Producer Car Shippers of Canada - Truth About Trucking Incentives

The Truth about Trucking Incentives
In 1999 fixed freight rates that were based on the hauling distant for prairie grain were replaced with a railway revenue cap. It is not a cap on total railway revenue but a cap on net revenue. The revenue cap formula permits the railways to deduct certain expenses from their total revenue when reporting annually to the Canadian Transportation Agency. Allowing these expenses as a deduction enables the railways to remain within the revenue cap even though they have increased the freight rates.

According to Transport Canada, one such expense is a multi-car incentive that the railways pay to the large grain companies with 100 car spots. The large shippers have been receiving multi-car incentives of $8 per tonne as a source of revenue which they use to attract grain away from small shippers by using trucking incentives paid to the farmers. In reality, the farmer does not get a trucking incentive because the railways are then allowed to increase the rail freight while remaining within the revenue cap, thus clawing their money back. The legislation enables the railways to externalize their costs without transparency.

In a normal commercial environment businesses will often offer volume discounts or rebates to their customers. It is not normal to continually offer rebates that are larger than the savings they generate. It simply would not be considered commercially reasonable. It has been estimated that the railways gain efficiency savings of approximately $3 per tonne at the 100 car locations, but because of the flawed revenue cap formula the railways are giving incentives of $8 per tonne at no cost to themselves. These multi-car incentives do not come out of the railways’ pockets. The farmers pay for them because the revenue cap formula is seriously flawed. This multi-car incentive loophole enables the railways to use the farmers’ own money to price discriminate against small shippers and the farmers themselves. Every year the railways are spending nearly 100 million dollars of farmers’ money on multi-car incentives. If this flawed formula is not corrected it will enable the railways to use the farmers’ money to price all small shippers out of business. This predatory pricing is an abuse of the revenue cap legislation. If the railways’ behavior is allowed to continue it will cause many casualties including producer car shippers and short line railways which are a crucial competitive option for farmers. A revenue cap formula that allows the railways to include multi-car incentives as a deductible expense must cease immediately.

Producer Car Shippers of Canada