The future of government-owned hopper car fleets

  From the September 4, 2018 issue of Agri-News
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 The recently passed Transportation Modernization Act (Bill C-49) provides an incentive for railways to invest in new infrastructure, including hopper cars. Chuanliang Su, domestic policy analyst with Alberta Agriculture and Forestry, examines how grain transportation policy could affect the future of government-owned hopper car fleets.

Grain transportation policy and economic factors contributed to the establishment of the government-owned hopper car fleet in Canada in the early 1970s. “In the late 1950s, statutory freight rates had become non-compensatory,” explains Su. “The total costs for transporting grain for export exceeded the rates which railways were allowed to charge, and the high inflation rate in the 1970s compounded the freight rate issue. As a result, railways slowed down grain shipments for export and reduced investment in rail infrastructure, especially on the branch lines mainly used for handling grain. In response to the problem, the Government of Canada provided branch line subsidies to railways and purchased new hopper cars to support the export of grain grown in western Canada.”

The federal government made its first purchase of 2,000 hopper cars in 1972, and acquired a total of 13,300 cars over a period of 20 years. In 1980 and 1981, the governments of Alberta and Saskatchewan each purchased a fleet of 1,000 hopper cars. The Canadian Wheat Board (CWB) acquired or leased a total of 4,000 hopper cars over a span of more than 20 years.

Meantime, the federal government continued to introduce rail reforms through legislation. The Western Grain Transportation Act (WGTA) was enacted in 1983. In 1995, the Budget Implementation Act was passed. In 1996, the Canada Transportation Act (CTA), the federal umbrella economic legislation for Canada’s national transportation system, was enacted.

Once a review of the grain handling and transportation system (GHTS) in western Canada in the late 1990s was complete, the Maximum Revenue Entitlement (MRE) was introduced in 2000, replacing the freight rates set by the Canadian Transportation Agency. Says Su, “The MRE is considered a measure to provide some freight rate protection for grain shippers and producers.”

Su adds that in addition to several transportation remedies for shippers, the Transportation Modernization Act (Bill C-49) has enabled the adjustment of the MRE methodology to account for individual railway capital spending. “It provides an incentive for railways to invest in rail infrastructure and railcars. CN has announced its plan to invest in 1,000 new hopper cars over the next two years. CP has also ordered 1,000 new high capacity hopper cars for delivery in 2018/2019, as part of its plan to invest $500 million in 5,900 new hopper cars over the next four years. “

Su says that the improved financial performance of CN and CP in recent years and their plans to purchase new hopper cars raises the question about the continued ownership of the government hopper car fleet. “In 2017, Saskatchewan sold its fleet - about 900 hopper cars - to three short-line railways in that province. G3 now owns the hopper cars acquired from the CWB through its privatization. In July 2018, the federal government announced that its fleet of more than 8,000 hopper cars will remain in service until the end of their physical life.”

“The Alberta government is currently assessing policy options for the provincial fleet,” notes Su, “And may possibly lease some of these hopper cars to short-line railways and other local rail service operations in the province. While ownership of government hopper car fleets in Canada may come to an end sometime in the future, grain transportation policy will likely continue to evolve for many years to come.”

For more information about grain transportation policy and government-owned hopper car fleets, contact Chuanliang (Johnny) Su at 780-422-7807.

Chuanliang (Johnny) Su

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This document is maintained by Christine Chomiak.
This information published to the web on August 28, 2018.