Bill C-52 (Historical)

Fair Rail Freight Service Act

An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration)

This enactment amends the Canada Transportation Act to require a railway company, on a shipper’s request, to make the shipper an offer to enter into a contract respecting the manner in which the railway company must fulfil its service obligations to the shipper. It also creates an arbitration process to establish the terms of such a contract if the shipper and the railway company are unable to agree on them. The enactment also amends provisions related to air transportation to streamline internal processes and certain administrative provisions of that Act.

[Wade Sobkowich]

One of the main opportunities we see in Bill C-49 is the reciprocal penalties piece. We have long been after the ability to get commercial contracts with railways. Every other link in the chain has commercial contracts. We have contracts with farmers, with penalties on both sides for failure to perform. There are contracts with the vessel owners, with the end-use buyer. That's the way business is conducted.

Until now, we've been operating primarily on railway tariffs, so that's a unilateral set of rules and penalties imposed by the railways, supported by statute. Bill C-52 introduced the ability for service-level agreements, but it lacked teeth. There was no ability to include penalties for non-performance in those service-level agreements.

We think that this will go a long way, because now shippers have the ability to try to negotiate penalties. We're talking about balanced penalties here. With regard to the same types of penalties they charge us for certain things, we want to be able to charge them for failure to do certain things. If we can have that in place in something that resembles a normal service contract that you would find in a competitive marketplace, we think that will go a long way.

[Fred Gaspar, Chief Compliance Officer, Canadian Transportation Agency]

Thank you, Mr. Chair and members of the committee.

My name is Fred Gaspar and I am the chief compliance officer for the Canadian Transportation Agency and with me today is Randall Meades, who is our chief strategy officer.

We are pleased to appear before you again and to answer any questions you may have concerning your study.

I'd like to start by offering a brief reminder about our organization and its mandate. The Canadian Transportation Agency is an independent body. As a federal quasi-judicial tribunal and regulator, we have jurisdiction over a broad range of air, rail, and marine matters. The agency essentially has three core mandates. The first is to help smooth the national transportation system, keeping it running efficiently. The second is to protect the human rights of travellers with disabilities by ensuring that the transportation system is fully accessible. The third is consumer protection for air travellers.

The Canada Transportation Act is the agency's enabling statute. It outlines the extent of the agency's authority and jurisdiction as well as the agency's role in administering the act.

The agency also shares responsibility for certain provisions of the Railway Relocation and Crossing Act and the Railway Safety Act. These provisions are focused mainly on resolving disputes and cost recovery.

When it comes to rail transportation, the agency's mandate applies to railway companies under federal jurisdiction, of which there are currently 21 active railways, including class 1s and short lines. Briefly, the agency is responsible for a number of regulatory functions that range from ensuring that federal railways carry the required third party liability insurance requirements to establishing the annual maximum revenue entitlement for CN and CP in moving western grains.

The agency also plays an important role in helping to resolve rail transport disputes. In addition to our formal adjudicative function, we also have expertise in alternative dispute resolution services, including facilitation, mediation, and arbitration services. In our experience, these methods can be faster and less expensive, producing a resolution that benefits all sides.

Of relevance today, I'd like to highlight that the alternative dispute resolution process administered or provided by the agency now includes three forms of arbitration: rail level of service arbitration, rail arbitration, and final offer arbitration.

Since 2013, under the new rail level of service arbitration framework, the agency has had the authority to impose administrative monetary penalties for the contravention of any requirement imposed on a railway company, up to a maximum of $100,000 for each violation. In addition to this, the 2014 amendments gave the agency the power to order railway companies to pay compensation as part of its level of service complaint mechanism.

Although the agency has a number of rail-related responsibilities, today I'd like to focus exclusively on Bill C-30, Fair Rail for Grain Farmers Act. It was first passed on August 1, 2014 and further extended by this Parliament on June 15, 2016.

Bill C-30 was aimed at getting grain crops to market quickly and at increasing predictability and transparency in the supply chain. As you will, recall it was introduced as an urgent response to a unique set of circumstances: an unprecedented crop year and a polar vortex.

The key new provisions that were set out in that bill empowered the agency in three new ways: to specify by regulation what constitutes operational terms for the purpose of rail level of service arbitration; to provide confidential advice to the Minister of Transport in establishing minimum grain volume requirements for the movement of schedule II grains; and, to set out an interswitching rate for areas of commodities that the agency specifies.

When the Fair Rail Freight Service Act was enacted in June 2013, it introduced arbitration for rail level of service where parties are unable to negotiate the terms of a level of service agreement confidentially.

This arbitration is limited to matters within subsection 169.31(1) of the Canada Transportation Act, and specifically, “the operational terms that the railway company must comply with” for the “receiving, loading, carrying, unloading and delivering” of “traffic, including performance standards and communication protocols”, as well as any other “operational terms” that the shipper must comply with that are related to the company's own operational terms; any “incidental” service provided by the railway company; or “the question of whether the railway company may apply a charge with respect to an operational term” or for an incidental service provided by the company.

The level of service arbitration provisions do not define operational terms themselves. At the time, the agency had no power to define them by way of regulation. The Fair Rail for Grain Farmers Act further amended the CTA to provide the agency with the authority to then make regulations specifying what constitutes “operational terms”.

In order to establish the regulations, the agency consulted broadly. We conducted targeted and focused consultations both with the shippers and the railways and with other stakeholders. Now in force, those regulations bring clarity to shippers and railways as to what might be the subject of a level of service arbitration.

Today, the regulations and operational terms for arbitration on the level of service of railways support efficient arbitration within a statutory deadline of 45 to 65 calendar days, and they've reduced the need for parallel adjudication by the agency as to the eligibility of certain matters that may be submitted for arbitration.

To clarify, an operational term refers to railway and shipper obligations in receiving, loading, carrying, unloading and delivering of traffic, including performance standards and communication protocols. They are an extensive but non-exhaustive list of terms that are eligible for arbitration.

Bill C-30 also amended the act, and requires the agency, after consulting with CN and CP and the owners and/or operators of grain handling undertakings, to provide advice to the minister on the minimum amount of grain that CN and CP should be required to move during each month of the crop year, on or before July 1 of each year preceding that crop year.

Third, and probably most important to this committee, Bill C-30 introduced provisions that enable the agency to expand interswitching to 160 kilometres for Manitoba, Alberta, and Saskatchewan. Interswitching, as you will know, is an operation performed by railway companies whereby one carrier performs the pickup of cars from a customer and hands off these cars to another carrier that then performs the “line haul”, or the majority of the carriage. The interswitching arrangement is made in cases where a shipper has physical access to a single carrier but is within a defined distance to one or more competing carriers.

To ensure fair and reasonable access to the entire railway system, interswitching has been regulated in Canada since 1904 and is a commercial agreement between railway companies whereby one railway company will carry traffic for the other railway company and vice versa, to ensure that shippers captive to the rail system have access at a regulated rate. Railway companies reconcile these costs between themselves on a yearly basis. Interswitching allows shippers to negotiate, through normal commercial processes, suitable terms and conditions of carriage with competing carriers for the line haul portion of the overall car movement.

The Railway Interswitching Regulations set the rates to be charged for interswitching services provided by the terminal carrier, thereby establishing a predictable and fair pricing regime that is applied equally to all terminal carriers providing interswitching services.

Under the Canada Transportation Act, the agency may make regulations prescribing terms and conditions for the interswitching of traffic, as well as determine the rate per car to be charged for performing this operation and establish distance zones for that purpose. The interswitching provisions of the act are considered to be competitive access provisions, allowing the shipper to choose their carrier despite having physical access to only one carrier.

Please note that the agency reviews the railway interswitching costs annually and revises the rates as required or as part of the five-year statutory review of the regulations, which was last done in 2013.

The new interswitching rate regulations now establish five interswitching zones: 6.4 kilometres, 10 kilometres, 20 kilometres, 30 kilometres, and on a temporary basis for Manitoba, Saskatchewan, and Alberta 160 kilometres from an interchange. The amendment created this new interswitching zone 5 that is applicable to movements for all commodities in those prairie provinces.

The rate for zone 5 follows the pattern established in the current rates, namely that the zone rate will apply to the first 40 kilometres of track distance travelled within the zone, and then a per kilometre rate will apply for each kilometre of track travelled beyond the 40 kilometres within the distance.

After this brief overview, we would like to thank you for your attention. We will be pleased to answer all your questions.

[Catherine Cobden, Executive Vice-President, Forest Products Association of Canada]

Thank you very much for the question. To build on David's theme I think the way we describe ourselves is that we are feeling unique in the shipper community with respect to our degree of captivity and our degree of reliance on the rail transportation system.

As you can appreciate we're in 200 communities in remote parts of our country and nowhere near the main lines in most cases and we're shipping to 180 countries around the world. This is a tremendous logistical challenge, so we're looking at it very comprehensively. Our recommendations will span the scope of what to do with respect to overall access issues. Is the transportation system the right size for the trade-flow shifts that we've been describing in our sector that I'm sure other sectors are seeing as well with the emergence of China, etc.?

Are the service conditions acceptable? Yes, we've had Bill C-52, but as you know that only moved the yardsticks forward so much. Certainly our members are feeling ongoing service issues, so we have recommendations specific to that.

Finally, in this duopoly situation we're facing is it appropriate for one-third or more of the cost structure to be pointed toward transportation costs? So we do have some questions for Mr. Emerson about the rate structure and that sort of thing as well. We think about it as access, service, and rates, and we have a very significant brief on specific recommendations that we'd be happy to submit to the committee if that would be of use to you.

Rail service

[Mark Eyking, Liberal, Sydney—Victoria, NS]

moved:

That, in the opinion of the House, the government should take steps to provide an increased level of rail service throughout Canada by: (a) recognizing that an increase in rail service and capacity is essential to the livelihood of Canadian agriculture; (b) recognizing that the ongoing review of the Canada Transportation Act provides an opportunity to rebalance the system and improve capacity and service; (c) making sure that all sections of the industry convene, with their own operational ideas, to increase effectiveness and efficiency of our transportation system...; (d) recognizing that changes to legislation are needed to address the imbalance of power along the logistics chain; and (e) making sure that all stakeholders work together to build a world class transportation system, including effective legislation and regulations.

He said, Mr. Speaker, on the domestic front, last winter we were faced with a severe crisis within our agriculture sector to effectively recognize the interests of producers and the struggle to get their record crop to market. Harvests across the prairie provinces, the world's top canola producer and second-largest exporter of wheat, jumped 14%, to a record 90 million metric tonnes, as reported by the government.

To put it simply, the system failed farmers last year, and it failed them badly. There is a responsibility throughout the logistic chain—the railroads, the grain companies—and then we had the cold weather to boot.

However, if the system failed, then we must asked ourselves, “Who designed the system? Who put it in place? Who set it up for failure? Who imposed $8 billion in costs and losses to prairie farmers?” The answer to that question is the current Conservative government. This disastrous system, the one that has failed so badly, is the one that was designed and implemented over the past three years of this current government.

Now, the current Canada Transportation Act review could not be more timely. The winter of 2013-14 saw a transportation crisis that impeded the growth and credibility of our export economy. Real hardship was experienced by farmers due to the failures of the system. For both the producers and the consumers of Canadian grain, our transportation system could not be relied upon. Shippers had to place car orders and had no idea when those orders would be fulfilled.

Of all our Canadian exports, more than 50% are reliant upon rail, and more than 70% of those exports go right to the United States. As Canada grows, the country needs a rail system to evolve, matching these trends.

In 2009, Canadian trade exports were valued at $367 billion. By 2013, they went to $479 billion, 75% of which went to the United States. When we look at 2013-14, it displayed a system that failed to adapt to the growth, especially in western Canada.

The 2012-13 grain harvest, considered a once-in-a-lifetime crop, was topped again in the following year. The farmers are getting better out west; they are getting better varieties and growing more crops, and the world needs those crops. Canadian exports of oil by rail are up over 160,000 barrels per day, from 50,000 barrels in 2012.

As Canada's economy continues to grow, our transportation system needs not only to grow alongside it, but to improve as well. A system as complicated as Canada's transportation system needs to be built upon the spirit of co-operation. The number of stakeholders and the demand on the system is going to continue to grow, which is good. It is good for the people out west; it is good for all of Canada, and it is good for the people who need our products around the world.

The Canadian Wheat Board had a variety of functions in the system. Some of them were set out in legislation, such as the single-desk seller function. Some of its functions simply developed by way of the evolution of the grain system in western Canada. It became a safeguard of the system, helping to direct traffic and providing some overall coordination.

When the Conservatives came in and made the decision to eliminate the single desk, what was going to replace that system? It was their policy decision to make, as a government.

That ship has sailed; it is over, and there was nothing put in its place to help that coordination and to get things going. We saw ships waiting in Vancouver harbour last year that had to turn around and go to other countries to buy grain.

However, Liberals do not believe that they thoroughly considered the collateral damage here, and some of the collateral damage was the total elimination of any coordinating function, oversight function, and an ability to try to use limited assets in the most cost-effective, business-like fashion. That is what is missing in this system now. It is not an issue at the moment of a single-selling desk. That is not what we are here to talk about. It is about an issue of absolute chaos in an uncoordinated system and a lack of synchronization. That is what is happening, with nothing to fill it.

Rail transportation is a very complex system. One has to get the grain from the right delivery point to the right terminal on to the right boat to the right customer in an appropriate amount of time. That did not happen last year. It happened late, and as I stated, there were billions of dollars lost by farmers out west. A very intricate and complex number of parts have to work together to make this happen. What we have seen over the past year is the Conservatives' inability to bring proper coordination to the system. They have not made the best use of our limited assets in the most cost-effective way so that we do not have a colossal mix-up. We need a smoothly functioning system that will get the most money for farmers because their product is delivered at the right place and at the right time.

In November 2013, just when the farmers were finishing their grain harvest—and they were very optimistic, as it was a great harvest and they had customers—I had the opportunity to take an agriculture outreach tour throughout western Canada to meet with farmers and identify areas that are important in my role as agriculture and agri-food critic. After visiting various farmers in Manitoba, Saskatchewan, and Alberta, even early in the fall months it was evident that our grain handling system in Canada was not providing the capability to meet industry demands.

Along with the member from Winnipeg, we witnessed first-hand the mounds of grain that were piled right to the rafters. The bins were full at the McRae's farm, at St. Andrews, in Manitoba. He was optimistic at that time, but throughout the winter things changed for him. The situation became worse.

Initially the minister suggested cash advance payments—I wonder what good that is if their crop is not moving—and a working group to look into the disaster. As the months were going by and they were losing more money, it was too little and too late. Ships remained idle in Vancouver, resulting in millions of dollars in demurrage charges and on-farm operating debts being unpaid. Grain prices were dropping, and farmers were losing that window to sell their crop.

That all came as a direct result of the Conservatives' Fair Rail Freight Service Act, Bill C-52, introduced in the House before 2012. They had the opportunity. It was supposed to rectify the imbalance in market power between the farmers and railroads. The Conservatives took the Wheat Board out and had an opportunity to put something else in its place, and they did not. Bill C-52, an act to amend the Canada Transportation Act, was a great opportunity. We could have had a real rail act then. There were recommendations made, and we would not have had the $8 billion loss that we had to deal with.

In the continued spirit of an open and fair market, a need exists for an oversight to ensure that complaints against parties can be addressed in an appropriate manner. There is a strong need for the ability for shippers to seek solutions to problems arising during their interactions with the railroads. In order to effectively address issues that occur in the fulfilment of service level agreements, the complaint mechanism must allow not only for shippers to seek arbitration efficiently and fairly, but also for each party to be on equal footing. That is very important. Everybody has to be on equal footing to make this system work because everybody is accountable.

During the passage of Bill C-52, the Coalition of Rail Shippers made several recommendations, which we in the Liberal Party supported. However, none of those resolutions were passed back in 2012.

Many prairie groups agreed that the legislation needed to be amended to make it easier to hit the railroad companies with fines over transportation bottlenecks. If it had stuck then, the railroads might have complied with it last year.

This eventually brought forward Bill C-30, which was the bill we dealt with just last year, an act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures. That was introduced by the government in March of 2013. The measures being imposed will expire in another year's time.

As I said, there is no long-term solution for the farmers. The government is putting band-aids on as we go along. There is no long-term solution that will keep the same situation from happening again and again. The crops are going to continue to do well, they are going to get bigger, and there is no solution.

Many agronomists and public servants at the agriculture department have said that these harvests are only going to get bigger and better, which is great, but we have to get those crops to the Asian markets especially and to the United States. The bill does not attempt to find a long-term solution for farmers.

The fact that the measures will expire demonstrates yet again that the Conservatives see this as a political short-term issue, while in reality, this is a structural issue farmers are faced with. The problem could very well resurface at the next harvest.

This year, as bad as it was, there are still bottlenecks, and it is not working well. Farmers are still shipping grain that was produced the year before, and last year was just an average year.

The minister has brought forward pieces of legislation that seem to be reacting to the issue rather than leading the way, on the agriculture front, on a long-term solution. It seems that members only have a chance to debate agriculture-related bills in the House when something is going wrong. There is no long-term vision. When something happens, then it is brought to the House. It seems that this is what happens every time.

The most recent grain transportation crisis is a prime example. The government waited months and months before acting. Then it scrambled together a bill that could help farmers get their grain moving. The government only acts when it needs to, and it delays action as much as possible, because it is all politically driven.

Farm lobby groups in Saskatchewan and Manitoba say that fines levied against Canada's two largest railroads stemming from the provisions in Bill C-30 do not reflect the damage caused when the companies failed to transport the minimum required grain volumes last year. The railroads are going to be fined, but even if they get the money from the railroads, it will go to the government. It will not pay the farmers who are losing money while the crops are stored in their buildings or bins.

Norm Hall is president of the Agricultural Producers Association of Saskatchewan. He represents a lot of farmers in Saskatchewan. He says that farmers are frustrated about the fallout from months of railway backlogs following last year's bumper grain crop. He stated:

“There's also some relief that the federal government did step forward, but there's still frustration. The one thing that bothers us most about this is that fine, that money, goes to government [instead of the farmers who are losing the money]. It in no way goes to those that were hurt...be it the producers or the grain companies.”

He also said that the fines are a drop in the bucket for the railways. He is a representative of the farmers in Saskatchewan.

Also, Doug Chorney, who represents many producers in Manitoba and is head of Keystone Agricultural Producers in Manitoba, said there needs to be a way to compensate shipping companies and farmers who are adversely affected by rail delays. He stated:

A fine of such [a] small amount really doesn't reflect the kind of damage poor service is impacting on shippers and farmers. We've always had challenges with reliable and adequate service from railways because of different planning issues, not always because of capacity. We do have fundamental challenges in terms of making sure we have a system that's well-co-ordinated. ....we can't be left to wait months and months for rail service.

In March 2014, the Minister of Transport said fines against rail companies could total up to $100,000 a day. What happened? She came out with $100,000 a week. That is a big change, from $100,000 to $100,000 a week.

To wrap up, what the government has done is not working for farmers. It is not working for customers around the world who need our grain so badly. We should have a long-term plan, and that is why I am bringing this motion forward.

Fair Rail for Grain Farmers Act

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Mr. Speaker, I will pay attention to your comments.

The agriculture industry is a very important economic driver in Canada. As many of us know, it supports farmers, suppliers, food processors, and all other stakeholders in the food industry.

Grains are a big part of our agriculture industry, with 15 million hectares of wheat, barley, oats, and rye grown by farmers in fields right across this country, with the majority on our prairies.

In 2013, Canada produced over 52 million metric tonnes of these grains. Some of our largest commodities are canola—I think we are one of the biggest producers in the world—wheat, corn, pulse crops, and barley. From those yields, over 50% is exported, and the rest is used in our livestock industry. It is also used by millers and brewers, and there are many other uses, such as for biofuels.

As many of us know, this year was a bumper crop. It is because of the technology farmers used, everything from the tillage systems to the varieties. They had some good weather on their side also.

Last November, I had the opportunity to take part in an agriculture outreach tour in the western Prairie provinces in an effort to meet with farmers and identify important areas to tackle in my critic role.

After we visited farmers in Manitoba, Saskatchewan, and Alberta, even early on in the fall, it was evident to me, and should have been evident to the minister, that the grain handling system was not proving capable of meeting industry demands. I witnessed first-hand the mounds of crops that were piled right up to the rafters. They were piled in garages and piled outside. It was amazing the amount of product that had still not been moved.

Upon returning to Ottawa, the situation after last fall, of course, got worse. We saw that with the big losses for some of these farmers, who could have been selling their product. Grain prices were going down. Even the government came out with an estimate that over $8 billion was lost to the prairie economy because of that.

Over the last few months, farm leaders from across this country have been meeting with our leader, the member for Papineau, and our Liberal agriculture team. Along with me, we have the members for Malpeque, Winnipeg North, Guelph, and of course, the member for Wascana, who was front and centre during the emergency debate and in keeping an eye on things.

The Conservatives were warned about the situation by the opposition and industry members a long time ago, not just by the farmers but in this House during the emergency debate the Liberals pushed forward. One would think it would have come from the Conservatives. Their members, coming from the grain region, should have been pushing for an emergency debate. However, we pushed for it on this side, and we appreciate that the Speaker allowed us that late night of debate on the situation.

The minister responded through the winter with some cash advance payments and a review panel to look into the disaster, but it was too little too late. Ships were idle at the ports. We all know about that. We had ships from Japan that were turned around. They had to go to Seattle. They had to go to the United States, imagine, where they were loaded up in a day, while they were waiting here for weeks to be loaded. It was a bad reflection on us.

There were also meetings in Singapore. One of the biggest issues among all the producing countries was, “What is going on with Canada? How come Canada has such good growers but cannot get their grains to market?” We were really getting a black eye on the international scene.

On farms, they were operating, and their debts were going unpaid. It took a lot to put that big crop in and harvest it, with the price of fuel. Meanwhile, they were not moving their grain.

It is blatantly clear that the Conservatives need to take another look at their failed rail act, Bill C-52. That was introduced last June. They scrapped the Wheat Board, and all of a sudden, there was nothing to protect farmers after that. Bill C-52 would have been the spot for that. There were amendments recommended, which they refused to put in.

What happened after that? There was nothing to help the imbalance in the market power of farmers and railroads. Many prairie farmers agreed that the amendments to this legislation were needed to clearly define service levels and to make it easier to fine rail companies for transportation bottlenecks. However, all our proposed amendments, which would have strengthened the position of the shippers and farmers, were unanimously defeated.

As a result of Bill C-52's deficiency, farmers watched their big bumper crop sit in their backyards, as customers around the world wanted our number-one quality product. We also saw customers in Canada and in the United States looking for our product and not being able to get it.

This winter in the House of Commons, the Liberals demanded that the Conservatives take action. The Conservatives finally came forward with this emergency legislation on grain transportation, which we are talking about today. We know it as Bill C-30, and it is to fix the shortcomings in the previous bill.

As mentioned by other members, the Standing Committee on Agriculture and Agri-Food studied the new bill, and although it was rushed, it provided a tremendous opportunity to improve the legislation. Many witnesses came from across Canada and many good ideas were brought forward. After hearing the testimony of dozens of farmers and stakeholders, it was obvious that this new law needed some adjustments if it were really going to enhance the entire supply chain on a long-term basis.

The bill also failed to define what rail service levels should be, to create an objective measurement of rail performance, to provide for damages payable to farmers, to clarify farmers' grain delivery rights, or to create reciprocal penalties when obligations are not fulfilled on any side.

These are the same complaints we heard last year, but once again, the Conservatives unanimously voted against all opposition amendments put forward to strengthen the bill and address the ongoing concerns.

Although this has been delayed and is weak legislation, the other problem, as many farmers know and the House knows, is that the sun will set on the bill in two years. Therefore, this is really only a short-term step to help out. How will farmers or anyone in the supply chain look at the future if this is only going to last two years?

With good farming practices and climate change, I believe that we are going to have more and more bumper crops. This is not going to be a totally abnormal year. This could be a year that is going to be the norm. If that continues to happen, there has to be something in place that will guarantee that farmers are being taken care of.

The bill is a small step in the right direction, and our party will be supporting it, because this has been delayed long enough. Farmers are out planting now. They have grain still in piles in their backyards. They are trying to get money to pay for fertilizer, seeds, and chemicals. What is happening? The grain in the bin is not going to pay for those supplies. The legislation has not passed yet.

We have to have some signal for the international community that is buying our grain. I mentioned what happened in Singapore. We have to show that the House of Commons in Canada is serious about making some moves to help move grain shipments. Every time a disastrous backlog like this develops, our international reputation as a reliable grain shipper suffers, and we lose customers.

I alluded earlier to our own processors and farmers. We have a very large livestock and food processing industry in this country. We ship a lot of our grains and oats to the United States. Most people do not realize that Cheerios come from Canadian oats. They were concerned in the United States that they would not get enough oats. What was happening did not affect just our international reputation.

At committee we heard from the former chair of the B.C. Agriculture Council, Garnet Etsell. There is a billion dollar industry in the Fraser Valley. Their poultry industry is amazing. It is one of the largest concentrations of poultry in Canada. We were told in committee that poultry farms were only a couple of days away from running out of grain. Imagine having that size of livestock industry with a couple of days of grain in the bins and seeing the trains go by and not even helping out the local farmers.

Some of them were forced to buy trucks, costing them $100 extra a tonne to ship in grain from Alberta. Their returns are fixed, and they are not going to get more because they have to ship products in. It was not really addressed in this bill how we are going to help local farmers who consume that grain.

It is key that the federal government have a long-term strategy so that our high-quality grains will be able to get to our customers around the world and around the country and so that this does not happen again. We will be going back to the drawing board. If the government is wise, we will sit down after this legislation goes through and look at a long-term vision for our farmers and our country so that we continue to be a number-one supplier of grains in the world.

We realize that there are other products out in our western provinces that are doing well, such as potash, coal, and oil. We do not believe that they should all of sudden stop shipping their products because we have a good crop. We have to look at investing in our transportation system. We have to sit down with the railroads to make sure that this is happening, but right now it is not happening.

I am looking forward to a time when the farmers' biggest concern is getting the crop planted and harvested and having buyers. They should never have to worry about getting it from their grain bins to the consumers around the world. It is our obligation as the federal government to always be there for them and to make sure that it happens. In the last few years, we have. I say that we have, because it is technically the Conservatives, but at the end of the day, it is the responsibility of the House to make sure that it does not happen again and that the system is in place to help farmers succeed.

If a young person is looking at getting into agriculture, there is great opportunity out there. However, to see what has been happening in the last year would discourage any young person from getting into it, knowing that they could do everything they could to produce a product but that they could not get it to the customer.

I will leave it at that, and I will open it to questions from any other members in the House.

[Jeff Watson, Conservative, Essex, ON]

First of all, Mr. Chair, I know you mentioned the Western Grain Elevator Association. For clarity, if I recall the testimony, I believe Mr. Sobkowich suggested that if it could be done in regulation, that would be fine by them. So to be clear on the representation by the Western Grain Elevator Association, I think that point has to be reiterated. You could check the Hansard on that, but I'm pretty certain he said that.

There are a lot of problems with this particular approach. I'm just trying to recall, Mr. Chair, from being part of the Bill C-52 debate....

Let me just start with one of the aspects, shipper paramountcy as opposed to the rail network. That is a problematic approach. For one, if I recall, the Supreme Court has been very clear that railway common carrier obligation is not an absolute, but it is circumstantial. So to be court compliant, there has to be some degree of flexibility with respect to the network as a consideration.

I don't know. I could probably go into a few more of the arguments that were raised back then, but stepping back from that, the approach that the government is taking with Bill C-30 is that issues around operational terms would be a regulatory approach. I appreciate that Mr. Eyking would prefer a prescriptive, legislated approach to that. The witnesses were mixed on the preference for that. We think we can achieve it with respect to the regulatory environment.

We've now, in terms of the earlier amendment, G-1, provided the teeth that they were looking for with respect to entering into service-level agreements. So I think between what will be achieved in the regulation and what is achieved in the legislation itself will be sufficient, and it's what the witnesses were requesting.

I think this reopens the debate that was made at the table with Bill C-52 at the transport committee, and it was rejected for a lot of very good reasons. But we think we can do adequately within the regulatory framework, rather than this.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Okay. So I'll let it stand as it is and I'm going to read the explanation for why we have it here.

Now, of course we know about Bill C-52 last year and the problems we had with that. So now we have Bill C-30 here, and as many witnesses have come forward and told us, Bill C-30 as it sits is quite vague.

What they've always said is that service levels are very important, and they say they're not meaningful the way they are. Virtually every witness told us this: they want a clear, mandatory service-level contract with enforcement remedies that are reciprocal both ways. They don't want to be tied up in courts for 10 years. As we mentioned before, some of this stuff can be tied up quite a long time.

This amendment helps fix that problem. In the first part of proposed subsection 169.31(1)(1.2) we provide a definition of service obligations that all the shippers agreed upon last year. It's precise, it's practical, and it's to the point. These are the things that an arbitrator will need to cover in any of these contracts. When this thing starts rolling out, somebody has to be an arbitrator here, and they're going to have to have more defined rules and regulations.

In the second part, in proposed subsection 169.31(1)(1.3), we shine a clear statement of principle of how you can tell when an adequate performance has been provided, which is key.

And then in the final part, we make the point about reciprocal consequences. This needs to be clearly spelled out in any contract imposed by CTA arbitration. That's what proposed subsection 169.31(1)(1.4) does.

So, Mr. Chair and colleagues, this amendment was also.... The Minister of Agriculture from Saskatchewan recommended many of these here. We even have the Mining Association, the canola growers, The Fertilizer Institute, the western grain growers, I mean the list goes on of everybody who wants more defined rules.

They're not just rules everybody has to follow, it's how we enforce them, how we process people when they're wrong done by, and how people get paid at the end of the day.

So I think they're all here, and we went through this process last year. I think this is a great opportunity to have these amendments in here, and it would give everybody in the system a better idea and something to work with.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

I think what the member opposite is trying to achieve is somehow a retroactive compensation mechanism for farmers.

What the bill is designed to do—and this amendment, in terms of improving it—is to address the issue of the carry-over and shipping going forward, and who gets compensated.

If I understood witnesses correctly, in terms of moving grain forward, we had two approaches. We could get into regulating far deeper down into every aspect of the logistics chain. I didn't hear a single witness suggest that was the route we should go.

What I heard from witnesses is that in order to move grain, they wanted the ability to move it by commercial terms through service-level agreements. Their hesitancy in approaching Bill C-52 in order to have service-legal agreements was that they didn't think there were sufficient teeth. This is to do that in order to move the grain on a go-forward basis.

You have an additional problem you're trying to raise. I think you're hoping to make this mechanism the means of going back and addressing that. The mechanism has to be taken for what it is, which is to strengthen service-level agreements. Every witness I heard wanted that. They didn't want a deeper regulation on how to move the logistics here.

That being said, I think the amendment, G-1, should be supported, as strengthening Bill C-30.

[Robert Ballantyne]

The 100-plus members of the association spend approximately $6 billion annually on transportation services by all modes. We advocate for our member companies' interests with regard to air freight, trucking, marine, and rail. FMA will only comment on the sections of Bill C-30 that would amend the Canada Transportation Act, and also on the government's related announcements that relate to the transportation elements in Bill C-30.

I will attempt to provide some context on how we arrived at this point with regard to rail service, provide some comments on Bill C-30, and more importantly, look at what needs to be done to ensure that the rail system and other parts of the supply chain system have the capacity to meet the future needs of rail shippers.

During the run-up to Bill Bill C-8 which amended the Canada Transportation Act in 2008, there were widespread complaints about rail service from across the country. When Bill C-8 was passed in June 2008, the government agreed to undertake an independent review of rail service. The review panel published their final report on January 2011.

One of the panel's consultants, NRG Research Group, found in its independent survey of 262 shippers that only 17% of their respondents rated their satisfaction at a six or seven on a scale of one to seven, where seven was the most satisfied. NRG also reported that 62% of shippers reported they had suffered financial consequences as a result of poor service performance. The rail freight service review panel recognized the fundamental problem, and said in its final report, “This railway market power results in an imbalance in the commercial relationships between the railways and other stakeholders.” Canadian railway law has acknowledged for over a century that rail freight is not a normally functioning competitive market.

Part of the government's response to the rail freight service review was to introduce Bill C-52, the Fair Rail Freight Service Act, which became law in June 2013. Bill C-52 breaks new ground by providing for the first time in Canadian law the right of all rail shippers to a service level agreement, and if it can't be negotiated directly with the railway, it can be achieved through arbitration. The shipper community, through the Coalition of Rail Shippers—and there are a number of our associations, some of which you've already heard from, that are members of Coalition of Rail Shippers—identified several areas where Bill C-52 could be strengthened in a way that would minimize uncertainty and give better guidance to our arbitrators. Also, some of the most significant recommendations of the rail service panel did not find their way into Bill C-52, particularly the review panel's list of elements that should be included in service level agreements at the option of the shipper.

The Coalition of Rail Shippers' proposed amendments to Bill C-52 were designed to strengthen it and make it more likely to effectively rebalance the commercial relationship and meet the government's stated objectives for the bill. The government declined to accept any of the six recommendations proposed by the Coalition of Rail Shippers. Consequently, to my knowledge at least, there have been no shipper attempts to achieve a service level agreement using the provisions of Bill C-52.

Bill C-30 provides another opportunity to revisit the shortcomings of the Fair Rail Freight Service Act. Clause 7 of Bill C-30, for example, provides the authority for the agency to extend interswitching limits “for the regions or goods that it specifies”. This amendment to the interswitching regulations will allow the agency to give effect to the government's policy announcement to extend the maximum interswitching on the prairie provinces from 30 kilometres to 160 kilometres. The interswitching regulations have been useful to shippers over many decades and are an effective surrogate for real competition. Given the current backlog of grain, this temporary provision may give grain shippers more flexibility in arranging service, and it will be available to all shippers who may have facilities located within the 160-kilometre zones that will be established.

Once a more general review of the Canada Transportation Act is undertaken, the maximum interswitching limit across the entire country should be investigated to determine if the current 30-kilometre limit should be extended.

The other significant provision of Bill C-30 that's relevant to all shippers is clause 8, which authorizes the agency to “make regulations specifying what constitutes operational terms” to be included in a service level agreement through arbitration. While it's unclear how the agency and the government will use this provision, it could be a vehicle for achieving some of the shipper amendments that were rejected during the Bill C-52 debates. FMA will certainly engage with the agency as these regulations evolve.

I'm not going to comment on the provisions related to potential fines for the railways for missing targets, or the provision that allows the Governor in Council to set targets in the next two crop years. It is acknowledged that the current backlog of grain is an unusual situation, and clearly the government felt compelled to intervene at an unprecedented level of detail.

As you've heard and you probably will continue to hear, there is concern among some of the shipper community that singling out one industry group in such a manner could cause service problems for other shippers. FMA includes among its members grain companies but also many shippers in many other industries. We've informed our membership that the targets set in the order in council and in Bill C-30 originated with CN and CPR, and we have to start from the premise that the railways would have offered those targets only if they felt they could maintain the current level of service for their other shippers.

Intervention such as that in Bill C-30 needs to be applied very carefully and only under the most extraordinary circumstances.

With regard to the future, a welcome announcement in Bill C-30 is that the statutory review of the Canada Transportation Act will be moved to an earlier date rather than its mandatory latest start date of June 2015.

Two basic issues that the statutory review should address are: one, the need to provide appropriate rail capacity for the needs of Canadian industry over the coming decades, and Mark Hemmes made some comments about the growth that is expected to take place in at least some of the agricultural commodities; two, the need to improve the relationship and trust between the railways and significantly large segments of their customers.

With regard to capacity, this will require significant investment by the railway companies, by other supply chain partners as Peter mentioned in his remarks, and possibly by several levels of government. The statutory review will provide an opportunity for an in-depth analysis of the capacity needs going forward and the role the various stakeholders should play. How this is addressed will have a significant impact on the national economy and our global competitiveness.

Last, with regard to shipper-railway relationships, it will be difficult to overcome the distrust, and to some extent, the acrimony that currently exists. In this connection, there have been informal discussions under the academic umbrella of Carleton University School of Public Policy and Administration. They run a process called critical conversation, which involves direct and confidential discussions within an academic environment among stakeholders to start a dialogue to overcome distrust. While arrangements have not yet been confirmed for critical conversations involving the railways and shippers, the planning discussions with the various stakeholders continue.

Rail service is vital to the Canadian economy, and the members of the Freight Management Association are ready to work in a constructive way with the government and the railways to improve Canadian supply chains for the benefit of the railways, their customers, and the Canadian economy.

Thank you.

[Kevin Hursh, Executive Director, Inland Terminal Association of Canada]

Thanks very much.

We really appreciate the opportunity to present the views of farmer-owned inland terminals.

ITAC, the Inland Terminal Association of Canada, represents the interests of seven grain terminal companies in Saskatchewan and Alberta, companies that are at least 50% farmer owned. The terminals typically handle 2.5 million tonnes per year of grains, oilseeds, and specialty crops and also have cleaning and drying capacity.

The seven ITAC members are: the South West Terminal near Gull Lake; the Gardiner Dam Terminal near Strongfield; the CMI Terminal near Naicam; the Prairie West Terminal in the Dodsland-Plenty area; the North West Terminal at Unity; the Great Sandhills Terminal near Leader; and Providence Grain Solutions, based in Fort Saskatchewan, Alberta.

We believe that farmer-owned terminals provide competitive choice for grain producers, both shareholders and non-shareholders.

On the proposed amendments to the Canada Grain Act, first I'd like to comment on the amendments to establish authorities in the Canadian Grain Commission to enable the regulation of mandatory grain contract provisions and regulate compensation paid by a grain company to a farmer if delivery date timelines are not honoured.

As details of these amendments are finalized, it's important to note that grain companies have extremely limited options for honouring delivery obligations when transportation logistics fail.

There have been complaints about the high basis deductions being charged by grain companies. Widening the basis and thereby dropping the price paid to producers for their grain is the traditional tool for discouraging deliveries when sales or logistics become limiting factors.

In the extreme circumstances encountered this crop year, producers still wanted to make sales despite record high basis deductions. Many companies had to resort to withdrawing bids altogether because they couldn't commit to more grain at any price.

Grain companies take no pleasure in wide basis levels, just as they take no pleasure in turning away business. While grain companies have faced unprecedented demurrages on waiting ships, as well as contract cancellation charges, most grain companies have not been as adversely affected financially as farmers. That's a function of grain companies being a margin-based business. Still, grain companies would much rather compete for grain instead of rationing throughput.

We ask that any mandatory contract provisions be fair and reasonable for grain companies as well as farmers, and that the lack of railway predictability is also taken into account. It's very difficult to be accountable to farmer customers when you have no idea of your future capacity.

Now, on the proposed measures for the Canada Transportation Act, we welcome the proposed continuation of minimum volume requirements for CN and CP Rail. However, that broad approach may have unintended negative consequences.

More cars are now arriving at Vancouver terminals, and that's a good thing, but cars are arriving out of sequence as the railways concentrate on low-hanging fruit—in other words, movement from the closest and easiest locations. This lack of coordination could make the west coast the next bottleneck in the system.

West coast movement is being prioritized at the expense of movement through southern and eastern corridors. The logistics system does not work very well when it's the railways deciding car movement based on meeting an overall target. Although we are unsure of the best solution, the system suffers terribly from a lack of communication and a lack of coordination.

ITAC members have serious concerns over the allocation of railcars to elevators. The railways have reverted to percentages of historical movement as a way to allocate railcars to grain companies. There is no transparency in the system, and as independent shippers there is no way to know whether we're getting our fair share of the railcar supply.

The extension of the interswitching distance from 30 kilometres to 160 kilometres seems like a good measure in theory. It will take some time to fully test its practical applications.

Grain shippers have been reluctant to open negotiations with railways on service level agreements. We welcome proposed amendments that would give the Canadian Transportation Agency the authority to regulate prescribed elements in arbitrated service level agreements, but we'd like to know specifically what those prescribed elements entail.

Some ITAC members are taking a serious look at service level agreements, but shippers across the country, both grain and other shippers, remain concerned by the lack of teeth in Bill C-52. There's no way to implement reciprocal penalties within the agreement if the railways refuse those measures.

As well, any fines that might conceivably be imposed against the railways by the Canadian Transportation Agency are payable to the Receiver General. If fines were paid instead to the aggrieved grain company suffering the lack of service, that could facilitate possible payments to farmer customers who may not have been able to deliver their grain within contractual timelines.

Attaining a service level agreement appears to be an adversarial process that will require a great deal of time and energy with a significant level of cost. In the end, will the benefits outweigh what will likely be a damaged business relationship? ITAC members also believe that after an SLA is established, there will be a need for an effective dispute settlement component that should include access to an appointed arbitrator.

Regarding additional measures, we welcome the commitment to collect more data from the railways and from all the other players in the logistics chain. This is vital to system improvements. Data needs to be as current as possible and it should be publicly accessible.

The accelerated review of the Canada Transportation Act is also welcomed.

In conclusion, it is ITAC's view that while immediate improvements in the grain transportation system are vital, it's also very important to make the changes that will move the industry along the path to sustainable, long-term solutions.

Thank you very much.

[Wade Sobkowich]

I want to make the point that we're talking about providing a more specific definition in the regulatory process to the word “operational”. If the committee believes that you can define “operational” in a way that includes penalties and potentially liquidated damages, then great. We can address it through the regulatory process. If not, then we have to go to those legislative amendments the Coalition of Rail Shippers was asking for with Bill C-52, which was to allow, first of all, to amend the legislation to be clear. We're not only dealing with operational terms, we're also dealing with other things to make sure penalties and liquidated damages are included.

[Ralph Goodale, Liberal, Wascana, SK]

Once again, thank you to this bank of witnesses for their helpful testimony tonight.

What strikes me, having sat through most of the deliberations of the transport committee a year ago in dealing with Bill C-52, is that most of these same proposals were made a year ago in relation to Bill C-52, but they were not accepted at that time, and the legislation was put through Parliament without the various considerations that are being put on the table once again.

I wonder if the witnesses tonight can give us some sense of what went so wrong. Obviously, a year ago the government didn't think these things were necessary, and then along came 2013-14 and this obvious disaster in terms of grain movement.

As this problem developed from the summer through the fall—the big crop, the weather, all of that—who was doing the system planning last year to try to anticipate these things and make sure that the system was ready to cope? Who was doing the coordination of the various elements in what is a very complicated logistics chain here in order to get the right grain, at the right place, at the right time? Who was looking at capacity?

It seems that the capacity remains now what it was a year ago. It may be in the last little while being used a bit more efficiently, but is there any significant improvement in capacity?

Who was doing the planning? Who was doing the coordinating? What's happened to capacity? Why has it been so inadequate this year? Why is that basis calculation in terms of the deductions coming off the farmer's price? Why is basis now gobbling up effectively 50% of the world price before it gets into the farmer's hands?

Can we shed some light on just what has gone so wrong from about a year ago now, when it was the considered judgment of the government that these sorts of amendments were not necessary?

[Greg Cherewyk, Chief Operating Officer, Pulse Canada]

Good evening, and thank you, Mr. Chair, and members of the committee, for the opportunity to be here tonight to discuss Bill Bill C-30 and its implications for the ag industry. We don't have a lot of time, so I'm going to focus on the areas that are priorities for our members.

Pulse Canada represents the interests of over 30,000 farmers from Alberta through to Ontario, and over 130 processors and exporters of pulses and special crops that are members of the Canadian Special Crops Association.

In the quarter that ended yesterday, March 31, our members who are participants in our performance measurement program received 49% of the hopper cars they ordered and 43% of the boxcars they ordered. Week to week, the aggregate order fulfillment range was between 20% and 60%. This represents a further deterioration of service relative to the first half of the shipping season. What's even more staggering is that during the first 30 weeks of the shipping season, 50% of the shippers in our program experienced weeks when they received no hopper cars at all.

With the introduction of Bill Bill C-30, the government sent a message to Canadian agribusinesses and their customers around the world that this type of performance simply isn't good enough. It's now clear that if service providers aren't prepared to meet the needs of the industry, there will be intervention.

With respect to some of the important and high-level components of the bill, I want to start by saying that we appreciate the commitment to advance the review of the Canada Transportation Act. With that we stress that, while we support the launching of the process more quickly, we still expect a comprehensive review that includes a thorough assessment of facts, broad consultation, and a commitment to act on the facts.

We also appreciate the strong statement made with respect to the importance of enhanced public performance reporting, and look forward to the expanded role of the grain monitor.

While I'm on the theme of having access to data on system performance and the importance of evidence-based action, I'd like to address an issue that is a top priority for our members right now. In an effort to prompt greater responsiveness from the railways to the needs of the grain industry, the government issued an order in council establishing targets of 5,500 cars per railway per week, and the requirement to move 500,000 tonnes of agriproduct per week. Bill C-30 will give the government the authority to continue to issue these orders through to August, and again into the fall peak shipping season.

Our members are being told by their railway partners that the order in council and subsequent measures will have a detrimental effect on their service, particularly through the eastern corridor to Montreal through to U.S. destinations and into Mexico.

With no additional rail freight capacity put into the system over this shipping season, and an OIC that establishes weekly car and tonnage targets, our members are being told that corridors that allow for tight cycle times and the greatest turn on assets will be prioritized.

Members are being told that they cannot service their customers in the U.S., Mexico, or through the eastern corridor and the port of Montreal.

While railways tell us this is the inevitable outcome of an order that has imposed ill-advised and unreasonable targets on the carriers, I'd like to direct your attention to some key facts that warrant your consideration.

On a Q3 earnings call in 2012, during a period of time when the government was considering the introduction of Bill C-52, CN reported:

On the asset side we’re moving cars 8% faster than last year. [...] In fact in September we set a record for car velocity reaching an average of 217 miles per day. These velocity gains are being achieved while handling record volumes. This quarter was our busiest of any third quarter in CN's history averaging over C$1.050 billion GTMs per day, up 8% from last year. So overall very solid performance on the operational side of the equation. [...] rest assured we've not lost any of our passion for...efficiency but at the same time we’re making a meaningful difference for our customers and our supply chain partners pushing forward on our Service Excellence agenda.

In the third quarter we met 96% of unconstrained orders placed by our customers and provided the cars on the day requested 89% of the time.

Within this report CN also specifically highlighted their enhanced service to the grain industry, proudly stating:

The trust and dependability we've developed to establish in this robust pipeline has allowed CN to sustain a record of spotting...in excess of 5,000 cars per week for the last six weeks, which is a record for CN.

While the railways would have their customers in other sectors as well as customers within agriculture believe that the OIC that establishes targets of just over 5,000 cars per week will have a negative and unanticipated consequence on their service, I would point out that you have evidence that they are capable of hitting these targets while achieving efficiency objectives and delivering a reasonable level of service to customers across all sectors and throughout the agriculture community.

That being said, in order to ensure that the OIC achieves its objectives and meets the needs of the grain industry, we know that it must go beyond establishing a broad target. It must also establish clear expectations for movement of all commodities through all corridors to all destinations, to ensure that the implementation of the order results in fair and equitable treatment to all shippers, be they small, medium, or large.

We recommend that a discussion be held immediately with Quorum, the official monitor of the grain handling and transportation system, so that additional guidance and direction related to the order in council and follow-up measures can be structured in a meaningful way to ensure that performance can be measured and monitored over the coming days, weeks, and months.

This leads me to my final point. As we head into an expedited consultation on regulations related to service level agreement provisions, it is absolutely imperative that the regulations be established with clear guidance in the legislation. Building on the language found in section 5 of the Canada Transportation Act, under our national transportation policy, we must state clearly that the system is in place to meet the needs of its users. This simple but extremely important statement is widely regarded by the broadest range of stakeholders in the shipping community as key to ensuring that service levels are established in a manner that supports the competitiveness of Canadian companies and the overall growth of the Canadian economy.

With that direction, we begin to break away from capacity and performance levels that place the efficiency of the rail network ahead of the needs of its customers. With that direction, we can begin to ensure that economic growth is not governed or constrained by the rail network. With that direction, we can get back to focusing on the top priority of every one of our members: to be and to be seen to be the most consistent and reliable supplier of the products that we produce and market to the world.

Thank you.

[Scott Streiner]

That concern was expressed by the government at the time that Bill C-52 was being considered, that paradoxically perhaps these sorts of penalties through arbitration might work against shippers in getting full compensation for liquidated damages.

[Jeff Watson, Conservative, Essex, ON]

One of the issues raised by the opposition and certainly raised also by shippers during the discussion on Bill C-52, and we're hearing it raised again here in the discussion of Bill C-30, relates to punitive damages, liquidated damages, compensation for shippers. If I understand the opposition, and I'll try to frame this appropriately what I think I'm hearing, they're suggesting to make service level agreements mandatory, define their operational elements in the Canada Transportation Act, and add a penalty regime. It's essentially the resurrection, if you will, of the arguments made on Bill C-52. There were a number of persuasive arguments on why that was somewhat difficult. It certainly wasn't simple, and it may have some unintended consequences.

First of all, is there any other commercial regime for addressing commercial contracts where in fact liquidated damages are set out beforehand in a piece of legislation? We're dealing with commercial contracts here.