Fuel and infrastructure improvements are expected to push up the cost of railroading and, in turn, the index guiding how much money Canada’s big two railways get to keep from hauling Prairie grain in the next crop year.
The Canadian Transportation Agency (CTA) on Wednesday announced it will set the volume-related composite price index (VRCPI) at 1.4197 for the 2018-19 crop year starting Aug. 1, a hike of 2.8 per cent.
The new VRCPI is to be applied when the CTA rules on the maximum grain revenue entitlements (MREs) for 2018-19 for Canadian National Railway and Canadian Pacific Railway (CN, CP) by Dec. 31, 2019 at the latest.
One of several factors used to set the annual MREs, the index is an inflation factor reflecting a “composite” of forecast prices for the railways’ labour, fuel, material and capital purchases.
The CTA said Wednesday the next VRCPI increase is based in part on a 3.2 per cent increase in forecasted prices for railway inputs in 2018–19.
Those forecast price hikes include “modest” increases in labour and material components. Projected increases in fuel costs and “railway investments” are seen factoring in “more robustly,” the agency said.
Offsetting those price increases, however, is a 0.4 per cent decrease the CTA reached by replacing its 2017 railway input price forecasts with actual data, and by revising its forecasts for 2018.
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.
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 both railways overshot their 2016-17 MREs by a combined $6.85 million. — AGCanada.com NetworkTagged cn, cp, CTA, fuel costs, grain freight, maximum revenue, MRE, price index, VRCPI