A court has ruled against Canadian Pacific Railway Ltd. and Canadian National Railway Co. in a battle over grain-hauling revenue and the cost of maintaining the government's grain-car fleet.

 

Canada's two largest railways said on Nov. 25 the ruling would cost each of them $23-million in revenue from the 2007-08 crop year, and CN warned it will have to review future investments in grain-related infrastructure and equipment.

 

On Monday, the Federal Court of Appeal rejected the railways' argument that the Canadian Transportation Agency erred in the way it retroactively cut the amount of revenue the carriers could earn from shippers in the 2007-08 crop year.

 

The ruling is part of a long-running battle between the railways and grain farmers over rates and service levels.

 

CN expressed disappointment in the ruling that lets stand a CTA decision issued earlier this year to reduce rail revenue entitlement for grain transportation retroactively under the Canada Transportation Act.

 

The CTA in February 2008 cut grain rates by 8% under railway revenue caps retroactive to Aug. 1, 2007, to reflect its determination of actual railway maintenance expenditures for government-owned grain hopper cars. CN appealed the CTA decision, saying it was flawed and that its retroactive application was illegal.

 

CN estimates the CTA decision will reduce its Canadian grain revenues by C$23 million for the 2007-08 grain crop year. The ruling transforms a business now generating slightly below average profits into CN’s least-profitable commodity group.

 

"Rail rates for grain transport in Western Canada were already among the lowest in the world, and we can see no sound policy reason to lower them further," said E. Hunter Harrison, president and chief executive officer of CN. "CN is not in a position to cross-subsidize its grain movements with profits generated from the movement of goods in other sectors of the Canadian economy. As a result, CN will have to carefully review its future investments in grain-related equipment and infrastructure."