Continued erosion of CN grain profits is unwarranted, will discourage
future investment in the sector
MONTREAL, March 3 /CNW Telbec/ - CN, saying it's compelled to oppose the
continued erosion of its grain profits by creeping re-regulation, today urged
the Canadian government to stay the course toward a commercial framework for
CN (TSX:CNR) (NYSE: CNI) raised the issue as it seeks leave from the
Federal Court to appeal the Feb. 19, 2008, decision of the Canadian
Transportation Agency (CTA) to reduce rail revenue entitlement for grain
transportation under the Canada Transportation Act. The CTA decision cutting
rail grain rates by eight per cent under the revenue cap is retroactive to
Aug. 1, 2007.
E. Hunter Harrison, president and chief executive officer, said: "With
the latest CTA decision, the government of Canada is effectively transferring
income from one sector of the economy - railways - to another - farmers - in
what we believe is an unfair ruling on rate cap inputs.
"Rail rates for grain transport in Canada are among the lowest in the
world and significantly less than those in the United States," Harrison said.
"Unless amended by the Federal Court of Appeal of Canada, the CTA ruling will
permanently damage CN's grain business. It will turn the grain business - now
producing slightly below average profits - into our least-profitable commodity
"If unchecked, the continued erosion of grain profits by re-regulation
will force CN to review investment decisions in grain transportation and to
restructure its services for the sector."
Harrison said the creeping re-regulation of grain transportation runs
counter to long-standing government policy.
"Government policy for years has called for gradual deregulation of the
grain handling and transportation system in Canada. This policy followed the
failure of the regulated cost-based grain rate system that teetered and almost
crashed in the 1970s, forcing governments to upgrade branch lines and to
acquire thousands of hopper cars at taxpayers' expense to keep the system
"But new legislation that amended the Canada Transportation Act last
year, and recent CTA decisions appearing to favour re-regulation, are turning
back the clock. The government seems to be returning to the days when it
subsidized producers for the movement of grain. There is no sound policy
rationale for arbitrarily lowering railway grain rates, nor is there any
fairness or equity in favouring grain producers over rail shippers from all
other sectors who have to pay market rates consistent with a privately funded
"I can understand why farmers would like to pay lower freight rates.
Everyone would like to pay less for what they buy. But the fact is that prices
are normally set in the marketplace - it's true for gasoline at the pumps,
food at the grocery store, and, yes, it's also true for grain, which is
currently commanding record high prices because of supply and demand dynamics.
"Let's not forget that deregulation revived the Canadian rail industry
over the past decade, producing lower rates and improved service, while
allowing railways to generate sufficient profits to significantly step up
investment in their networks.
"We need a commercial framework and clearer rules of the game if the rail
industry is to continue playing its vital role in the Canadian economy.
Accordingly, we urge the government to stay on the path toward a deregulated
CN - Canadian National Railway Company and its operating railway
subsidiaries - spans Canada and mid-America, from the Atlantic and Pacific
oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert,
B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key
metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth,
Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis,
St. Louis, and Jackson, Miss., with connections to all points in North
America. For more information on CN, visit the company's website at www.cn.ca.
For further information:
For further information: Mark Hallman (Media), Director, Communications,
Media, CN, (905) 669-3384; Robert Noorigian (Investment Community),
Vice-President, Investor Relations, CN, (514) 399-0052