Rail Freight Rates and Grain Export Basis: The US Experience

  • Term: One year, beginning in 2016

  • Funding Amount: $9,800

  • Lead Researcher(s): Richard Gray, Devin Serfas (U of S)

  • Funding Partners: None

Project Description

The 2016 Canadian Transportation Act Review Panel Report has recommended that the Maximum Revenue Entitlement (MRE) be phased out over the next 7 years. If this were to occur, it would represent a watershed in transportation policy that could profoundly alter the economics of grain production and the development of the Canadian grain economy in the 21st The recent US experience is particularly relevant for the current MRE discussion in Canada. The US railways have not been subject to rail rate regulation since 1980. As such, the US experience can be very informative in understanding how rail rates could be impacted by the removal of the MRE. Not only have rail rates typically been much higher than in Canada but grain producers in North Dakota and Montana near the BNSF railroad have also recently experienced elevated export basis levels due to a lack of export capacity (US Wheat Associates, 2015). The export basis and freight rate data can be used to estimate how export basis rents are distributed between railways and grain handlers in a deregulated rate environment, which in turn has a large impact on the pricing and the service incentives of railways.

The objective of the study will be to:

  1. Describe the deregulation of the grain freight rates in the United States, and the current system for rail car allocation including the COT bid car system.

  2. To collect and report secondary data on DNS export basis and grain freight rates with a focus on areas of North Dakota and Montana that are dependent on rail access for PNW shipments.

  3. To analyze the relationship between rail freight rates and grain export basis.