Canadian National Railway and Canadian Pacific Railway are cutting rates by as much as 25 percent in an effort to entice shippers as crude oil prices continue to plummet, according to reports from Reuters.
Canadian National Railway and Canadian Pacific Railway, which together account for the vast majority of crude-by-rail cargoes shipped across the country, are cutting rates by as much as 25 percent in an effort to entice shippers as crude oil prices continue to plummet, according to reports from Reuters.
The news service said the amount by which each railroad has decreased prices varied depending on the sources interviewed, which suggests CN and CP could be working with shippers to individualized discounts.
With crude oil prices continuing to plummet due to concerns of global oversupply and the economic recession in China, North American railroads have struggled to compete with pipelines and other transportation methods for their share of the dwindling volumes.
Although neither CN nor CP would comment publicly on freight rates and individual customer relationships, Canadian Pacific has allegedly offered rate discounts between 15 percent and 25 percent, provided customers agree to certain volumes, according to Reuters.
Crude-by-rail rates vary based on a number of factors, including whether the oil is being shipped on dedicated unit trains or with other cargoes. Much like containerized ocean freight, crude shipment pricing also depends on whether the capacity is procured under a contract rate or via spot rates.
According to the sources that spoke to Reuters, crude rates to the U.S. Gulf or East Coast are currently between $13 per barrel and $15 per barrel, down from between $15 per barrel and $17 per barrel earlier in 2015.
Shipments from Canada to the United States have dropped by more than a third year-over-year to 112,000 barrels per day in July, far below pre-oil price crash industry projections of up to 700,000 bpd by the end of 2016.
Whether the price cuts achieve their intended goal of attracting more shippers to use the railways to transport crude is still unclear. If production increases, however, so too will volumes and pipelines have limited capacity, so there is bound to be some spillover into rail.
Canadian railroads slash crude transportation rates
