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.

[George Malec]

Good afternoon, Mr. Chairman and members of the panel. Thank you for the opportunity to make a commentary and presentation before the panel this afternoon.

Halifax represents something more for Canada in terms of the strategic outreach in global trade that we're engaged in today. The Port of Halifax is Canada's only deepwater, east coast, and fully Panamax/post-Panamax vessel-capable marine outlet that facilitates and supports Canada's overall trade objectives, particularly in using the Suez Canal through Southeast Asia.

To that end, what we talk about, and what we bring to the table, is bigger than just the parochial concerns of a port: we understand our relationship as a part of an overall supply chain that is important to Canada's economic development. Going forward on that concept, Mr. Chairman, right now 65% of our intramodal traffic is actually carried by rail, by CN, into the key inland markets that some of my good colleagues like Peter Xotta have already described, which benefit all Canadians.

We have of course seen a very similar evolution over the last two years. Subsequent to the evolution of the federal panel rail review process, which was a very constructive undertaking by the government, we have witnessed a very significant outreach and a very significant commitment on behalf of CN in working with our stakeholders and ourselves towards transparency and greater service levels of accountability and aggressive pricing structures to facilitate the use of the infrastructure provided in the Port of Halifax.

We were in fact the model and the first port to enter into a port authority terminal operator and rail combined key performance indicator metric, which, similar to the experiences you've heard about from Global, from Mr. Xotta, and from the Port of Prince Rupert, etc., has produced demonstrable and tangible benefits. It is our hope and intention to work with CN and our other stakeholders, because, as you have heard in commentary before, it is a complex, integrated supply chain. The efficiency of the railroad has to be equally and fairly balanced by the expectations and the commitments of shippers and, most importantly, of the terminal operators that are the main partners in the rail transfer.

We see it as a very balanced, very complicated supply chain. We favour the commercial solutions that have been proven to be very successful so far. We do reinforce and echo the comments made by some of the panellists from Prince Rupert and the Metro Vancouver Port Authority: that due to the complexity and the supply chain, it has to be treated in a very cautious manner before any regulatory process is in place. We appreciate the complexity around the supply chain. That's why we encourage a good deal of caution with respect to forced, compulsory measures under Bill C-52.

In summary, Mr. Chairman, Halifax recognizes and agrees with the comments made by our competitive and in fact complementary port partners in Prince Rupert and Vancouver. We do concur with the submissions and recommendations they've brought forward. Rather than restating all of that, we'll submit to you that it is the correct way to go forward from the perspective of the Halifax Port Authority as well.

Thank you.

[Greg Stewart]

Sinclar Group, I think, would be considered a medium-sized business. We pride ourselves in finding creative, effective ways of serving our customers. Given our size and our need to leverage the strengths of our stakeholders to meet our customers' expectations, we are susceptible to sudden changes in partners' strategic direction.

While it would be nice to think we will maintain harmonious commercial arrangements with all of our partners, reality dictates that there will be changes. A serious risk to any manufacturer is a significant disruption to its ability to get its products to market.

The amendment that gives shippers the right to enter into service agreements with the railway companies and establish an arbitration process in the event of a dispute, I believe, is a significant improvement and will reduce the risk I mentioned before. Further, I believe past performance of the railways has made it necessary to mandate that service agreements be established when requested by the shipper.

As a manufacturer, Sinclar Group is looking for greater certainty with rail supply. We want to know that the railcars will be spotted within the agreed-upon time range. We want to know that the cars will be switched out within the agreed-upon switch window. We want to know that our products will be delivered to our customers on time. Further to this, we want to make sure we are getting competitive rates to ship our products.

Establishing service obligations, communication obligations, performance standards, performance measurements, consequences, and dispute resolution processes are key to any commercial agreement. This provides the opportunity for companies to engage with the railways on important issues. That said, the conversation cannot be one-sided. It is reasonable to expect each shipper to be held to the same standard as the railway. After all, the issue at hand seems to be the equating of the commercial relationship. This will not be achieved by mandating a one-sided conversation.

I'm not an expert at logistics, let alone managing a railway; to me, the railway has a lot of moving parts—no pun intended. The railways have all the internal challenges that every other company has. In addition to those challenges, from weather, connections, turnaround times, and variable shipping distances, the railways must contend with each of these external factors to ensure Sinclar Group gets what we want.

When listening to all the challenges the railways face and industry's call for more prescriptive measures around the commercial agreements, I get concerned about the sacrifices shippers will have to make to establish functioning relationships. To me, it means the costs for shippers will go up, or the certainty associated with delivery will decrease. I believe the latter will manifest itself in longer time windows for delivery, making it increasingly more difficult to manage Sinclar Group's workforce and production.

Past performance of the railways has made Bill C-52 necessary. I think the bill has appropriately walked the fine line of mandating action but allowing for the flexibility to tailor agreements to the needs of each shipper. The past performance failures cannot be undone. We need to learn from them, establish new protections, and move forward in restoring the constructive relationships necessary for the robust national economic performance.

I would recommend proceeding with the approval of Bill C-52, recognizing that there are areas of concern that will be watched by all stakeholders. I recommend tasking those responsible for the 2015 review of the Canada Transportation Act with developing a monitoring program for the unresolved issues. This should be a transparent process and involve input from all stakeholders.

It is Sinclar Group's belief that businesses must be encouraged to work together to solve their business challenges. In our experience, CN has been responsive to the recommendations tabled to date. We feel their actions should be met with further collaboration to address the challenges faced by shippers today. Stakeholders working together as partners will strengthen their relationships through a greater understanding of each other's business. Through this understanding, I believe we will realize further innovation and service improvements.

Thank you again for this opportunity to present to the committee.

[Greg Stewart, President, Sinclar Group Forest Products Ltd.]

Thank you for the opportunity to present to you this afternoon.

I would like to introduce Gregg Koehler, Sinclar Group's sales manager. He is responsible for our company's logistics, and he will be available to answer any questions you may have following the presentations.

Before jumping into the presentation, I feel it is beneficial that I provide a little background on Sinclar Group Forest Products. The company is a third-generation family business that was started by Ivan Andersen and Bob Stewart 51 years ago. Today that company has varying equity interests in three stud lumber operations: a finger-joint plant, a panelized home manufacturing facility, and a wholesale lumber operation.

All of the operations are located in British Columbia's central interior, from Fort St. James to Prince George. Sinclar Group is a leading distributor of high-quality stud lumber throughout North American and Asian markets.

For the past three years, CN has been our largest non-governmental supplier, averaging just less than $20 million in cost to our company. Approximately 70% of all our products are shipped by rail.

As one last introductory point, I just want to point out that the comments I make pertain to Sinclar Group. I am not intending my comments to represent other organizations or companies impacted by Bill C-52.

Sinclar Group, over its history, has achieved its success through partnerships. The company started as an equity partnership and has since grown to incorporate other partners. From Tl'oh Forest Products, which is a joint venture between Nak'azdli First Nation and us, to the relationship we have with the City of Prince George to supply heat to the city's downtown, our business opportunities have been rooted in openness, collaboration, and innovation from both parties.

The relationship we have established with CN over the past few years has been focused on understanding the needs and looking for opportunities to improve performance of both parties. We have observed a steady improvement in rail service over those years. While we have experienced a few disruptions along the way, we have been able to engage CN to work through the issues. Through these challenges, both parties have been committed to understanding each other's perspectives, and the communication between the companies has significantly improved.

Most recently, we reached an agreement with CN to provide more centre-beam capacity by removing a ramp at the Nechako operation in return for a volume commitment. Currently the two companies are working on building more flexibility into the supply chain by exploring alternative shipping methods, such as intermodal shipments.

In all cases, it starts with communication about the issues and a commitment from both parties to collaboratively work together to find new solutions for the dynamic marketplace.

Over the past four years, Sinclar Group has grown its stud lumber shipments, capturing a greater share of the North American and Asian markets. We were able to achieve record shipments, in part due to the commercial....[Technical difficulty—Editor]

[Peter Xotta, Vice-President, Planning and Operations, Port Metro Vancouver]

Thank you very much, Mr. Chair. We will do our best to comment within that timeframe.

Good afternoon, and thank you for the opportunity to present Port Metro Vancouver's position as regards Bill C-52, the fair rail service act. As committee members may already be aware, Port Metro Vancouver is Canada's largest and busiest port, serving as a vital strategic gateway for domestic and international trade and a significant economic force strengthening the Canadian economy. We're the most diversified port in North America, facilitating trade with 160 economies, handling about 124 million tonnes of cargo each year.

As the fourth-largest tonnage port in North America, we offer 28 major marine terminals and three class 1 railways, providing a full range of facilities and services to the international shipping community. In British Columbia's lower mainland, one in 12 people earn a living as a direct result of port-related economic activity, estimated to be about 80,000 jobs. Consistent, reliable, and cost-effective rail service is fundamental for optimal supply chain performance, and ultimately to the success of the port and its role in serving our mandate on behalf of Canada. As such, the likely passage and implementation of Bill C-52 has the potential to hold consequences, either intended or unintended, for the core of our operation. Put simply, Bill C-52 is extremely important to Port Metro Vancouver.

With that in mind, let me address Port Metro Vancouver's views regarding incorporation of right-of-service agreements into the Canada Transportation Act and our views with respect to the process that is intended to establish service-level agreements should normal commercial negotiations fail.

First, with regard to service-level agreements, Port Metro Vancouver would like to highlight that significant progress has been made since 2010, when the rail freight service review and its related activities drove forms of service-level agreements between the railways and certain stakeholders, notably, the commercial terminal operators in Port Metro Vancouver, and the establishment of collaborative agreements directly between CN, CP, and the port authority. As a result of these collaborative, industry-led efforts, the average dwell time of containers at the terminal in Vancouver has been reduced significantly, by our estimates approximately 30% since 2010. While it's much more difficult to assess the improvement and performance around bulk commodities, anecdotal information that we receive and our efforts to measure this indicate that there's been a significant improvement in those sectors as well. Average transit times for containers between Vancouver and key eastern and midwestern rail hubs such as Toronto, Montreal, and, increasingly, Chicago have also substantially improved.

Overall, Port Metro Vancouver has witnessed an increased willingness on the part of the railways to work in collaboration with their supply chain partners, including at the senior executive level. We're hopeful that the implementation of Bill C-52 will not undermine the market-driven cooperative gains that have been achieved over the last several years.

Secondly, in regard to the process or mechanisms that should exist within the Canada Transportation Act for the establishment or imposition of service-level agreements, once commercial negotiations fail between railways and shippers, shippers have failed.

One of our key recommendations is that Port Metro Vancouver does not believe that a singular template for the development for such agreements can be appropriate, given the diversity and wide range of commercial and service relationships that exist within our gateway in particular. Rather, Port Metro Vancouver would submit that service-level agreements between railways and their customers should, one, describe the specific measurable and reciprocal service obligations of both parties with respect to transit times, car supply commitments, hours of operation, loading and unloading time, as well as volume, targets, and switching service frequencies; two, include issues management and clearly defined escalation in dispute resolution processes; and three, potentially include appropriate reciprocal financial incentives or penalties.

Port Metro Vancouver believes that a fundamental accountability should exist between supply chain partners for the optimization of output, while at the same time maintaining the respect for the need of all participants to earn a fair commercial return that encourages continuing investment. Clearly, the establishment of service agreements through normal commercial process should be encouraged, with arbitration as a last resort.

With this in mind, we would submit that at a high level, the process to establish arbitrated service agreements, once commercial negotiations have failed, must not be allowed to usurp meaningful commercial negotiations and agreements. Even with the most carefully crafted regulation, there is always a risk of unintended consequence, which could adversely affect shippers, railway companies, and other stakeholders, including Port Metro Vancouver. Port Metro Vancouver would suggest this risk is particularly acute in relation to an arbitrated process where much of the material impact of the operations of the supply chain partners will be determined through individual adjudications.

This brings me to my second key point. In this regard, we believe strongly that it is essential that arbitrators appointed to the CTA have specific and extensive background in and knowledge of supply chain management. The inherent complexities in the examination, drafting, and implementation of service-level agreements demand a detailed knowledge of the subject at hand, and Port Metro Vancouver believes that the risk of unintended harmful consequence grows exponentially should the individual charged with managing this process have insufficient applicable subject-matter expertise.

In closing, let me reiterate Bill C-52's importance to Port Metro Vancouver's interest. While we're always supportive of initiatives that increase supply chain efficiency and promote transparency and cooperation between supply chain partners, we're also cognizant that the concrete gains that we have observed in the industry since the initiation of the 2010 rail freight service review need to be preserved and fostered as much as possible.

Commercial, market-driven solutions respectful of the interest of all parties should always be given preference over arbitrated agreements, and an unintended consequence of a legislative approach should avoid, at all costs, undermining negotiations or imposing long-term, negative commercial obligations on one or more parties.

While Port Metro Vancouver is supportive of Bill C-52's intent, we also offer our caution to committee members as they deliberate on this important bill regarding the potential for harmful impacts we and other witnesses, including our friends in the Port of Prince Rupert, have identified.

Thank you again to the honourable members and chair for the opportunity to present to you today.

Thank you.

[Andrew Mayer, Vice-President, Commercial and Regulatory Affairs, Prince Rupert Port Authority]

Thank you, Mr. Chair, and thank you, members of the committee, for allowing me to present on behalf of the Prince Rupert Port Authority.

This is an important piece of legislation and is of great significance to what we are trying to accomplish in Prince Rupert in terms of facilitating continuing growth of the Prince Rupert gateway.

I'll be brief on background with respect to the port authority. I think it's important, though, to make a few comments just to provide context for other matters that I'll be raising later.

The Prince Rupert Port Authority is of course a Canadian port authority established pursuant to the Canada Marine Act statute. The port authority's powers are established through the Canada Marine Act and the port's letters patent. Prince Rupert is fortunate that we are experiencing a period of dramatic growth, and we see that growth continuing for the foreseeable future in all lines of our business.

Currently in Prince Rupert the three major terminals we have operating all rely on rail service to deliver cargo from the place of manufacture or loading onto railcar, ultimately for delivery by sea to the points of destination. Those three facilities are: the Fairview Container Terminal, for which lands are owned by the port authority and the terminal itself is operated by a private sector operator, Maher Terminals; Ridley Terminals Inc., or RTI, as we call it, which is a federal crown corporation in the business of handling and loading into vessels coal delivered by railcar from various mining locations within British Columbia and also farther away, including the Powder River Basin in the United States; and finally, Prince Rupert Grain, which is a grain and ag products facility that receives cargo from the prairie provinces and again ships that agricultural product by sea to international destinations.

One of the core objects of the Prince Rupert Port Authority is to develop marine transportation infrastructure on lands the port administers. The port lands are federal lands. The goal really is to increase the capacity of the Port of Prince Rupert to handle goods to and from Canada.

As I mentioned, we are in a period of rapid growth, so continued efficiency of the rail system—which is operated by CN in the case of Prince Rupert as the only operator—is critical to the continued efficiency of the existing terminals operating within Prince Rupert.

With respect to the continued growth that I mentioned, we are experiencing a marked increase in interest in delivering cargo through the Prince Rupert gateway to international markets and receiving cargo from international markets and delivering it, by rail principally, through Prince Rupert.

Just by way of example with respect to the expansion activities that we're contemplating and that are in the works at this time, we have an expansion of our container terminal from a 500,000-TEU—twenty-foot equivalent—container unit facility to a two million-TEU facility. The additional 1.5 million TEUs of cargo will be transported by rail as intermodal cargo.

As well, Ridley Terminals is in the process of expanding their facility to increase their capacity to upwards of 25 or 30 million metric tonnes per annum. They have an option to increase even further to 50 or 60 MTPA, or metric tonnes per annum. That's dramatic growth for Ridley Terminals.

As well, we have a Canpotex potash terminal project that has received authorization from the Minister of the Environment. Its environmental assessment has concluded, and we hope they will make a final investment decision in April of this year. That cargo will be delivered from Saskatchewan to Prince Rupert for export.

We are in the process and have actually commenced work on a major expansion of our rail infrastructure within the Port of Prince Rupert. That is the Ridley Island road, rail, and utility corridor project. This is a joint project that is benefiting from funding from the federal government, the provincial government, a substantial contribution from CN Rail, and the Prince Rupert Port Authority as well. The project is a landmark project, in that it will be constructed by first nations entities that have joint-ventured with contractors to build it out.

In addition, we have a wood pellet project, which is a new greenfield project, and another rail-based facility that will be constructed in Prince Rupert.

Additionally, CN Rail is in the process of building a second siding, which we're told will be the most expensive siding they have ever constructed in Canada, to facilitate increased rail traffic to and from the Fairview Container Terminal.

With respect to Bill C-52 and its objects, as I mentioned the Prince Rupert Port Authority supports what we believe is the principal object of this piece of legislation, which is to ensure that there are agreements in place that provide clarity, transparency, and certainty both to shippers and to rail lines regarding the obligations of both parties in their roles in the supply chain. But we also think there is another important participant or group of participants who really can't be ignored, because they are essential participants in the supply chain. Those are ports and the terminal operators who act within the ports. We rely upon efficient rail service to continue to generate more traffic through our ports, to continue to expand the capacity of our ports to handle traffic, and to facilitate growth in Canadian trade.

We've had some success with service-level agreements. In 2010, Prince Rupert Port Authority entered into a service-level agreement with our container terminal operator, Maher Terminals, and with CN Rail. It included a variety of things, but most importantly it included commitments from CN Rail and Maher Terminals with respect to rail and terminal handling service levels. As well, and I think equally importantly, it included a commitment for an exchange of data—a really key performance indicator to allow us and the rail line and the terminal to track performance and to take steps to improve service levels wherever there was a deficiency in performance.

I don't want to overemphasize it, but intermodal container traffic gets a lot of press, and Prince Rupert and Vancouver have received a lot of press recently, principally from the U.S., which has recognized the competitive advantages of west coast Canadian ports—and of eastern Canadian ports as well—as compared with American ports, which are struggling because of capacity constraints, urban congestion, and other factors.

I mention this because the “better mouse trap”, as it has been described by some commentators, that has been created in Prince Rupert and as well in Vancouver is one that we want to maintain. We don't want to see it or the integrity of the entire supply chain constrained, because that will affect us dramatically.

The Fairview Container Terminal is the fastest-growing container terminal in North America at this time. Some would argue that it's easy to be the fastest-growing when you're starting from zero; nonetheless, we've continued to expand year over year. It's the efficiency of the rail system, the efficiency of the terminal operator, and the efficiency of the vessel owners who are delivering the containers to and from the quayside that is facilitating that excellent record.

That's the background.

Our comments with respect to Bill C-52 are relatively limited. We had some concerns and expressed them during the rail freight services review process with respect to mandatory arbitration provisions, which were suggested at that time.

The concerns were that requiring arbitration as a way to conclude a service-level agreement could have an unwanted negative effect, which is to create a chilling effect on negotiations between commercial parties—the railways and the shippers. It's been our experience, when we've been involved in similar types of disputes with arbitration as a device, that sometimes parties become positional early on in the negotiation because they expect or realize that arbitration is available to them at the end, so they are cautious about taking a position that can prejudice them in an arbitration proceeding.

That said, we recognize that situations may arise in which parties acting in good faith are not able to conclude an agreement and that some way to deal with such impasses is required. Our suggestion is to take interim steps, to encourage the parties, in particular the railways and shippers—because that's where the disputes are most likely to occur in the first instance—to take active steps to negotiate in advance of arbitrating a dispute. As the legislation is drafted, with all due respect, we believe those interim steps are not adequately set out in the legislation.

During our response to the rail freight services review process, PRPA supported the suggestion that railways and shippers be assisted by a facilitator appointed either by Transport Canada or the CTA to engage in early negotiations to seek to resolve their disputes on a commercial basis, rather than by recourse to, essentially, a judge, an arbitrator.

A little bit more detail on that—

[Denis Coderre, Liberal, Bourassa, QC]

Don't you think that Bill C-52 is an insurance policy? What is the problem with having a kind of a process where at the same time you can say to the shipper, “Well, we're providing you with some more leverage, but on the other side with the railways, you have l'arbitrage, so at the end of the day, it can be on your side too.”

What's wrong with that?

[Gord Peters, President and Chief Executing Officer, Cando Contracting Limited]

Thank you very much, ladies and gentlemen. Good afternoon.

My name is Gord Peters. I am the president and co-founder of Cando. For the past five years, I've also had the pleasure of sitting on the RAC board, a position that has given me a great seat to view the great improvements the railway industry has made in the past 15 years.

The Canada Transportation Act in 1996 allowed Canadian National and Canadian Pacific to reorganize their operations by selling or leasing some of their low-density segments. The result was exceptional growth in the number of short lines, from a mere 12 in 1996 to around 50 in 2010. This was part of the partial deregulation of the rail sector in Canada, and it has created a truly entrepreneurial industry within Canada, one that we believe is vital to the smooth functioning of the rail network. Our industry is very close to the rail customers and to the communities, and we're very close to the class 1 railroads; we hear them all.

Part of our short-line industry is partially regulated federally, because they are federal railroads, and therefore will be impacted directly by Bill C-52.

In 2011, Canadian short lines, to give you an indication of their scope and size, had revenues of more than $735 million, employed close to 3,000 people, and operated more than 8,500 kilometres of track, which is close to 20% of the track in Canada. Short-line and regional railroads face tough challenges because of high costs and, in our opinion, an under-appreciation of their benefits to the communities they serve. For example, short-line railroads reduce traffic congestion on roads, reduce greenhouse gases and other emissions, and reduce the need for road maintenance and construction.

Despite the comparative capital cost advantage of rail infrastructure versus highway, one of the main challenges facing the short lines today is the ability to meet their long-term capital requirements for line and yard upgrades. Short lines typically operate low-density feeder lines that connect to class 1 railroad networks, but this is only part of the story.

Let me speak to you a bit about Cando, as an example within the short-line industry in Canada today. Cando was created in 1978. Today, we're a Canadian employee-owned company with 300 employees, operating in five provinces and several U.S. states. Cando operates three short-line railways in Canada: the Central Manitoba Railway in Manitoba, the Orangeville Brampton Railway, and the Barrie Collingwood Railway in southern Ontario. Our head office is in Brandon, Manitoba, and we have regional offices in St. Thomas, Ontario, in Winnipeg, Manitoba, and in St. Albert, Alberta.

And we have a good MP.

The Central Manitoba Railway is a Cando-owned full-service railway located in Manitoba that services a mix of on-line industrial and agriculture customers. We also have an off-line service provided by Cando through our 34-acre transportation centre in Winnipeg. In addition to interchange traffic with partners CN and CP, we offer a full suite of auxiliary railway support services, including rail car and locomotive repair, rail car storage, as well as trans-loading and logistics support for many small shippers in the Winnipeg market.

The Orangeville Brampton Railway and the Barrie Collingwood Railway are community-owned short lines in southern Ontario that partner with Cando as the railway operator. We provide local railway services to on-line customers in these communities and interchange with CP. Orangeville Brampton Railway also features the Credit Valley Explorer, a railway excursion tour that offers unique views through the Credit Valley escarpment in the heart of Ontario's Greenbelt.

Cando's short-line railway operations and industrial switching ops philosophy is very simple. We run a highly disciplined and sustainable service, with emphasis on safety, community relations, and customer service, utilizing the operations as a base on which to offer auxiliary railway support services that add value to the on-line and off-line customers. Examples include trans-loading, logistics, rail car storage, rail car and locomotive repair, tourism excursions, and contract industrial track construction maintenance. Our success has been based on a great entrepreneurial spirit and a great team.

That's the story of Cando. I could spend a lot more of the committee's time, but I will move on to what impact we believe Bill C-52 will have on the short-line industry in Canada.

Today, I'm here on behalf of the vast majority of the short-line railroads represented by the RAC. Of the 30 short lines that are members of the RAC, there are 17 companies that will be regulated under this new provision, and many of them, just like Cando, are small to medium-sized companies whose services are sold by class 1 railroads to shippers as part of a larger quotation for services.

This situation raises two issues. If a shipper requests an arbitrated service agreement and receives a new price or service, we will have to implement this service, and yet it is not clear that our role, the costs, or even the feasibility of what is requested is realistic. In other words, in terms of the unintended consequences we have talked about, short-line railways, like other network and supply chain partners, could be negatively affected.

These companies will be subject to this provision directly, but many of us might also have a much more difficult time meeting the deadlines imposed in the bill and absorbing capital cost implications or reduced revenues, if forced to offer added services with no input into what those services cost our companies over the short or long term.

Short-line railways were created in Canada as part of a deliberate public policy towards commercialization. While it is not easy to be in this business, we all love it and do what we have to do to make it profitable, including offering a range of services, having a flexible workforce, training our own people, and cutting costs relentlessly. We still have a long way to go in most provinces to create a better understanding among policy-makers about the benefits to communities and to taxpayers of supporting the short-line railway industry.

The legislation here is perceived as a check and balance on an uncompetitive dual monopoly of CN Rail and CP Rail. The reality is that the railway industry has developed into a complex system of various carriers of various sizes, suppliers, and partners all playing an interconnected and complementary role. Legislation targeting part of the system could have unintended and serious impacts on a far wider scale than was intended.

The short-line railways considered whether it made sense to ask to be excluded from this bill, but it is just not practical. What makes the most sense to us is that the committee exercise its right to recommend that this bill not proceed. With our motivated entrepreneurial teams, we feel confident that we can continue to improve the rail system.

Thank you for hearing our concerns. I look forward to the committee's questions later.

Thank you.

[Michael Bourque, President and Chief Executive Officer, Railway Association of Canada]

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

My name is Michael Bourque and I am the president and CEO of the Railway Association of Canada. My colleagues, Gord Peters, Michael Murphy, Robert Taylor from CP, Sean Finn, and Shauntelle Paul, are here as well. Some will speak, and we'll all be here to answer questions.

Today, I've divided my presentation into three sections. First, as chief myth buster for the railway industry, I must address some of the statements made by witnesses in front of your committee these last couple of weeks. In the second section, I'll speak about some of the key service and productivity changes we have made and why we believe they are sustainable for the industry, for our employees, and for our customers. Third, I'd like to inform the committee about our proposed recommendation for this committee and to speak to the list of amendments we are seeking.

Let's start with the myths. I'll address the first myth, which is that the freight rail industry is made up of only two railways that don't compete for business. Nothing could be further from the truth. In fact, Canada has a vibrant railway industry, and our association represents 55 railroads, including CN and CP, and the Canadian operations of BNSF, Norfolk Southern, and CSX. These are all class 1 railroads.

We also represent over 30 short-line railroads. You'll hear from Gord, who is the president of a short-line railroad. These are small to medium-sized entrepreneurial Canadian railroads that are very close to the customer. Railroads, especially CN and CP, compete with each other, with other modes of transport, and as part of a globally competitive supply chain with various carriers in other countries. Railways are competing all the time, which is why they constantly work with customers to improve their productivity.

The second myth I would like to address is that somehow railways are failing the country; that our cars don't show up half the time; that they're broken, they don't work. Again, the reality is something else. Canadian freight railways own, maintain, and operate over 60,000 kilometres of track in North America, which is more than 35% larger than our national highway system. Last year we moved some 4 million originated carloads of freight goods in Canada alone. That's over 11,000 carloads per day, every day. However, this figure undermines the number of rail cars that are in transit at any one time. Class 1 railroads estimate that the number of rail cars in transit every day is approximately 140,000 cars, which is equivalent to a train that is 3,000 kilometres long, or about the distance from Vancouver to Thunder Bay. Our railways are serving. In fact, they have an obligation to serve a variety of customers from coast to coast every day.

This brings me to the third myth, which is that our service is lacking. More than one person here has said here that 80% of freight rail customers are unhappy with their service. This is simply untrue. This inaccurate number was taken from a survey done five years ago. It was based on 262 responses from a total of 8,000 shippers. The survey itself included many leading questions and its results were flawed.

A more credible and more recent survey was conducted for shippers themselves last year by Supply Chain Surveys Inc. This survey reports that 72.5% of shippers reported 95% or better on-time departures and on-time arrivals performance from their carriers, an upward trend that began a few years prior to that. There is also a very credible, publicly available survey from RBC Capital Markets, the 2012 North American Railroad Shipper Survey, which found that 69% of rail customers rated rail service as being good or excellent, up from 58% in the previous year. Notwithstanding a rough winter, today our service satisfaction is on par with other modes of transport such as shipping and trucking, reflecting our collaboration with other supply chain partners.

I think l've got time for a fourth myth, so I'll leave you with the one that bothers me the most. There seems to be an acceptance, and it's partially driven by all the rhetoric that we've heard, that railway transactions occur in what people are calling not a normally functioning market, and the inference is that railways exercise and abuse market power. So I'd like to know, what is a normally functioning market these days? Is it the stock market, defence procurement, automotive manufacturing, or how about grain elevators?

Railways are an asset-based business and it's not surprising therefore that that there are not a lot of railways in such a business. It is extremely expensive to build and maintain railroads, but once they're built, they must compete in the marketplace against seaways, trucking, pipelines, and other railroads. Railways aren't any different from pipelines or shipping, or even grain terminals for that matter. Just because there are few players doesn't mean there isn't competition, nor does it mean there is abuse of market power.

Our service is improving. We've put into place new initiatives and investments to make them sustainable. High prices could be a signal of market abuse, yet Canada enjoys the lowest freight rates in the world. In fact, commodity prices have risen significantly over the past 10 years while freight rates have remained largely flat.

Enough about myths, because they could really keep me here all day.

Let me turn to a second major point that I think needs to be addressed today and that is productivity. If we go back 30 years, successive governments realized that they couldn't run railways or contribute to the rail supply chain efficiently, nor could they afford the investment in infrastructure these required. In the late 1970s and early 1980s, the Government of Canada purchased 8,000 hopper cars for transporting grain. In 1981, the cost to repair the system in Canada was estimated at $3.2 billion, which is the equivalent of $9.3 billion in today's dollars. So how would you like to be sitting here debating how we're going to find the $9.3 billion to spend on infrastructure for rail? You don't because of what's happened.

By 1995, direct subsidies for the movement of grain to railways had peaked at $650 million. Since that time we've had a tremendous turnaround in the rail supply chain sector in Canada, thanks to good public policy. A commercial approach unleashed a range of market-based forces that allowed the rail supply chain to become efficient, competitive, and profitable over the next 15 years.

Railways are doing pretty much exactly what you would hope for. They're implementing innovative measures to operate the network more efficiently, passing savings on to their customers, and collaborating with their supply chain partners. Perhaps you have heard the term “precision railroading”. It's been in the news quite a lot these last couple of years. It's a catch-all term for improving the productivity of a railroad, based on customer demand. It focuses on asset utilization, velocity, and efficiency. These areas of focus are now widely accepted in other modes of transportation as the drivers of productivity.

We've heard a lot about the term “operating ratios”, which is interesting because railways have been driving these ratios down. What other industry can you think of that has succeeded not only in improving its productivity so demonstrably but also talked about it openly? I can't think of any other industry. You could name their indicator of productivity, but in railroads we talk about the operating ratio and we move it down. These improvements have led to efficient, competitive railways that enjoy significant investor confidence.

Again, railways are doing exactly what you would hope: increasing their productivity, keeping freight rates low, enabling the competitiveness of Canadian manufacturers and producers and, indeed, the whole supply chain, winning investor confidence, making money, and reinvesting in the network. In fact, last year Canadian railways invested more than $3 billion to enhance their infrastructure and equipment, and customer service programs. In doing so, they're helping the government achieve objectives related to job creation, economic growth, and long-term prosperity—and we're not sitting here debating how the government is going to do that infrastructure.

Let me turn to our recommendations for the bill, because I just got a signal that I've got a minute left. I would first say that we have been consistent in our message that we didn't think the bill was necessary. That is our position and our advice to this committee, that you recommend to the House of Commons that the bill not proceed.

However, the government has introduced a bill, and if we have to live with it, we would like to see some improvements. We have six amendments. We've circulated them. I believe the committee has them in both official languages.

Mr. Mongeau referred to three of those: mediation before arbitration, which is number 3; arbitration by the CTA, which is number 5; and limited recourse to customers who lack a competitive choice, which is number 1.

I'll take one second to explain number 6, which is that we would like to see clauses 12, 13, and 14 of Bill C-52 deleted. That is because a number of shippers have testified that they have not requested such a provision and that the provision is not required by them and would not assist them, nor did railways ask for penalties to be included in the bill.

Now I'm going to turn it over to Gord Peters from Cando on behalf of Canada's short-line railroad industry.

[Roger Larson]

Yes. If I may, I'll take the first shot at answering that. The legislation includes the right to ask an arbitrator to establish an agreement. In that sense, Bill C-52 is an improvement and it needs to be passed. What it doesn't provide for is an ability to have the terms enforced, and that is exactly what you're describing, a mechanism to be able to.... There are commercial contracts, I've been told, that do include the ability to go to an arbitrator, and for a very low cost, within 30 days.

There's an internal escalation between the two companies, let's say. If they can't agree on how to interpret a particular clause in an agreement, then they move forward and go to a mediator or an arbitrator. They get it settled and they live with that decision for the term of the agreement.

This is not to be a punitive and retroactive penalty kind of system. This is a matter of someone saying they think the agreement says they need to have 150 cars delivered every week to their mine. In order to move their product to market, they're asking for that, and they've only had 80 cars per week for the last three months, so they're saying that they want this corrected and they want the terms to be enforced in the future.

Shippers are not interested in just penalizing—

[François Tougas]

As the minister said when he introduced his comments before this committee, this is not a normally functioning market. There are many, many parts of this market that do not work, so to suggest that normal commercial relations are going to prevail in the absence of a framework is, frankly, ridiculous.

When you have a bunch of competitors vying for a service—giving an opportunity to the receiver of that service to choose among them—all of the providers of the service try to be the winner. When you don't have that, when you have either a monopoly or a duopoly, you fall to the lowest level of service that is possible and that is still within the advantage of that supplier.

It's not to say that a monopoly will always provide bad service. That is not the case. In fact, they may provide the very best service. The problem is that we have a market structure that does not give direction to the suppliers of the service as to what they are supposed to do and for the receivers of that service to know what they might expect. There's not a normal negotiation going on. It's not a normally functioning market.

That's the problem we're trying to address. It's not the heavy hand of regulation. It's a way to establish a framework that gives parties on both sides of that negotiation an opportunity to know the things they might get, such as if they are allowed to get service five times a week as opposed to three times a week. It's those kinds of things.

All of those, even within the framework that the government has advanced in Bill C-52, are going to be imposed, so we shouldn't get stuck on the word “imposed”. Ultimately, every single provision is going to be imposed if the arbitrator thinks it makes sense. If that arbitrator doesn't think it makes sense, then it won't be imposed.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

I want to thank all the witnesses for giving us insight into their daily realities. It helps us get a better sense of the issue.

My first question is for Mr. Mongeau.

I would ask that you keep your answer succinct, as I have only five minutes to speak with each of you.

The mere fact that we're studying Bill C-52 signals to me that it's meant as somewhat of an arbitration mechanism to rectify a situation that the market has not been able to correct on its own for a numbers of years now.

In a minute or less, could you give me your opinion on this inability to reach an agreement with shippers, an agreement that would have prevented the need for a bill like this?

[Jeff Watson, Conservative, Essex, ON]

It's a separate issue from what we're dealing with, with respect to the mechanism of Bill C-52, which is to invoke an arbitration process. What I'm suggesting is that with respect to an arbitration process between commercial entities, what you're asking the government to do is unprecedented.

Can you point to another such situation that is analogous to this or where a precedent like that has been set? Everything deals with retroactivity, something that has occurred that is typically resolved by a court, if you will.

[Jeff Watson, Conservative, Essex, ON]

Even to the point of having to build rail lines, if you will, that is still unchanged.

I would argue that with respect to the elements of a service agreement, many of them are actually established in Bill C-52. The only point we're disagreeing with are the issues of dispute mechanism and penalty, which is what you want explicitly included.

This brings me to my colleague's point. It would be unprecedented to pre-establish or predetermine, with respect to agreements between commercial entities, what a penalty could be, for example, and who gets blame or responsibility within the supply chain. There are a lot of elements that would have to be tailored.

Typically, whether we're dealing with labour agreements or other issues that are non-commercial, they deal with retroactive situations, not sort of predetermined. I think you're asking the government to do something that is unprecedented, or can you point to a precedent with respect to agreements between commercial entities where this is predetermined?

[Jeff Watson, Conservative, Essex, ON]

Fair enough. Section 116, the CTA's ability to compel railroads to effectively build works or other remedies, is unchanged by Bill C-52. Is that correct? That still remains.

[Jeff Watson, Conservative, Essex, ON]

I'm simply asking whether Bill C-52 establishes a unilateral right for shippers to invoke a process in the event that negotiations are not proceeding the way that at least the shippers might perceive them to be moving.

That's what I'm trying to establish.