Bill C-8 (Historical)

An Act to amend the Canada Transportation Act (railway transportation)

This enactment amends the Canada Transportation Act with respect to railway transportation.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

I know quite a bit about it, and I was hoping to ask you a little bit about a bill that's currently in front of the transport committee right now, Bill C-8. Are you familiar with it and the changes it's making?

[The Chair, Conservative, Merv Tweed]

We'll expect it when it is translated. Other than that, thank you very much.

I do want to advise our committee that if you do have any amendments to Bill C-8 , I would ask that you get them to Mr. Doug Ward, legal counsel, as soon as possible. I'd like to say Thursday noon at the latest, and that way we can get the information back to you so we can be prepared for next Tuesday.

With that, and seeing no other questions, the meeting is adjourned.

[Marc Shannon]

When one looks at the legislative summary that accompanies Bill C-8, clause 3 deals with incidental or ancillary charges not directly related to the movement of traffic, such as demurrage. So really, I think all we're saying is that the intent expressed in that summary should be reflected in the clear wording of the legislation.

[Cliff Mackay]

I can't give you any hard numbers. My colleagues may have a view specifically from a particular company's point of view, but I must tell you, we haven't tried to do a financial impact analysis of Bill C-8.

Our largest concern, as I said earlier, sir, is not so much with the specifics, although we do believe some change is necessary to the current act in front of you; it's more with the perception that may be created that we're shifting back towards regulation of prices, and that perception is something quite—

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I've heard that you aren't supportive of it particularly, and yet, on the other side, I'm feeling the sense that you know the bill will go, whether there will be...and in that 30 days I think you're looking forward to the option of having that review done.

I haven't seen, actually, anywhere where you've talked about the financial impact of Bill C-8 on you and what that actually would be, or if you've done any work on it to help us with what that impact would be.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chairman.

Thank you to the witnesses for coming out.

Actually, Mr. Allen, I'd like to just follow up on that, if you wouldn't mind. It's interesting that in one of the areas of my constituency right now there is a line that had been shut down. Now a short-line railway is interested in coming in and being a part of it, supported by the local county municipality because they see this as an opportunity to start to remove goods. It will likely take some trucks off the road, but obviously they want to make sure they can get their products from point A to point B so they can get on the main lines and away they go.

How does Bill C-8 specifically affect you?

[Jeff Watson, Conservative, Essex, ON]

The Commissioner of Competition has suggested, as far back as 2001, that it was necessary to remove something like that. It is something that doesn't exist in any other economic legislation, so perhaps we view that as an unnecessary hurdle. The agency would still have to be convinced that the relief is necessary in order for it to be granted.

I want to move on to group FOA. You've suggested somehow that group FOA is adversarial, to use your term. I actually think group FOA presumes the exact opposite. If you're going to be adversarial in a group FOA, or an individual FOA, and take extreme positions opposite from each other, you stand to lose more when the arbitrator picks one solution over another. I think actually what FOA does is to force you to more common ground in the middle, so that each side is roughly pretty close. I don't see how that becomes adversarial.

You've suggested that you prefer mediation. It's still in Bill C-8. Does that mean we can expect that resolutions will happen in the mediation stage, as opposed to having to get to group FOA?

[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?

[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?

[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.

[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?

[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.

[Joe Volpe, Liberal, Eglinton—Lawrence, ON]

Thank you, Mr. Chair, and thank you, gentlemen, for appearing before us this morning.

I know this is a touchy situation for a lot of people, especially for you, because you've been painted by everybody as the group that needs to be looked at rather warily. So why don't I just defer to type and say that that's exactly where I come from.

Mr. Patenaude, just before we go into the substance of C-8, can you just very briefly tell me why it is that CN is the subject of a headline every second day with respect to safety in its system?

[Jean Patenaude, Assistant General Counsel, Canadian National Railway Company]

Thank you very much, Mr. Chairman.

CN certainly appreciates the opportunity to appear before you today on Bill C-8. I'd just like to address something that Minister Cannon raised when he was here, and Mr. Mackay alluded to, and that's the commercial dispute resolution process. As the minister mentioned, in the summer of 2006 he basically challenged the railways to find a commercial solution to concerns that had been expressed by some of the shippers. We strongly agreed that this was the appropriate way to proceed, and as a result, both CN and CP worked very hard to develop the commercial dispute resolution process--the CDR, as I'll refer to it--as we believed that it addressed the needs of both the shippers and the railways.

The CDR represented a significant number of compromises by the railways, but we were quite willing to make those compromises in order to attain the regulatory stability that is essential in order for the railways to continue to reinvest large amounts of capital into the railway system. We were also anxious to find a less confrontational way to settle disputes with our customers. The CDR was intended to deal with disputes related to level of service, transportation rates, and the application of optional services fees.

What we proposed was a two-step process specifically to address the concerns that had been expressed by the shippers. First, the shippers had said that the railways did not listen, or that it was hard for the shippers to find someone in authority to speak with them when there were issues. We agreed, at the request of the shippers, that we would submit any dispute that they were raising to compulsory mediation. This would ensure that there would be someone with authority who would be listening to the shippers to try to find a solution.

In addition, if the mediation did not solve the problem, we proposed that in addition to existing statutory remedies the shippers would also have the option of going to binding commercial arbitration. The shippers had mentioned that they wanted to find commercial solutions to problems that are really of a commercial nature. So we proposed binding commercial arbitration, a system that basically works in most of the other areas of business in this country. We want to make it clear that we were not asking them to renounce or to give up any of their statutory remedies. We presented this proposal to a number of shippers and their representatives. Many of our customers were quite interested in the proposal.

Unfortunately, some of the shippers, through their associations, insisted, as Mr. Mackay said, that the CDR apply to U.S. as well as Canadian movements, and this was something we could not agree to; therefore, the discussions were not successful. However, we still have maintained the CDR in a contract form. We've put it up on our website and it is available for all customers who wish to take advantage of it. Many of our customers told us they like the proposal, but they saw no need to sign on at this time as they had no problems with our services. They indicated that if in the future problems arose, they would be interested in using the CDR.

I suppose it's not surprising that shipper associations did not rush to accept the CDR. They knew that if the process failed, the minister would introduce legislation, which of course is exactly what happened with Bill C-8. We have a number of specific concerns with the bill, as Mr. Mackay has referred to, but in the end our biggest concern is the continuing move toward re-regulation of the rail sector. Mr. Mackay referred to the deregulation of rail in Canada and how it's been a resounding success. It has triggered innovation and improved efficiency in the rail system and the rail industry to the benefit of all, including shippers. It has allowed the railways to improve service and asset utilization, and by any measurement, the railway service offering is dramatically better than it was ten years ago. Transit times are shorter and more reliable, car velocity is higher in real terms, and rates have decreased.

These improvements have led to a financial performance that has enabled the railways to make further capital investment in the rail system, and Mr. Mackay has referred to that. But in order to invest, there is a need for stability, and we need a regulatory regime that allows us to continue doing the things necessary to make our railway more efficient. We are concerned that this legislation is likely a step backwards.

The provisions of the FOA group create another adversarial process. To us it really is building a ring for us to fight with the shippers, whereas there should be a better process, such as the mediation and arbitration process. A very important thing is that unlike class action proceedings in law, there is no requirement for the group of shippers to show that they are in fact a true group, and in fact there's also no need in the current legislation that the decision apply equally to all of the group members.

We know that shippers do not like paying optional charges. They are in place to drive efficiency and discipline in the system. The railways cannot afford to have shippers use the yards and the equipment as warehouse space. Many shippers with private car fleets keep them parked in the railway's yards because they lack sufficient storage space of their own. All these things create congestion in the yards and affect the railway's efficiencies. Yards are there to sort cars, and congestion is expensive to CN, to the system, and ultimately to the customer.

We don't question the right of shippers to final-offer arbitration. This is a remedy they have now. We understand that there is a need for a remedy, but we do have many concerns with the FOA process as it currently exists.

[Cliff Mackay, President and Chief Executive Officer, Railway Association of Canada]

Thank you, Mr. Chairman.

I intend to speak for most of the time, and then I'm going to ask my colleague Mr. Patenaude to say a few words as well.

The Railway Association of Canada, as many of you know, represents some 60 railways across the country, which number represents virtually the whole railway community in Canada: the large class 1 freights, the short lines, regional railways, intercity passenger and commuter railways, as well as a number of tourist operators. I'm very pleased on their behalf to be here today to speak on Bill C-8.

Just to give some background, the state of Canada's transportation system is far different today from what it was 10, 15, or 20 years ago. The current reality of Canada's transportation infrastructure is that there is no longer any excess capacity in the system. Our transportation system is coping with current demand; however, it's widely recognized that our current system will not be adequate to facilitate the projected growth in traffic for the future. This is particularly true with intermodal containers moving through our west coast ports as a result of the growth in the Asian market.

The federal government has recognized the overall transportation challenge associated with this increased trade and has implemented the Asia-Pacific gateway and corridor and the national policy framework for strategic gateways, and it has recently announced both an Ontario-Quebec continental gateway and corridor and the Atlantic gateway. All of these initiatives are being funded under the Build Canada fund.

For its part, Canada's class 1 freight railways have estimated that they need to invest at least $2 billion in infrastructure and rolling stock in the next decade or two just to accommodate the west coast growth. As such, it's imperative that railways be provided with regulatory certainty as well as the ability to attract the investments necessary to match the level of infrastructure necessary to allow for the growth in our economy.

The days of relying on excess capacity to meet growing traffic are clearly over. The bottom line is that putting in place regulations that would create greater regulatory uncertainty simply will not help us to meet the challenges of the future.

Let me speak just briefly, then, Mr. Chairman, about deregulation. Deregulation has proved to be a resounding success. It started with legislated reform in 1987, which allowed railways and customers to make separate commercial deals, and it developed further from that point with the amendments to the Transportation Act in 1996. If you measure what's happened as a result of all of this, as measured by revenue per tonne-kilometre, average freight rates in Canada declined 31% in real terms from 1988 to 2006. This has allowed shippers not only to move more goods but to move them at lower cost.

I should say that since deregulation, particularly since the mid-1990s, railways have spent more than $15 billion to improve their systems. This was double the amount of investment that took place during the same period of time under the regulatory regimes of the 1970s and early 1980s. Over the coming year alone, railways will be investing more than $2.5 billion in their infrastructure, which represents something in the order of 20% of our total revenues.

Railways, Mr. Chairman, face stiff competition, not only from other modes of transport, such as truck, but also from other railways. This fact was recognized recently by the OECD in a report. They say the clearest example of competition between integrated railways occurs in Canada, where two largely overlapping networks are capable of providing a wide range of substitute services.

Railways can lose business to competitors, and they do lose business to competitors. We need to continually strive to improve our services to our customers.

One example of some of the new things we're doing is that recently the class 1 railways have developed, in collaboration with shippers, a process called commercial dispute resolution—CDR, in short. CDR is a commercial option for shippers to address and resolve issues concerning rail freight rates and service and ancillary charges without having to go to the much more cumbersome and sometimes costly processes that are provided by government through the CTA.

Unfortunately, the members of the shippers council have not yet formalized the CDR process. Our understanding is that they are seeking to expand this process to the U.S. jurisdiction.

Our view at the moment is that clearly the CDR was developed to operate in Canada in the context of the Canadian regulatory environment, and the U.S. environment is very different. We hope that in the near term the shippers will reconsider and come back to the table. We think this is an initiative that is very good for them as well as for us.

Let me now turn and speak very briefly about Bill C-8 itself. The RAC understands and appreciates that the federal government undertook significant efforts through consultation with shippers and railways to propose a legislative framework that balances the interests of both parties. Bill C-8 is the outcome of this effort. However, notwithstanding all this effort, the RAC continues to believe that Bill C-8 is not necessary and we do not support the bill going forward.

Having said that, we understand there are a number of other parties who very much wish the bill to go forward, and in that context we would ask the committee to address our concerns in their deliberations about the current legislation.

Contained within our written submission, which is somewhat longer than my comments this morning, we'd like to propose changes in three sections--sections 27, 120, and 169--of the Canada Transportation Act. As such, we respectfully would submit the following for your consideration when you review the bill in detail.

Clause 1 of Bill C-8 proposes to repeal subsection 27(2) of the Canada Transportation Act, which requires the agency to satisfy itself that a shipper would suffer substantial commercial harm prior to granting a remedy or recourse. This provision is consistent with commercial principles enshrined in the various provisions of the act and essentially directs the administrative tribunal charged with the administration of the act to look at the commercial realities before imposing a regulated measure. Over the years, the provision has not prevented the shippers from obtaining redress when required, and it has acted as a reminder to all the parties and to the regulator itself that regulation is not to replace commercial relations. As such, the RAC recommends that subsection 27(2) be retained in the act.

The second point has to do with clause 3. Bill C-8 proposes to introduce an additional recourse to the agency for shippers. The intention is to provide a recourse with respect to charges established by railways for incidental or ancillary charges for services such as transportation services, things such as demurrage, car storage, and car switching services. These are services that are not associated with the core activity of actually moving the cargo. The proposed wording for this recourse in Bill C-8 is vague, in our view, and could be interpreted as applying to both incidental charges and transportation rates. The RAC believes that clarification should be added to ensure that it deals only with charges associated with the provision of incidental services.

I should say, Mr. Chairman, it's our understanding that there has been consultation with the government and with shippers, and I think there is general agreement that some clarification of this part of the act is necessary.

The third and last point, Mr. Chairman, has to do with clause 7. Here, Bill C-8 proposes to extend the final-offer arbitration recourse process to groups of shippers. First, the RAC believes that group FOA is simply not necessary. We think the existing system works. Second, the RAC believes that if the committee were to decide to proceed with group FOA, there is clearly a requirement for a certification process that should apply equally to all who choose to participate in this process. The legislation at the moment does not clarify that matter.

In conclusion, Mr. Chairman, as I said at the beginning, the days of existing capacity being available to meet the needs of Canada's rail system are clearly over. We no longer have overbuilt railways. As an industry, we are facing this new reality by investing heavily in new infrastructure and rolling stock to meet future demand. We need a stable and predictable regulatory environment that will ensure long-term financial sustainability. It's recommended that the proposed changes in Bill C-8 be implemented by the committee in order to better ensure a favourable climate for investment in the future.

Thank you, Mr. Chairman. I now ask for Mr. Patenaude to say a few words.