It's an honour to be invited to speak to members of Parliament, members of this committee. I thank you for the invitation, and I'm impressed with the fact that there are probably people here who know as much about railways and transportation as I do. I will include that importance in my presentation and my explanations.
The Canadian railway sector is of key importance to the Canadian economy and Canadian development. As all Canadians are aware, the country really was knitted together by the railways. The railways account for moving something like 24% of all of the exports from Canada, and quite a large proportion of internal freight, about 60% on a tonnage basis, moves by rail.
One of the lesser-known things about the rail industry in Canada is that through all of the debate and discussions and changes in technology and infrastructure, we actually do have the most efficient railways in the world. Canadian freight rates are slightly lower than the U.S., and that really is what puts us in the category of having the lowest per tonne kilometre freight costs in the entire world. We really do have efficient freight railways.
Another important part of that, of course, is that some of our products, such as grain, have to move further to port, to ocean, to tidewater, in Canada than in any other country in the world, except possibly Russia. For these reasons we really have to stay on our toes to be competitive all of the time.
The Canadian Association of Railway Suppliers is an association with about 130 members out of about 500 small and large--some very large--manufacturers and supply organizations. We supply the services and products that keep the Canadian railways running. A great deal of our effort in maintaining our market with our own railways is keeping on our toes in providing innovation that is specific to the Canadian railway needs. Again, that relates to things such as fuel efficiency, being able to operate in the winter, having products that will work in minus 40-degree, minus 50-degree temperatures. Indeed, some of the lowest recorded temperatures in Canada were in northern Ontario, in the minus 70-degree range. To have lubricants and airbrake systems that will operate in those temperatures is no easy task, but our railways do it, and we are the people who provide them with the material and equipment that make that possible. We're also fortunate to be able to export to other countries. Of course, the United States is one of our largest sources of business as well.
The Canadian Association of Railway Suppliers members total over 60,000 employees. There's a big labour pool involved. We probably have more employees than the railways themselves. That is to say the labour that goes into making components, everything from paint to consulting engineering, that the railways use represents even more labour than the railways themselves.
Everything the government does in relation to transportation legislation, industry legislation, tax, and so forth affects our members and our industry. It's important that we cooperate with each other.
I'm very pleased that this is really our first presentation to your committee, and I hope we'll be invited frequently as things change in the future.
We have a list of things that we consider shortcomings or disadvantages in existing government policy. One of the things that is hurting us now that free trade has evolved is the capital cost allowance for tax purposes, depreciation for tax purposes, of railway equipment. The reason this is hurting us is that there's a big difference between the writeoff rates in Canada and the United States.
With a lot of our equipment being acquired on either side of the border, and the U.S. railroads also buying in Canada, the leasing companies are seriously affected by this difference in the capital cost allowance.
If a U.S. leasing company is leasing equipment to a Canadian railroad for a particular purpose, chances are that they will not only buy their equipment from a U.S. supplier, but neither the Canadian government nor our association will see much in the way of income taxes and so forth from that industry. We won't see any employment from it. So it's a negative incentive to do business in Canada in terms of equipment purchases.
We would like to see matching of the capital cost allowance with that of the U.S. for railway equipment.
We need to invest in environmentally sustainable transportation, that is to say, to continue to improve our fuel efficiency. We already, on a tonne-kilometre basis, are about 500% better than trucks. That is, we use about 20% of the fuel that trucks use for the same tonne kilometres.
This all has to do with the equipment, the roads, the tires, and the steel wheels on steel rails, which have substantially less friction, and so forth. Also, we have very much bigger engines in our locomotives that are more fuel efficient. That's an important factor. Over the last twenty years, the railways and the railway equipment manufacturers have squeezed another 7% efficiency out of locomotive fuel consumption for the same tonnage of freight movement. And we see other improvements possible.
We need to look more at using environmentally friendly fuels, such as biodiesel. It has been done experimentally. It works. It's exactly equivalent in performance to petroleum diesel, and it's certainly readily available in Canada and is a sustainable fuel; it will be there forever. We can use it and we can grow it. We get it as waste fat from animal processing, and there are many sources. In fact, a subsidiary of Maple Leaf Foods in Montreal is the biggest producer of it in Canada.
So there are things like that that are important to research and development.
Commercialization of research is important to us; that is to say, we would like to see our own members more involved in innovation and research. Programs such as the freight incentives program didn't have a very large budget, but it was a step in the right direction.
If other programs, such as the rail technology development fund, could be directed to suppliers' research that the railway equipment companies can perform, that would be a very, very positive application of funds released from the fuel tax.
And last, I'd like to mention the scientific research and experimental development tax incentive program tax credits. Some of our members have used those extensively. This is the nice thing in that when a tax credit helps a company justify spending money in R and D, and then, when the R and D is completed the product is developed and sold, the money certainly comes back to the government in the form of economic progress and taxes on the earnings from those products. So it's a nice feature.
But our request would be that it be made easier to use. That is to say, perhaps Industry Canada could be the intermediary for acquiring those tax credits, because at the present time, the tax auditors in CRA really don't know much about the industry, and their approach has to be a defensive one wherein they're defending reducing these credits or vetting them so they're reduced in size and magnitude, even though they were approved in the first place and the company has gone ahead and done the development. I don't think the tax people would be upset by having that responsibility moved over to Industry Canada, because it really is a nuisance to them too. They don't have the qualified people to evaluate these.
That's a very quick summary of our industry thoughts and needs. I hope we'll be able to have some interesting discussion and answer any questions you may have.
