Thank you.
Ms. Chair, esteemed members, committee clerk, and fellow attendees, I'm Brendan Marshall, vice-president, economic and northern affairs, Mining Association of Canada. MAC is the national voice of Canada's mining and mineral processing industry, and we're pleased to appear and to discuss this important matter with you.
The Canadian mining industry is a major economic driver, contributing over $55 billion in GDP in 2015, employing approximately 374,000 people, and accounting for $92 billion, or one-fifth, of Canada's overall total export value. As a consequence of this international reach, the mining industry is one of the largest users of Canada's transportation sector. From a rail perspective, the industry represents the single largest industrial customer group of Canadian railways. In 2015, for example, crude minerals and processed mineral products accounted for 51.4% of total rail freight revenue.
Having recently polled our membership, I can report that the response on rail service is mixed. While some members have seen improvements, others have said it's gotten worse. For example, one member stated that they have only been getting 50% to 80% of their weekly empty-car orders since last spring, and typically at the lower end of that range. This challenge spreads through their business, as the timely movement of concentrate is critical to managing rising inventory levels at mine sites. It's also problematic for keeping the flow of raw materials to smelters going at levels that support their feed stream requirements.
Another example is CP's refusal to ship a member's products under contract unless that member contractually conceded their recourse to the shipper remedies in the act in the event of poor rail service. Perhaps the worst example is both class I railways persisting in their refusal to transport uranium, a decision that defies the common carrier obligation and could adversely affect investment in Canada's world-class uranium resources.
There's a cost to the Canadian economy resulting from poor rail service. Railways do not produce the goods for export that allow trade to grow, our economy to expand, and employment to increase. Rather, they are an essential conduit for Canadian industry to receive crucial inputs and get its goods to market. In this light, the railways are a significant and essential domestic component of market access for Canada's exports as well as its domestic deliveries. Trade begins at home, and without a healthy and reliable railway network, Canada's reputation and success as a trading nation and as a destination for investment, generally speaking, are seriously hampered.
Building on this, and with respect to the extension of Bill C-30, MAC has three areas of concern.
The first is grain volume commitments. Maintaining grain sector-specific volume commitments will exacerbate existing rail capacity constraints to the detriment of all other shipping sectors, including ours. As testified to this committee by the former president and CEO of CN Rail during the first study of Bill C-30, strongarming railways to redirect rail capacity to grain shippers will present a cost to other customer groups on the network. Further, the volume commitment provision operates in conjunction with the rail rate cap that farmers already enjoy. Grain is the only commodity that has a rail rate cap. By paying higher rail rates than those set by the grain cap, miners and all other shipping industries effectively subsidize rail service for the movement of grain. As a result, grain farmers now have the potential for preferential service, with volume commitments at a preferential rate with the grain cap, meaning all other shipping sectors pay more for less.
Mining companies are also concerned that enacting grain sector volume commitments will undermine the legal remedies available to shippers in the act. If mandatory minimums are put in place, how can mining companies forced to operate outside the provisions of Bill C-30 make a service case against a railway that is legally obligated, through pain of penalty, to serve grain companies? A railway's unwillingness to break the law requiring it to move grain presents a viable defence against the legal remedies available to other rail customers seeking to address their service challenges.
The second issue that we'd like to discuss is regulating improvements to the service level agreement mechanism. Bill C-30 enabled the Canadian Transportation Agency to regulate prescribed elements in arbitrated service level agreements, the details of which were determined through a consultation process soon after the legislation was enacted. While this consultation provided some increased clarity in defining operational terms, the service level agreement provisions persist in requiring that an arbitrator take a rail company's service obligations to other shippers into account before rendering a decision. In the context of Bill C-30, an arbitrator in a service level agreement process will be bound to consider the railway's legal obligation to transport grain against the elements of service that a non-grain shipper is seeking. A railway's volume commitment obligations under the law will supersede regulations designed to enhance a non-grain shipper's position in an arbitrated service level agreement.
In MAC's view, these provisions are instructive in understanding why so few companies have pursued service level agreements.
With respect to interswitching, many MAC members are concerned that the interswitching provisions have resulted in railways being forced to do more short hauls, which are operationally more expensive than longer ones. A consequence of this reduction in rail freight revenue due to the interswitching rate being federally regulated will lead the railways to make up for lost revenue by reducing service to other sectors to better optimize their assets and regain those profits.
MAC is not opposed to interswitching regulations in principle. However, many miners are captive shippers, and there is concern this measure has adversely affected them. We also have members who have benefited from the extension. In this sense, MAC doesn't take a position one way or the other, but would strongly support data disclosure to enable a thorough assessment of the implications of this policy on all shippers reliant on rail freight services.
Finally, the largest obstacle for shippers and public policy-makers in addressing rail freight challenges is the inability to adequately assess the nature of rail service capacity challenges due to a lack of transparency and disclosure of railway data. Because a railway company has control over its data, the shipper is at a significant disadvantage when considering whether to initiate one of the remedies under the act. This is because railways are able to fashion submissions for the adjudicator to which a shipper either cannot respond adequately or respond at all.
The same challenge is faced by decision-makers when attempting to assess the merit of the claims that railways and shippers make in respect of their service, either the service that they're delivering or the service that they're receiving. Needless to say, it's challenging to develop balanced public policy with a data deficit, and recent legislative attempts to do this are a testament to that challenge.
With the goal of enabling balanced commercial relationships in the rail freight market that render better service delivery and avoid costly quasi-judicial hearings, while simultaneously enabling the railways to remain profitable, MAC recommends government take a phased approach.
The first phase would require railway companies to publicly share sector performance and capacity data on a monthly basis, or periodically, and confidentially share company-specific data at a shipper's request.
The second phase would be for decision-makers such as yourselves to collect and analyze this performance and capacity data with the aim of identifying where the specific issues are in the network.
The third phase would be to undertake an agenda of legislative and regulatory changes as needed, only after the causes of rail freight service challenges have been isolated and fit-for-purpose solutions have been identified and informed by data.
MAC supports this approach because collecting and publishing railway data would not only enhance transparency in the transportation system but would also improve railway-shipper relations by minimizing the need for disputes and provide government with the tools necessary to identify, assess, and resolve challenges. It is also consistent with the government's commitment to data transparency and evidence-based policy.
