Cost uncertainty in grain freight rates

As CBH has no cost certainty beyond this date when its interim access agreement with rail leaseholder Brookfield Rail is set to expire, management has not ruled out further increases.

CBH general manager operations David Capper said he had hoped to have interim access agreements completed by October for the freight rate announcement, but Brookfield Rail had not responded.

"We've been pushing Brookfield Rail for well over a month now to negotiate that interim agreement," he said.

"We've put to them our views as to what that interim agreement should look like and we just haven't had any progress whatsoever.

"They've responded in saying they need time to consider certain things."

Mr Capper said it was necessary now to give growers an indication of freight rates so they can go into harvest to make their delivery decisions based on the best information available.

"Just as we didn't believe there was any justifiable reason for any increase in access fees in the last interim agreement, we certainly don't believe there's any need for an increase now," he said.

"We would like to think these rates we put out will be at least this good, if not better come February, but there is a signficant risk there and moreso than normal."

The estimated freight rate increase will vary per line across the CBH network, with some bins incorporating both rail and freight services for port delivery.

Mr Capper said this variance could be between six and 10pc, as for some lines, road components were either remaining the same or decreasing in cost.

In May, Brookfield Rail's rail access charges increased by about 13pc, with some lines by almost 20pc.

These charges were eventually agreed to by CBH, but not before the then interim access agreement expired and CBH trains were removed from the Brookfield Rail lines for a short period.

Growers are charged about 50pc of these increases as they relate to access, the remaining 50pc is paid by CBH as these charges come under operational costs to physcially move the grain using CBH-owned rolling stock capital, fuel, train drivers, scheduling and maintenance and road to rail transfers.

"The rates we put out in October are always only estimates but normally we have a very high level of confidence in those estimates," Mr Capper said.

"This year in particular because there's no interim agreement post December 31 there is a greater level of risk and uncertainty in those estimates than normal.

"We've got absolutely no desire whatsoever to be in that same situation as we were in May.

"We really wanted to have that negotiation before we put the freight rates out and we certainly want to have it done before December 31.

"No one wants to see a repeat of the uncertainty that was created in April and May and we certainly don't want to see that occur in December and January at our busiest time."

Calculations for the rail access is collected within the CBH freight fund and all costs are paid from this pool of money.

This money remains separate to funds awarded under the CBH rebates for operations, marketing and trading and investment.

In the past CBH has paid out rebates from the freight fund, specifially in 2008 and 2014, when big production years meant fixed costs were easily covered and there was a surplus.

Mr Capper said any increase to rail access will not affect the three traditional rebate programs.

Movement on a long-term rail access agreement remains at a standstill while CBH and Brookfield Rail await changes to the Economic Regulation Authority (ERA) pool of arbitrators before CBH will seek to apply for arbitration.

Mr Capper said both sides have made submissions to the ERA over the expertise they require within the arbitrator pool.

Arbitration is now the only step forward for CBH over rail access negotiations after talks broke down earlier this year.