Transport Committee on Nov. 27th, 2007

[Cliff Mackay]

That's why we have never said there isn't some need within the system. Our view has always been to let the commercial market world work as much as possible.

I want to briefly address the question of a monopoly.

[Ed Fast, Conservative, Abbotsford, BC]

Before you go on, I want to ask Mr. Patenaude the question as well.

[Cliff Mackay]

Sure.

[Jean Patenaude]

We're in the same position, but that is why we favour mediation. Mediation is a non-confrontational approach, and we have been involved in a number of mediations. I'm very happy to say that in all those in which I've been personally involved, we've resolved the issues. In mediation we normally pattern the solution to the benefit of both parties. We both walk away from it happy.

That is why, in our approach to the shippers, we're saying let's start by talking; let's start through mediation. We know that mediation is not always successful, but let's do what other people do in the business and go to commercial arbitration. We have numerous contracts with shippers across Canada in which we have built-in commercial arbitration. That's what we do. We use those provisions. We think those provisions are better than the FOA approach where the winner takes all.

[Ed Fast, Conservative, Abbotsford, BC]

For small shippers that don't have the financial resources available, commercial dispute resolution can be a horrifically expensive proposition for their bottom line. That's why they're unhappy with the current state of affairs.

You've had a chance for some six years to try to resolve this, and you're saying that mediation has worked for you? The results of this study and our consultations with the shipping industry indicate that mediation isn't the solution you may be suggesting it is.

[The Chair, Conservative, Merv Tweed]

You're time is up, I'm sorry.

Is there any comment to Mr. Fast on that statement? If not, I'll go to Mr. Bell.

[Don Bell, Liberal, North Vancouver, BC]

Thank you.

By nature of background, let me first of all say that I fully appreciate the role the railways play in the economy of Canada. I've said they are the economic backbone.

As you know, the gateway initiative was started by our previous Liberal government in recognizing the potential growth from the Pacific Rim, not only for opportunities for western Canada but for all of Canada, and the opportunities for the railway systems as the prime mover of goods from the ports, not only to other parts of Canada but into the United States as well.

We enjoy the advantage, for example, through the ports of Prince Rupert and Vancouver, of being anywhere from one and a half to two days closer to Shanghai, a major Asian port, by natural sea route. The only way we can maintain that advantage of earlier contact and getting those goods into central Canada or Chicago or the midwest is by having an efficient rail system that can take advantage of those one to two and a half days and deliver those goods.

Mr. Mackay, you talked about the investment the railways have made. The Government of Canada, again through the commitment of the previous government, and followed up by this government, invested federal moneys in the Port of Prince Rupert. It isn't just the railways that are making these investments. The benefit to the economy of Canada has been recognized. We're talking about container cargo being up 300% by 2020. We recognize that there has to be an improvement to the way the railways operate, both in terms of capacity and efficiency, I guess you'd say, of existing assets. There's going to have to be an investment, and the investment will pay back in profits.

My concerns are the issues my colleague, Mr. Volpe, mentioned earlier about the safety record of CN in particular, which this committee is investigating, as well as the ministers panel. There are concerns of ours relating to the efficiency and the continuity, if you want to call it that, of services. Derailments can affect the confidence in terms of overseas shippers and their ability to take advantage through our ports of that one-and-a-half-day or two-day advantage we have. If we're going to have derailments as frequently as they seem to have happened, it tends to erode some of that confidence. I just put that out there as a point.

More particularly, there are two aspects that I'm interested in.

One is the issue raised by B.C. Chamber of Commerce and the national chamber of commerce about shipments to the grain terminals. I guess it's the switching or the right-of-service access in Vancouver. I gather that's being addressed, but that has been a major concern.

The other is the whole issue.... I think I heard you suggesting that the shippers were basically the cause of the discussions of the CDR not proceeding. The minister made a reference in his presentation the other day that unfortunately the two sides were unable to reach an agreement. One of the things we heard from the shippers is that the legal cost to support a complaint under CDR is in the neighbourhood of $100,000. That's just the legal costs.

I guess the concerns I have are that we talked.... Mr. Fast made reference to the size. There has been an image of intimidation, that in a somewhat monopolistic approach, the railways, by virtue of size, have been able to be bullies, if you want to call it that, with some of these shippers. I guess that's the reason for the kinds of provisions that are being suggested in Bill C-8. It's to try to level the playing field.

You said the group FOA needs to work well, and you say it must be equal in terms of their interest for group FOA. I'm saying it also has to be fair. What we were hearing in the presentations in fact is the necessity for having the system apply to all the parties in a group FOA and apply to them once the decision is made. But it's not necessarily realistic that the problems be equal in terms of the impact initially, because it's the very nature of the service and the way railways run that it may vary. But they may have a common thread in terms of a particular concern, and by grouping together they can assist themselves financially in managing to meet the financial clout, if you want to call it that, of the railways in competing.

I'd appreciate your comment.

[Marc Shannon]

May I comment on that last point, because I do understand exactly what you're saying. I'll make two comments about it.

First of all, there is currently in legislation a provision for an expedited FOA that would be lower cost. That's in there for claims of smaller amounts, and we have done those. They have a 30-day trigger, and of necessity they require the dedication of fewer resources on both sides. That's just one general comment.

My other comment on the group FOA is that I've heard a couple of times now the comment that this shouldn't take us by surprise because it has been there for a while, and that's correct. When it was first introduced, however, it contained a provision that said that the remedy being requested by the shipper—and the shipper sets the ground rules in any FOA—should apply equally to all. So if a group of shippers get together and they decide “We have an issue, it's common to us, and we now need a remedy”, under the original drafting, that remedy as they state it had to apply equally to all of them--you know, whether it's a cents-per-tonne mile or whatever. We're saying that has now been removed, and we'd like to see clarity, the kind of clarity there had been to indicate that we wouldn't be fighting, in effect, 20 FOAs all at once, but rather one.

[Don Bell, Liberal, North Vancouver, BC]

Mr. Shannon—

[The Chair, Conservative, Merv Tweed]

I'm sorry, we're at seven minutes.

Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Good morning, gentlemen. You know, I am sure, that our role is to try and get the economy working and to balance out the forces between the different parties. This is why we are studying this bill.

What struck me in your presentation, Mr. Mackay, was figure 1, which shows us clearly that freight rates are quite stable. There has even been a slight drop. Volume has increased slightly, as well as the workers' productivity. This is positive, but I wonder how volume has remained the same in a competitive environment in which rates have not increased. How do you explain the fact that volume has remained so stable and has not increased? Is this competition, or poorly organized rail transportation?

[Cliff Mackay]

In the early part of that chart, if you look at the piece around the 1990s as opposed to what's been going on since about 2000-01, you'll see the volumes are fairly stable, but you'll see they've started to go up in the last four or five years. In the 1990s two issues were at work.

One, the competitiveness of the trucking industry was quite robust. It was quite strong. Fuel prices were still fairly low. The congestion issues and the labour issues some of the trucking industry ran into in the last few years were not as strong, so they were taking a larger share. The other very important thing is that the border was working better for the truckers, so they were taking a larger share of the overall freight market than they are today.

What's happened essentially since 9/11 is you've had a combination of rapid increases in fuel costs, congestion issues at the border, and growing congestion issues, particularly in the heavily populated areas for trucks around Toronto and Montreal, those sorts of things, combined with some difficult and growing labour shortage problems in the trucking industry. So the overall share of freight being moved by trucks has gone down in the last few years compared to what it used to be. That's been a change.

The other big change that has gone on--and this has been particularly in the last five to six years--is that the investments I referred to have started to kick in, and in combination particularly with what's gone on on the west coast as a result of the growth of the Asian trade, that has led to that increase in volume from the latter part of the period. So you've had a combination of things.

This is an overall chart, so it doesn't look very dramatic, but it's been pretty dramatic.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

In the same vein, I was wondering if the freight rates you indicate include ancillary charges too. Is this just the base transportation rate? The ancillary charges that you bill to shippers are a source of great friction. Are they included in the chart that you are showing us?

[Cliff Mackay]

No, this table tracks basic rates. It doesn't track rates that come and go on an ancillary basis. It's much more difficult to get that, because it varies all over the place.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

So the picture could be quite different if the ancillary charges were added. That would perhaps explain why the volume is not increasing.

[Jean Patenaude]

Ancillary charges are not for the movement of freight, they are costs that, in many cases, the shipper need not pay but often decides to anyway. Take freight cars, for example. A shipper has 24 or 48 hours to unload a car at no charge. If he takes a week to do it because he has decided to use the car as a parking or storage facility, that is when we bill for its use. The costs are not required most of the time. If he unloaded the cars during the time when they were free, the costs...

[Robert Carrier, Bloc, Alfred-Pellan, QC]

But the shippers are telling us that ancillary charges are getting rather steep.

[Jean Patenaude]

No one wants to pay for parking if there is a way to avoid it.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Forgive me, we are pressed for time. We have to ask our questions quickly.

The federal government has undertaken to review the entire rail transportation system within 30 days of this bill being passed. Do you have faith in that study, that will give you the opportunity to talk once more about your problems, and those raised by the shippers, with the goal of reaching a mutually acceptable solution?

[Cliff Mackay]

We will very much participate in the rail service review the minister has said he wants to launch after the bill has been dealt with. From our point of view, we see it as an opportunity to do a number of things. First, it's an opportunity, obviously, to talk about service issues, if there are any out there, and what they are and what their nature is.

We hope it's also going to be an opportunity to sort the wheat from the chaff. One of my personal frustrations, frankly, when we get into rail service issues is it's all anecdotal. There is very little factual information out there. It's this story or that story, or somebody told me this or somebody told me that, and it's on both sides, the rail side and the shippers' side.

One of the things we would very much welcome would be a little more good analytical work on the general picture out there. We believe our services have been improving over time; others would disagree with us, but that's what we believe, and we would like the opportunity to show people what we're doing and why we're doing it. So we welcome it in that context.

[The Chair, Conservative, Merv Tweed]

Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair. Thank you to our witnesses for appearing today.

I have a lot of things to cover, and unfortunately I don't think I'm going to get to all of them here today. I want to get to the question of investment.

I want to be clear on this point. Will the passage of Bill C-8 in this form cause you or any of the companies you're representing, Mr. Mackay, to not make certain investments in Canada? If that's the case, which ones?

[Cliff Mackay]

The short answer is no, we will invest. We need to invest. It's part of our business. It's very important.

The point I'm trying to make today to the committee is to be careful how far you go down that road. Every step you take toward further re-regulation, if you want to characterize it that way, is a step closer to having negative impacts on the perception of the investor. Investors don't like regulation, generally speaking. They like to know that the company they give the money to is going to do what they need to do to get the return on investment so that they can make their money. That's the message I'm trying to leave with everybody today.

[Jeff Watson, Conservative, Essex, ON]

That's a little clearer. I think all that good money coming in from trade from Asia is enough to ensure that there'll be a lot of investments moving forward.

There's another impression that I think you've left here, and I want to clarify this in front of the committee today. You've almost left the impression that the removal of the commercial harm provision, which we're proposing in Bill C-8, equates to no test at all for shippers. I don't think that's a fair assessment. There still is the test remaining to prove that they actually need the relief. Is that not correct? You essentially want to require them to have two tests instead of one. Of course, there is no commercial harm test in any other economic legislation in Canada, as far as I understand it, but you would still like to require shippers to have two tests instead of one. Is that correct?

[Cliff Mackay]

What we're saying is that in most commercial dispute settlement processes, two things happen. The first thing that happens is to determine whether or not there's a legitimate basis for recourse or for restitution. In other words, did we break the rules? Did we do something we shouldn't have done? That's step one.

Step two is, okay, you broke the rules, what's the recourse, what's the restitution? In most circumstances, if that's happening in the commercial world, you go and look at the dollars and cents and what damages were created and you make a determination on that basis. And that's basically all we're saying.

If you're suggesting that somehow or other that will happen anyway under this process, you're probably right. But we don't understand why you would withdraw that second normal commercial test. We simply don't understand the logic of not doing that.