Transport Committee on Nov. 27th, 2007

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Shannon, in fact, my colleague asked the minister's representative if there have been fewer disputes between the shippers and yourselves since Bills C-58 and C-8 have come to us for consideration. We are told no, there are the same number of disputes and unresolved situations.

This means that, even with a bill, you still cannot come to a friendly understanding on independent cases. That was our question. Are there fewer disputes brought to arbitration? No. There are just as many.

The fact that a bill has been tabled does not prevent you from keeping your monopoly. It is difficult for us to believe you. You tell us that there will be a meeting this afternoon in order to settle the dispute. But it is five past noon. It is too late. We are going to pass the bill. Your monopoly and your short-term profit-driven vision is going to mean that you are going to have to live with this bill.

In the past, I have not seen you trying to come to terms with your clients in any kind of open way.

The products from our regions must be delivered. The opposite is something that we want to avoid. In the last two or three years, we have not felt the will on your part to settle differences in the quickest way. Transport Canada tells us that things remain the same, and that there has been no move forward. You have not tried to settle differences as quickly as possible. Quite the opposite, you have dug in your heels. It is difficult for us to believe you today.

[Marc Shannon]

With respect, I don't believe that is the situation, certainly with Canadian Pacific. The vast majority of dealings we have with our shippers are resolved amicably. We have really relatively few commercial complaints, and most of those we're able to resolve without going to dispute resolution.

I don't think this bill, at least as far as CP is concerned, responds to actual disputes, actual problems. It certainly responds to lobbying by certain groups, but I don't believe, first of all, that there are a large number of disputes with CP.

Perhaps I can quote an economist who I was speaking to recently. If in fact CP is a monopolist, we're an extremely ineffective monopolist because we simply do not earn monopoly profits.

[The Chair, Conservative, Merv Tweed]

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for appearing here today.

I'm looking at the amendments here that you're suggesting, but I do need to go back. If I go to my riding and talk...I don't have another business that is universally more despised than the railroad industry. That's just a fact. I don't think it's all railroads. CP and CN are in my neighbourhood.

If you talk to the people adjacent to your properties, if it's not the trains idling for hours where we couldn't get them to stop or move away from personal properties, it's shippers. Maybe you don't have complaints because they feel intimidated and they actually don't complain to you, but they don't want anything else done because they're scared they're not going to get their cargo moved after that. There are the derailments--a whole series of things--and it's a sad situation, quite frankly.

It could be a great Canadian conspiracy to hold the railroads in such despise.

I'll not only give you an opportunity to respond, but obviously you've seen the evidence come forward with all the groups and organizations expressing concerns and wanting a new process. We've been through several machinations of legislation. Now it's boiled down to Bill C-8.

What can you say in terms of these amendments that you're proposing right now that would be, I guess, more fair to your business?

And second, what would it do for productivity in Canada if your amendments went forth? Would it assist in better operations overall? It's obvious that you have to do some public relations in an entirely different way. If you haven't heard that enough here today, you'll hear it continually if nothing changes.

What would your arguments be back to those who would raise concerns about these amendments in the bill for your operations and how, in your opinion--I would like to hear it--it would benefit the shippers and so forth that you're serving if these amendments went forth?

[Cliff Mackay]

Let me speak to each one directly.

With regard to the commercial harm, I've already spoken to our point of view there. We just think it's good commercial practice that if you do get into a dispute and there is a need to determine what the recourse is--how do you fix it?--then obviously you need to look at what the commercial harm was. It just seems to us to be self-evident.

There is going to have to be some process that's going to have to happen anyway, so why not have it in the act and make it clear and just be done with it? That's just a matter of making sure the system works well.

With regard to the ancillary services, most people would agree there needs to be clarity between what's a service and what's a rate. In other words, what's a charge for something different and what's part of the rate? You don't want confusion there. It needs to be clear, and that's in everybody's best interest.

[Brian Masse, NDP, Windsor West, ON]

And on that point, would you prefer that to be left to regulation or be specifically prescribed?

[Cliff Mackay]

We would prefer that it be dealt with here and now through an amendment with the committee. We think there's a fairly strong consensus on that issue. It's the kind of direction that really is best coming from the legislators, as opposed to leaving it to a regulatory process.

The third item I mentioned had to do with group FOA. And again, this is a matter not so much of a major impact on the productivity of the system, but it's just basically making sure that if you're going to have a group FOA process, then for heaven's sake, let's make sure it works well.

Our view, when we looked at the legislation, was that it doesn't define what the basic criteria are for who should be a group. That's why we're suggesting that this question that the group should be equal in terms of their interests is good direction for the regulators and for the people who are going to make the detailed rules. That's really what we're suggesting.

As I say, our broad concern with the legislation--and we know there is obviously a dispute with this position--is that we think the current system doesn't work badly. We believe we're continually improving our service. And with all due respect to your comments, I hear them too.

Having said that, the bigger public policy issue for all of us is ensuring that we have the right kind of investment climate going forward, that we can all make the investments necessary to make sure we stay ahead of the curve when it comes to the demand, because it's growing and there is no excess capacity out there any more. We are just a little concerned that if you move the pendulum back the other way and you start creating uncertainty as to what the rates will be or how the system will work, you're going to impact the investment climate, and that's our broader issue.

[Brian Masse, NDP, Windsor West, ON]

I'm glad you mentioned excess capacity, because one of the more intriguing things that's been brought up here today is that right now you're saying redundancy in the identification system isn't necessary. I would argue that for any transportation system--we've seen it at the Windsor-Detroit border where, on the surface, we don't have that redundancy--it makes not just passengers but also freight and so forth very vulnerable.

The minister is going to launch a study in 30 days. What are your suggestions, in terms of the study? I would like to hear from your organizations, especially in terms of what should be done about excess capacity.

What really concerns me is that if we don't have the capacity, then deregulation probably has failed, in a sense, because there hasn't been proper investment in the infrastructure to make sure we're not dependent upon a few locations and that once again we're not ending up with a breakage in the system.

[Cliff Mackay]

Let me first speak to your comment on deregulation. If we had not had deregulation, we would be in a major crisis today. Since deregulation, we have invested more than twice as much as we ever invested under regulation.

Under the regulatory regime, it just didn't make any business sense to invest, because you couldn't get a reasonable return on the capital from the investment. So one of the major successes of deregulation has been that it's opened up the investment climate, and it's resulted in huge investments in the last 10 years particularly. We're investing at levels that were unheard of back in the time of the regulated railway business.

Just coming around to your question, capacity is a major ongoing issue for us. If you look across the system, there are two places where we still have some room to play. There is the Maritimes, on both the port side and the rail side. We're not bumping up against the capacity numbers yet, thank heaven. The opening of Prince Rupert on the west coast has allowed for some capacity growth above and beyond what we're able to do.

Again, capacity is not simply a railway issue; capacity is a system issue. The ports have to be right. The terminal operators have to be right. The railways have to be right. The inland terminals have to be right. The trucking industry has to be right in terms of all the things they do. The border has to work. All of those things have to happen. If any one of those things doesn't happen, we are starting to get into problems.

The great benefits of the productivity improvements that you've seen in the last 10 years have been reductions in rates and, frankly, a better product for the shipper compared to what they used to get. Having said that, it also means that we're having to operate the system much closer to the margin in order to achieve the returns on investment that are necessary for us to attract the capital out of the marketplace. So that's a real issue, and it's an ongoing issue. There's no doubt about it.

[Brian Masse, NDP, Windsor West, ON]

I just want to make this clear, though. You're saying there's no more excess capacity, but you're saying most of the problem with that is not the volume on the lines itself but the mechanisms--be they the ports, the terminals, and so forth--at the end.

[Cliff Mackay]

It very much depends on where you look in the system. If you look out on the west coast, just to take that as one example, some of the big issues are the interfaces with the various players—port authorities, marine company shippers, terminals, us, truckers—and making all that work efficiently.

We've made major improvements there. One of the largest and most important things that happened out there was the co-production agreement between CN and CP, under which we're now moving much more efficiently by sharing lines than we were ever able to do back in the old days when we were operating as separate entities out in that area. That's one example.

Another one from your area, which I know you're very familiar with, is making the border work, and that's a big issue. For us, thank heaven, the border is working reasonably well for railways. We move over 100 miles of trains a day across the border.

[Brian Masse, NDP, Windsor West, ON]

Lastly, very quickly, do rail separation grades have a big benefit?

[Cliff Mackay]

Absolutely. If we can solve some of those problems, there's also a huge benefit from the point of view of community relations.

[The Chair, Conservative, Merv Tweed]

Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you, Mr. Chair and gentlemen.

This legislation doesn't come as a surprise to you. This is about the third or fourth version of this bill that's been floated. It just happens that I think we're at a point now where we're almost ready to adopt this legislation.

I bring a west coast perspective to this, as does Mr. Bell. Mr. Bell, of course, is from north Vancouver, which does have a very busy waterfront.

I'm a native of Vancouver. I now live in Abbotsford, but I also live in a community that is the number one agricultural community in B.C. It has the largest farm gate revenues in the province. Again, it's critically dependent on rail service.

I am assuming most of you have had a chance to review the report that was prepared by Seaport Consultants. It was commissioned by the B.C. Wharf Operators' Association and a number of other organizations. It's the 2005 Study of Rail Service and Capacity Issues in the Lower Mainland.

[Cliff Mackay]

I may have seen it, but I must tell you I don't recall it right off the top of my head.

[Ed Fast, Conservative, Abbotsford, BC]

We've had a chance to review it. I'd like to read into the record some of the conclusions that report reached.

First of all, “Rail service at the level of the terminal operator in the Vancouver area is quite poor”. I can't imagine any other term other than perhaps “abysmal” that would describe that in more graphic terms.

“There is strong evidence...that the railroad level of service to terminal operators has deteriorated in recent years”. It goes on to conclude, “The Canada Transportation Act has too weak a definition of level of service”. It goes on to say, “The terminal operators have stated that they want amendments to the Act to provide legislative certainty that will allow them to proceed with their business and that of Canada under viable relationships with the railroad”.

That's sort of the context in which this played out.

Then I want to move on to an issue that I believe may have been mischaracterized here. First of all, there's a reference in these conclusions to the fact that a number of the terminal operators tried to quantify their losses. The small number that were able to do so quantified their annual losses at $20 million.

They went on to conclude that the railroads have imposed these costs on the terminal operators as part of a drive to improve railroad asset utilization and financial performance--read profits. Quite frankly, I'm a big fan of private business making profits, even when they're big profits. But there's also a social responsibility to reinvest, which I'm sure you've done. In fact, Mr. Mackay referred to the fact that there has been a doubling of investment since deregulation.

They finally go on to say there's a strong market position--I think they're saying there's a virtual monopoly in many areas of the country--and an unbalanced commercial relationship between the railroads and other parties in the transport chain. Of course, that's where final-offer arbitration comes in. It's something the shippers really want badly. It's intended to level the playing field. When an individual shipper has a dispute with a company like CN that made $2.2 billion in 2006 alone, that's not a level playing field. To revert to normal commercial dispute resolution mechanisms to solve those problems is unrealistic.

To the representatives of CN and CP, did either one of your companies ever propose final-offer arbitration in your discussions with the shippers? Was FOA ever one of the suggestions you made as being acceptable to you?

[Marc Shannon]

Final-offer arbitration has been in existence for many years, and we've gone through some final-offer arbitration cases. Generally, rather than proposing final-offer arbitration, which we see as not being a terribly satisfactory approach to things, our approach has been to suggest mediation with normal commercial arbitration afterwards, if necessary.

[Ed Fast, Conservative, Abbotsford, BC]

Of course, mediation doesn't have any certainty to it.

[Marc Shannon]

It doesn't.

[Ed Fast, Conservative, Abbotsford, BC]

Commercial arbitration may, but again we're talking about quite an unbalanced playing field, because you have the financial resources of these huge railways going up against the small shippers.

[Marc Shannon]

Some of the FOAs and disputes that we've been involved in have been with shippers that absolutely dwarfed Canadian Pacific in overall size, assets, annual income, and profits.

[Ed Fast, Conservative, Abbotsford, BC]

Some of them are very small shippers, would you agree? You have the other end of the spectrum as well.

[Cliff Mackay]

Yes. The question of balance when it comes to small shippers is a legitimate public policy question. We have never questioned that. But to say that some of the people we do business with are small, disadvantaged companies...we do business with some of the largest corporations in the world. Wal-Mart can look after themselves, thank you very much. So can Dow Chemical.

[Ed Fast, Conservative, Abbotsford, BC]

The little guys cannot, and big complaints are coming from the little guys.