CN expressed disappointment in a Federal Court of Appeal of Canada ruling that lets stand a Canadian Transportation Agency (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 eight per cent 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. It is especially frustrating to CN that the rate reduction is retroactive: rates that were set in the spring of 2008 are to be applied to grain that moved in August of 2007.

“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.”