The Canadian Transportation Agency (CTA) is seeking public comments on amendments to regulations that govern the rail rates that Canadian National (NYSE: CNI) and Canadian Pacific (NYSE: CP) set for hauling grain in western Canada.
The proposed amendments pertain to long-haul interswitching, in which grain producers who usually have access to one railway can request rail service from a competing railway within a defined distance. Amendment language also addresses penalties for the railways and procedures for a shipper to seek remedies for inadequate rail service.
These proposed amendments will refine the language of the Transportation Modernization Act, also known as Bill C-49, which Parliament passed in May 2018 after a multi-year review.
After CTA reviews the comments and makes adjustments if needed, the agency will publish the final regulations in the Canada Gazette. The agency expects the regulations to go into effect this summer.
The freight railroads and grain producers have a great deal at stake in regard to these proposed amendments because of how rail rates for grain shipments are established in Canada. The Canadian government sets a “revenue cap” on how much revenue the railways can earn from shipping grain according to the maximum revenue entitlement (MRE) program.
The debate over whether to discontinue the MRE program has been around for years. While the Canadian government opted not to abolish the program when it passed Bill C-49 last year, lawmakers sought to provide incentives for the railways and grain producers alike. For the railroads, lawmakers crafted language that provided incentives for the railways to invest in their grain-hauling fleets. For the grain producers, lawmakers sought to address rail service issues, including situations in which a grain producer might have access only to one railway.
The proposed amendments on long-haul interswitching, rail penalties and shipper remedies are CTA’s attempts to address the concerns of both shippers and the railroads.
The proposed amendment to the long-haul interswitching scheme addresses how the Canadian government will regulate rail rates for long-haul interswitching. CTA will determine the rail rates annually, in keeping with market trends, instead of setting the rates through regulation.
The proposed amendments on rail penalties expand the circumstances for which a railway could be penalized, including a railroad’s compliance with shipping obligations and noise and vibration ordinances. Amendment language also clarifies the guidelines for shippers’ disputes over rail service.
While the proposed amendments are hot issues for grain producers, there are also rail-related amendments that address insurance filing for freight rail operations, insurance requirements for passenger operations and railroad construction, and guidance materials on recovering costs in the event of a fire on the railroad.