF.

With no deal reached on rates, P+H applied to the Canadian Transportation Agency for an interswitching order, which would require CP to move P+H’s cars from Milk River to Coutts at the “statutory” rate, $315 per car, rather than CP’s “commercial” rate, $1,373 per car.

Interswitching policy allows Canadian shippers to apply for their goods to be hauled by one railway at an interswitching rate to an interchange with another railway, which then takes the cars for the main haul.

The CTA’s decision, granting an interswitching order in P+H’s favour, was handed down before the federal government’s move last year to increase a maximum interswitching haul to 160 km, up from 30. CP last fall launched an unrelated appeal against expanded interswitching.

In any case, CP took the CTA and P+H to court, arguing, as Pelletier put it, that “one of the conditions for the making of such an order, the presence of an interchange, was not satisfied.”

CP argued before Pelletier in Ottawa on Dec. 11 that there was technically no interchange at Coutts because BNSF had no rail line at Coutts to put it within CTA jurisdiction.

“Functional integration”

Pelletier, in his ruling, noted CP and BNSF have had an agreement in place since 1928, revised in 2005, to exchange traffic at Coutts.

Under the railways’ deal — which saw 90,945 cars change hands at that point in 2012 alone — CP comes to BNSF’s yard at Sweet Grass, Montana to take northbound cars to Coutts, while BNSF goes to CP’s Coutts yard to take southbound cars over to Sweet Grass.

The CTA argued, and Pelletier agreed, that BNSF’s deal with CP gives it “sufficient rights” to track at the Coutts yard for BNSF to have a railway line at Coutts for the purposes of interswitching under the Canada Transportation Act.

CP also argued that previous CTA rulings conflict with that view — but the CTA, Pelletier wrote Jan. 2, has “refined its view of when a railway company ‘has’ a line of railway, moving away from a strictly ownership position… to a more nuanced position based on functional integration.”

For the CTA to refine its view, he wrote, is “in keeping with… Canada’s national transportation policy, which favours competition and market forces, and discourages rates and conditions which are an undue obstacle to the movement of traffic. It is entirely within the (CTA’s) mandate to refine its approach to the issue of what constitutes an interchange.”

Pelletier, in finding for the CTA and P+H, also granted costs to P+H.

“Adequate compensation”

The difference between the statutory interswitching rate and CP’s commercial rate amounts to almost $12 per tonne on P+H’s southbound grain shipments from Milk River, the Wheat Growers noted.

“Other shippers within the 160-km interswitching distance will also benefit from this ruling,” Wood said. “Having the interswitching provision improves our industry’s competitiveness, while providing adequate compensation to the Canadian railway for its portion of the haul.”

A similar ruling from the CTA already faces a similar appeal from Canadian National Railway (CN), the Wheat Growers noted Monday.

In that case, the CTA granted grain handler Richardson International an interswitching rate on grain shipments from its elevator on CN track at Letellier, Man. to an interchange with BNSF at the U.S. border at Emerson, Man.

The Wheat Growers said they hope Pelletier’s ruling for P+H sets a precedent granting Richardson and other companies the ability to access BNSF lines at “competitive” rates. — AGCanada.com Network