Railway Analyst Hopeful Ottawa Won't Add Volume Thresholds In Updated Law

MONTREAL — A transportation analyst is hopeful that Ottawa's decision not to renew minimum grain volume requirements signals the government won't add thresholds in legislation governing the country's railways that is under view.

The federal government announced Saturday that it wouldn't extend the minimum shipment volumes it imposed last year, adding that grain is moving adequately through the system and the new grain crop is of average size.

Canadian National Railway (TSX:CNR) and Canadian Pacific Railway (TSX:CP) moved more than 50 million tonnes of grain in 2014, exceeding the minimum volume requirement by 5.5 million tonnes.

Analyst Walter Spracklin of RBC Capital Markets said the move and the volumes shipped suggest that the government doesn't believe the minimum requirements are an effective way to promote fluidity within the grain supply chain.

"Accordingly, we are optimistic that this measure will not be included as part of any legislative reforms that result from the ongoing review of the Canada Transportation Act," Spracklin wrote in a report.

The railways had been critical of the government's intervention.

CN said "normal" commercial relationships and a "stable regulatory environment" are the best way to ensure a well-functioning rail transportation system.

In the year since the government imposed minimum grain-hauling requirements, CN exceeded the mandated volumes by nearly three million tonnes or more than 12 per cent.

Canadian Pacific Railway (TSX:CP) said it will continue to move Canadian grain "consistent with demand from its customers."

Faced with complaints about a backlog following a bumper crop, Ottawa initially imposed minimum weekly volume requirements for 90 days.

It then enacted the Fair Rail for Grain Farmers Act in May that, among other things, required the railways to move at least 500,000 tonnes per week until the end of the 2013-14 crop year. The minimum threshold was subsequently raised to 536,250 tonnes and extended to March 28.

The railways were fined a total of $150,000 for failing to meet the minimum grain volumes last year. CN agreed to pay $100,000 for violations, but Canadian Pacific Railway is disputing the $50,000 penalty on the basis that the shortfall was a result of matters beyond its control.