CANADA PORTS DIFFER ON RAIL SUBSIDY'S DEMISE

CANADA PORTS DIFFER ON RAIL SUBSIDY'S DEMISE

The end of a nearly century-old Canadian rail freight subsidy in August has ushered in a period of uncertainty for that nation's two main west coast grain ports - Vancouver and Prince Rupert - as farmers, faced with a doubling of their freight bills, examine other transportation options.

But the degrees of worry at the ports are far from identical.Officials at the Port of Vancouver, British Columbia, are showing no outward concerns about the expiration of the so-called Crow Rate, named after the 1897 Crow's Nest Pass Agreement, and of its successor law, the 1983 Western Grain Transportation Act.

The end of the subsidy means Canadian farmers must pay the full freight bill of about 25 to 30 Canadian dollars a ton for transporting their grain to market, instead of about half that.

U.S. railroads and ports in the Northwest are thinking they might be able to step into some new business because of the subsidy's elimination - especially with cheaper terminal handling costs south of the border, and the possibility that a large U.S. railroad like Burlington Northern could pursue that market by lowering rates.

But rates of Canadian railroads likely will remain lower than comparable U.S. rates on grain shipped westward from North Dakota and Montana, said Jim Feeny, a spokesman for CN North America, in Winnipeg, Manitoba.

"There will be some changes, but ultimately we will be the beneficiary," said Linda Morris, director of public affairs at the Vancouver Port Corp.

The tune at Prince Rupert - located 400 miles north of Vancouver - is very different, with officials there concerned that grain traffic could drop by as much as 80 percent.

That's because the end of the subsidy, along with a proposal to remove tariff equalization as part of an update of Canada's transportation laws, will mean railways like CN will no longer be compensated for the additional distance it takes to haul export grain to Prince Rupert instead of Vancouver.

Canadian lawmakers complied with international rules prohibiting trade- distorting export subsidies by killing Crow Rate payments of C$560 million (US$420) this year. In the process, the federal deficit was lowered.

The Crow Rate covered more than 50 percent of the freight rate paid by the farmer to move export grain to the ports, said Barrie Wall, manager of corporate communications for BC Rail.

"We have seen very little effect thus far," he said, for two reasons. First, there has been little export movement, because "stocks are at an all- time low until the new harvest comes in," said Mr. Wall.

Second, export grain prices are substantially higher this year than last, and it's anticipated farmers will receive at least C$50.00 a ton more this year than in 1994.

"This second reason mellows the farmers' attitude towards the elimination of the subsidy," said Mr. Wall.

There's no question that grain is big business in Canada. Farmers there each year export close to $4.5 billion worth of cereal grains. The Port of Vancouver handles 50 percent of Canada's offshore grain exports, and grain is the port's No. 2 commodity by volume, with about 14 million tons loaded onto grain vessels each year.

The port has five grain terminals. In a show of confidence several weeks after the death of the Crow Rate, Vancouver port asked developers/operators to submit bids on the construction of a grain terminal on 65 acres of port property on Roberts Bank, a small peninsula in the Strait of Georgia.

"There is clearly an opportunity here to enhance the port's reputation as one of the premier grain and oilseed exporting centers," said Norman Stark, president of the Vancouver Port Commission.

"With the Crow Rate gone, we want to handle what we think will be a net increase in grain coming here," said the port's Ms. Morris. "We feel we are positioned to be competitive and to offer services our farmers are looking for."

The end of the subsidy could devastate Prince Rupert, which operates one grain terminal that handled nearly 6 million tons, or about a third of Canada's west coast grain, last year. "We think it's definitely going to have a long-term impact and a negative impact," said Don Krusel, president and chief executive officer of the Prince Rupert Port Corp.

"Even though our terminal is the most efficient in Canada, Prince Rupert may wind up being a residual grain port," he said.

It is an extra 173 miles by rail to Prince Rupert, he explained, and railroads are charging C$4.50 a ton more for that extra distance.

Mr. Krusel said the port's challenge will be one of marketing and education, to inform people that the whole transportation picture - including turnaround time, terminal charges and carrier costs - brings Prince Rupert much closer to Vancouver in terms of total costs.

"We're 1 1/2 days sailing time closer to Asian markets, but the rail cost side is all that is being considered right now," he said.