Bill C-49 (Historical)

Transportation Modernization Act

An Act to amend the Canada Transportation Act and other Acts respecting transportation and to make related and consequential amendments to other Acts

This enactment amends the Canada Transportation Act in respect of air transportation and railway transportation.
With respect to air transportation, it amends the Canada Transportation Act to require the Canadian Transportation Agency to make regulations establishing a new air passenger rights regime and to authorize the Governor in Council to make regulations requiring air carriers and other persons providing services in relation to air transportation to report on different aspects of their performance with respect to passenger experience or quality of service. It amends the definition of Canadian in that Act in order to raise the threshold of voting interests in an air carrier that may be owned and controlled by non-Canadians while retaining its Canadian status, while also establishing specific limits related to such interests. It also amends that Act to create a new process for the review and authorization of arrangements involving two or more transportation undertakings providing air services to take into account considerations respecting competition and broader considerations respecting public interest.
With respect to railway transportation, it amends the Act to, among other things,
(a) provide that the Canadian Transportation Agency will offer information and informal dispute resolution services;
(b) expand the Governor in Council’s powers to make regulations requiring major railway companies to provide to the Minister of Transport and the Agency information relating to rates, service and performance;
(c) repeal provisions of the Act dealing with insolvent railway companies in order to allow the laws of general application respecting bankruptcy and insolvency to apply to those companies;
(d) clarify the factors that must be applied in determining whether railway companies are fulfilling their service obligations;
(e) shorten the period within which a level of service complaint is to be adjudicated by the Agency;
(f) enable shippers to obtain terms in their contracts dealing with amounts to be paid in relation to a failure to comply with conditions related to railway companies’ service obligations;
(g) require the Agency to set the interswitching rate annually;
(h) create a new remedy for shippers who have access to the lines of only one railway company at the point of origin or destination of the movement of traffic in circumstances where interswitching is not available;
(i) change the process for the transfer and discontinuance of railway lines to, among other things, require railway companies to make certain information available to the Minister and the public and establish a remedy for non-compliance with the process;
(j) change provisions respecting the maximum revenue entitlement for the movement of Western grain and require certain railway companies to provide to the Minister and the public information respecting the movement of grain; and
(k) change provisions respecting the final offer arbitration process by, among other things, increasing the maximum amount for the summary process to $2 million and by making a decision of an arbitrator applicable for a period requested by the shipper of up to two years.
It amends the CN Commercialization Act to increase the maximum proportion of voting shares of the Canadian National Railway Company that can be held by any one person to 25%.
It amends the Railway Safety Act to prohibit a railway company from operating railway equipment and a local railway company from operating railway equipment on a railway unless the equipment is fitted with the prescribed recording instruments and the company, in the prescribed manner and circumstances, records the prescribed information using those instruments, collects the information that it records and preserves the information that it collects. This enactment also specifies the circumstances in which the prescribed information that is recorded can be used and communicated by companies, the Minister of Transport and railway safety inspectors.
It amends the Canadian Transportation Accident Investigation and Safety Board Act to allow the use or communication of an on-board recording, as defined in subsection 28(1) of that Act, if that use or communication is expressly authorized under the Aeronautics Act, the National Energy Board Act, the Railway Safety Act or the Canada Shipping Act, 2001.
It amends the Canadian Air Transport Security Authority Act to authorize the Canadian Air Transport Security Authority to enter into agreements for the delivery of screening services on a cost-recovery basis.
It amends the Coasting Trade Act to enable repositioning of empty containers by ships registered in any register. These amendments are conditional on Bill C-30, introduced in the 1st session of the 42nd Parliament and entitled the Canada–European Union Comprehensive Economic and Trade Agreement Implementation Act, receiving royal assent and sections 91 to 94 of that Act coming into force.
It amends the Canada Marine Act to permit port authorities and their wholly-owned subsidiaries to receive loans and loan guarantees from the Canada Infrastructure Bank. These amendments are conditional on Bill C-44, introduced in the 1st session of the 42nd Parliament and entitled the Budget Implementation Act, 2017, No. 1, receiving royal assent.
Finally, it makes related and consequential amendments to the Bankruptcy and Insolvency Act, the Competition Act, the Companies’ Creditors Arrangement Act, the Air Canada Public Participation Act, the Budget Implementation Act, 2009 and the Fair Rail for Grain Farmers Act.

[Wade Sobkowich, Executive Director, Western Grain Elevator Association]

Thank you very much, Madam Chair and members of the committee.

The Western Grain Elevator Association is pleased to contribute to your study on Bill C-49. The WGEA represents Canada's six major grain-handling companies. Collectively, we handle in excess of 90% of western Canada's bulk grain movements.

Effective rail transportation underpins our industry's ability to succeed in a globally competitive market. We recognize this committee's comprehensive work last year. That was a very important report that this committee completed. The one published in December 2016 largely supported our points of view on the main issues.

In Bill C-49, a number of recommendations made by grain shippers were accepted and a number were not. We were asking the government to strengthen the definition of “adequate and suitable accommodation” to ensure that the railways' obligation to provide service was based on the demands and needs of the shipper, and not on what the railway was willing to supply. The definition proposed in Bill C-49 isn't explicitly based on shipper demand. There are positives and negatives with this new definition.

We were seeking the ability to arbitrate penalties into service-level agreements for poor performance, along with a dispute resolution mechanism to address disagreements in a signed service-level agreement. We are pleased that this is included in Bill C-49. It will resolve many of our challenges on rail performance matters.

We were requesting that extended interswitching be made permanent to allow for the continuation of one of the most effective competitive tools that we have ever seen in rail transportation. Extended interswitching was not made permanent—a significant loss to us.

We were asking that the government maintain and improve on the maximum revenue entitlement to protect farmers from monopolistic pricing. This protection was maintained; however, soybeans remain excluded from this protection.

The WGEA had also supported expanding the agency's authority to unilaterally review and act on performance problems in the rail system, similar to what the U.S. Surface Transportation Board enjoys in the U.S. Bill C-49 includes the provision for the agency to informally look into performance problems, but it doesn't give the agency added power to correct systemic issues.

Lastly, the WGEA was asking the government to improve the transparency and robustness of rail performance data. This has been improved in Bill C-49; however, shipper-related demand data is still not captured. Later this week, some of our colleagues in the grain industry will provide additional perspectives on use of the data, timelines, and reporting to the minister. The WGEA shares their views.

To be clear, on balance, this bill is a significant improvement over the existing legislation and is a positive step forward for the grain industry. As a result, we are choosing to offer only four technical amendments, representing the bare minimum of changes, where the proposed legislation would not be workable and would not result in what the government intended. The main area is long-haul interswitching.

For your reference, annex A, which we circulated to committee members in advance, contains our suggested legislative wording amendments. The extended interswitching order had been in effect for the last three growing seasons and had evolved into an invaluable tool for western grain shippers. Instead, the new long-haul interswitching provision is intended to create these competitive options. In that spirit, shippers need to be able to access interchanges that make the most logistical and economic sense, not necessarily the interchange that's closest.

In terms of reasonable direction of the traffic and its destination, the current wording in proposed subsection 129(1) may give a shipper access to the nearest competing rail line, but this would be of little or no value if the nearest interswitch takes the traffic in the wrong direction for the shipment's final destination, if the nearest interchange does not have the capacity to take on the size of the shipment, or if the nearest competing rail company does not have rail lines running the full distance to the shipment's destination. For the committee's reference, we've circulated annex B, which visually depicts real-world examples of where accessing the nearest interchange makes neither logistical nor economic sense.

Two clauses need to be amended to better reflect the spirit of creating competitive options. If you go to map 1 in the package we circulated, you will see an example of an elevator that has access to an interchange within 30 kilometres, but that interchange takes the traffic in the wrong direction. Bill C-49 stipulates in proposed paragraph 129(3)(a) that a shipper may not obtain a long-haul interswitch if a competing rail line is within a distance of 30 kilometres.

Sending a shipment in the wrong direction or to the wrong rail line is cost prohibitive and in those cases renders the interswitch useless. A shipper that happens to be within 30 kilometres of an interswitch that is of no use to them is excluded from long-haul interswitching and is put at a competitive disadvantage.

A similar problem exists for dual service facilities given the prohibition in proposed paragraph 129(1)(a). The solution to this problem is to add the wording “in the reasonable direction of the traffic and its destination” to proposed paragraphs 129(1)(a) and 129(3)(a). This language already exists in the legislation in proposed section 136.1 for other purposes and needs to be replicated in proposed section 129.

On long-haul interswitching rates, proposed paragraph 135(1)(a) of the bill directs the agency to calculate the rate by referring to historical comparable rates, but most comparable rates to date have been set under monopolistic conditions. If the rates themselves are non-competitive and may be the very reason a shipper wants to apply for a long-haul interswitch in the first place, this process would not effectively address the heart of the problem. We're concerned that without an amendment of the nature that we're proposing, LHI will become like CLRs.

Proposed subsection 135(2) directs the agency to set a rate not less than the average revenue per tonne kilometre of comparable traffic. This enshrines monopoly rate setting. In any reasonable marketplace, profitability is set on how much it costs you to do the business, plus a margin to generate a profit. Simply being able to charge any amount without regard to costs will result in rates divorced from the commercial reality of cost-plus.

We're seeking important changes to proposed paragraph 135(1)(b) and proposed subsection 135(2) to ensure the agency has regard to the cost per tonne kilometre, not the revenue, and that the rates are based on commercially comparable traffic, not just comparable traffic. If long-haul interswitching is to work, the rate has to be based on a reasonable margin to the railway, and not at least as much and maybe more than they can charge in a monopoly setting.

The third area where we have a concern is the list of interchanges. Proposed subsection 136.9(2) sets out the parameters for the railways to publish a list of interchanges as well as removing interchanges from the list. Grain shippers are concerned that the railways would have unilateral discretion to take out of service any interchange they choose.

There is existing legislation already in play: sections 127(1) and (2) under “Interswitching” have a process by which a party can apply to the agency for the ability to use an interchange, and the agency has the power to compel a railway to provide “reasonable facilities” to accommodate an interswitch for that interchange. This same language should apply to long-haul interswitching. From an interchange perspective, both interswitching and long-haul interswitching could apply to the same interchange.

On soybeans and soy production, when the MRE was first established in 2000, soybeans were barely grown on the Prairies, and therefore were not included in the original list of schedule II eligible crops. Since then, soy has become a major player in the Prairies and a commodity that holds significant potential growth for oil, meal, and food uses.

It must be pointed out that the Canadian portion of the U.S. movement of crops into Canada is covered under the MRE. As a result, U.S. corn, for example, that happens to be travelling in Canada is covered under the MRE, while Canadian soybeans are not. There is no reason why the government should not take this opportunity to add soybeans and soy products to schedule II.

In conclusion, Bill C-49 is, on balance, an important step in the right direction.

It's with restraint that we ask the committee to make only four non-invasive technical amendments to ensure it accomplishes what was intended.

Thank you very much.

[Sean Fraser, Liberal, Central Nova, NS]

If I can interject, I take your point that a major multinational corporation based in Canada isn't necessarily the weak partner at the bargaining table that some would have you believe.

I come from a very rural part of our country in Nova Scotia. If we ship east, it's going on a boat; if we ship west, it's going on a train. My concern is folks within the rail industry who really are captive to a single shipper. There's really one rail line in Nova Scotia. They do face a lack of an ability.... Realistically, they have to accept terms or reject them.

If I take a step back and look globally at what's in Bill C-49, this is about providing service to all kinds of shippers, those in rural areas and in smaller businesses as well. Do you see that Bill C-49's intent would be to increase service to these shippers, and do you think it will achieve an enhanced service to some of these rural shippers in particular?

[James Clements]

I'm going to make a couple of comments. We have five pillars around our business plan, on what Bill C-49 does to help us enable our business plan.

Around safety, we would agree that the LVVR amendments, as proposed, are ones that would allow us to move forward and improve the safety. That's the first focus of our organization in anything we do, to operate safely in the communities we serve across the country.

We always talk about providing service as one of the core components of our business plan. We haven't had much commentary around the level of service amendment that has been proposed. One area that we would comment on around this is that we run a network. When we think about providing service, we're providing that service on a network basis and we have to juggle all the push and tug of what every individual shipper would like with the realities of serving everybody across that network. We think there needs to be some consideration in the regulation or the bill around looking at the entire impact of a service agreement or a service arbitration award on the network itself, not just on an individual shipper, because if you give the priority to one shipper, it could subordinate everybody else and have negative repercussions. That would be one additional comment I would make.

[Janet Drysdale]

I'll jump in on that one. In fact, our biggest concern regarding Bill C-49 is that it does just the opposite. One of the greatest challenges we're facing as we look ahead to increasing Canada's trade, export-import activity, is that we need investment in the Canadian rail system that underpins Canada's economy. In order to earn that investment, first of all, we need to ensure that we protect the existing traffic on Canadian rail lines and that we don't give the U.S. an unfair opportunity to come in and take the traffic and increase the density on their rail lines so they can then reinvest it in the U.S. network.

We are a highly capital-intensive business. We spend about 50% of our operating income every year in the context of ongoing maintenance and capital improvements to the physical infrastructure. Our biggest concern about Bill C-49 is the ability to continue to earn an adequate return in order to be able to make those investments that we require to keep the system robust.

At CN we have a particular concern about our remote branch-line networks, as I mentioned, which typically have a lower density of freight, and I think you've heard Michael Bourque speak about some of the challenges that short lines face. The reality is that rail is not particularly competitive when you're talking about distances under 500 miles. A piece of legislation that forces us to have these short-haul movements actually impairs our ability to earn an adequate return on a given movement, which we need to actually reinvest, particularly in those branch lines.

We've seen this happen before. We've had cases where we've actually had to abandon some of our networks in the more remote regions of Canada. Basically what ends up happening is that it encourages more trucking: the truckers have to step in and bring the truck to the more densely populated mainline network of railway. That's not good for our climate change agenda and it's not good for Canadian shippers. These are our concerns about Bill C-49, that in fact it makes it ever more difficult for us to achieve our business plan and to be able to earn those returns that we need in order to reinvest in our infrastructure.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Madam Chair.

I'm going to dig a bit deeper for you folks and give you an opportunity to explain how Bill C-49 can actually become an enabler for you versus a disabler and, with that said, enable you to basically recognize the returns established by your strategic business plans.

My question to all of you—and I'm going to give you the time to answer this in depth—is to explain how Bill C-49 can in fact contribute to satisfying the established objectives that you've recognized for your strategic and/or business plans and how it can become an enabler for your organization to then execute those action plans that are contained within your business plan.

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

Thank you, Madam Chair.

Gentlemen, madam, welcome. Thank you for joining us.

I would like to start with a question for all the witnesses about safety.

I certainly heard your comments about the importance you place on audio and video recorders. However, my gut asks whether a voice and video recorder is going to help the TSB draw any conclusions on an unfortunate event that has already happened. I was rather looking to find out about the measures you plan to implement, or that Bill C-49 should implement, in order to prevent accidents.

As Mr. Ellis said, we know that most incidents are linked to human factors.

There are two major questions about the frequency with which the human factor is at play in accidents. First, there is the level of fatigue of locomotive operators. Then there are the repeated demands from the TSB pointing to the need to instal additional means of physical defence. This can mean alarms. or even technological mechanisms that can make a train stop when the driver has missed a warning he should have noticed. It seems repetitive.

In the major companies, what measures are in place, first to achieve better management of fatigue, and second to move towards these means of physical defence?

Perhaps, Mr. Ellis can start, but I invite everyone to respond.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Okay.

Do you feel that you were adequately consulted on the minister's transportation 2030 strategy and in regard to Bill C-49?

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much, Madam Chair.

Thank you to our witnesses for being here today, day two of a four-day study on this issue. We're very interested in hearing your testimony.

I will start by saying that it goes without saying that we understand the importance of our railways to our country and our economy and recognize that there needs to be a balance struck between the railways and the customers they serve. Certainly, looking at the legislation that's before us today, I think we're all committed to doing that and ensuring that this legislation does that.

I'm a little confused by some of what I've heard today in relation to Mr. Bourque's comments around Bill,C-49 describing this legislation as creating additional measures on top of measures that are rarely used. I want to then look at the testimony that was given by Mr. Ellis and Mr. Clements in regard to long-haul interswitching. I think those were the measures that Mr. Bourque may have been referring to, I'm not sure, where you defined the extended interswitching regime as being deeply flawed and generating a number of harmful public policy consequences that ultimately disadvantage the Canadian supply chain.

I want to reflect back on some of the testimony that we heard when we were studying the Fair Rail for Grain Farmers Act. The stats that were provided to our committee during our study demonstrated that extended interswitching was, in fact, rarely used. Our shippers acknowledged that, while that was the case, it was seen as a very helpful tool in negotiating contracts with the railways.

We have folks saying that this was a remedy that was rarely used, but that it created harmful public policy consequences and ultimately disadvantaged the Canadian supply chain. I'm trying to reconcile those comments and would give you an opportunity to speak to that.

[Janet Drysdale, Vice-President, Corporate Development, Canadian National Railway Company]

Thank you, Sean.

There are a number of provisions in Bill C-49 that run a high risk of unintended consequences. The part of the bill with the greatest risk potential is long-haul interswitching, which I'll subsequently refer to as LHI. LHI is a remedy which, until it appeared in this bill, had never been recommended, discussed, or considered. No assessment of this remedy on the rail industry has been performed and we believe that significant unforeseen and adverse consequences could result from its implementation.

CN has an extensive network of branch lines serving remote communities in all regions of the country. Those branch lines present a challenge, as they are expensive to service and maintain while at the same time handling low volumes of traffic. In many cases, the reason we are able to justify keeping those lines in operation is the long-haul business they generate. LHI makes it possible for a customer to require us to take the traffic to an interchange point and hand it to a competitor, who would then get the majority of the move and its associated revenue.

Under this remedy, the other railway is in a good position to offer lower rates, as it bears none of the cost of maintaining the remote branch line where the shipper is located. Needless to say, if this were to become a common occurrence, it would be difficult for us to justify the ongoing investments required to keep those remote lines operational.

During second reading debate, LHI was identified as an option to captive shippers that would “introduce competitive alternatives for their traffic and better position them in negotiations for service, options and rates”.

Let me start with the notion of captivity. The bill defines captive as having access to only one railroad, completely ignoring the shipper's access to alternative modes of transportation. So if a customer ships product today using both rail and truck, Bill C-49 considers them captive to rail. We are proposing an amendment to clarify the definition of captive such that if a shipper uses an alternative means of transportation for at least 25% of its total shipment, that shipper must be considered to have competitive options and therefore should not have access to LHI.

With respect to negotiating service options and rates, Bill C-49 maintains the shipper's access to all of the existing remedies respecting rates and service, including final offer arbitration, group final offer arbitration, complaints against railway charges, level of service complaints, and arbitration on service-level agreements. Consistent with Canada's national transportation policy and that LHI provides a competitive option, we are proposing an amendment whereby a shipper that can access LHI should not have access to the other rate and service remedies.

LHI also provides a non-reciprocal competitive advantage to U.S.-based railroads. Railways in the U.S. already have a significant advantage because of the much higher density of traffic on their lines. They simply have much more traffic per mile of railway. That higher density means more traffic over which to spread the high fixed cost of maintaining the network. Railways are most profitable on long-haul moves. Under LHI we can be required to move goods a short distance and then transfer them to a U.S. railway that would get the long-haul move and most of the revenue. That is revenue that then becomes available for investment into the U.S. network at the expense of Canada.

We don't understand, particularly at a time when NAFTA is being renegotiated, why Canada would give away this provision with nothing in return. Providing such an advantage to U.S. railways creates a risk to the integrity and sustainability of Canada's transportation network, ports, and railways, which depend on a certain volume of traffic to generate the capital necessary to keep Canadian infrastructure safe and fluid and to keep good, middle-class jobs in Canada.

We acknowledge that the exclusions in the act limit the areas where this new remedy is available, but those exclusions are insufficient, especially near the Canada-U.S. border in all three prairie provinces. If we had access to similar provisions in the U.S., we would not be objecting. However, there is no right to interswitching in the U.S., and this absence of reciprocity is prejudicial to the Canadian rail industry. We are therefore proposing an amendment that would create an additional exclusion to provide that a shipper not be entitled to apply to the agency for an LHI order if the shipper is located within 250 kilometres of the Canada-U.S. border.

Another area where we do not understand the need for intervention is the attempt to define the level of service requirement. The current provisions have been in place and effective for a long period of time. In our view, the current provisions are balanced and do not require the proposed amendment. We are also proposing an amendment respecting the provisions of Bill C-49 that introduce penalties when railways fail to meet service obligations.

In 2012, Jim Dinning, a facilitator appointed by government, recommended that penalties of this type should only be introduced when penalties also apply to shippers that commit volumes and fail to meet their commitment. BillC-49 has no such reciprocity. We are proposing amendments that better balance penalties between shippers and railways by making railway penalties contingent on shippers having similar obligations.

We would like to commend the minister for his decision to move forward with legislation making the use of locomotive voice and video recording devices compulsory. This is an important step in our collective goal to increase rail safety. While it is important to have the information provided by these devices available when determining the cause of an accident after it has occurred, they are even more valuable in our ongoing efforts to prevent accidents.

We want to say a word about the provision of the bill that increases the ceiling for the percentage of CN shares that can be held by a single shareholder. The current limit of 15%, a limit no other railway has, impedes CN in attracting the kind of patient, long-term investors that we require in our extremely capital-intensive industry. This change is a good first step to correcting the uneven playing field vis-à-vis our competitors. We will be asking members to consider a minor amendment to ensure that this change takes effect immediately upon royal assent.

Finally, we have a word about grain shipments. In the crop year that just ended, CN moved 21.8 million metric tonnes of grain, the most we have ever moved in a year. We beat the previous record set in 2014-15 by 2% and exceeded the three-year average by 7%. I'm also pleased to be able to tell you that, in advance of the start of the crop year, grain shippers secured approximately 70% of CN's car supply under innovative commercial agreements that provide shippers with guaranteed car supply and that include reciprocal penalties for performance.

We have entered into a period of dramatically increased service, innovation, and collaboration with our customers. We have achieved this through commercial negotiation, improved communication, and a better understanding of the challenges we each face. If the Canadian supply chain is going to move the increased volume of trade that we all support and that we all believe can be achieved, it can only happen with collaboration across the supply chain. Regulation has its place, but experience shows that we reach our goals when it is the exception.

We appreciate the opportunity to speak with you today and look forward to your questions.

[Sean Finn, Executive Vice-President, Corporate Services, Canadian National Railway Company]

Madam Chair, good morning, and thank you very much.

This morning I'm joined by two of my colleagues, first of all Janet Drysdale, who's vice-president of corporate development and sustainability at CN; and also, Mike Farkouh, who is vice-president of operations, Eastern Canada. I'm the chief legal officer and executive vice-president of corporate services at CN.

We appreciate very much the opportunity to meet with you today to discuss Bill C-49, which has significant implications for the rail sector in Canada. CN participated very actively in the statutory review of the Canada Transportation Act by the Honourable David Emerson. We believe the panel did a good job in the review of the act, identifying the sorts of policy changes that are necessary to enable Canada to meet its goals for growing trade in the coming decades. Mr. Emerson and his colleagues commissioned a number of useful studies. With regard to rail we recognize that, unlike some past reviews, the panel based their recommendation on evidence and data and less on anecdotes. The panel also accepted the clear evidence that deregulation of the rail sector supported innovation, which derived benefits to shippers, customers and the Canadian economy. We are somewhat disappointed that not more of the panel's recommendations are included in Bill C-49.

After the report of the review panel was published, we participated in the consultation process undertaken by Minister Garneau, specifically in a number of roundtables held across the country.

We have also been encouraged by the work of the government's advisory council on economic growth chaired by Dominic Barton. We are particularly pleased with their first report's focus on the importance of growing trade and the need to strengthen and grow our infrastructure in order to achieve this. The council also stressed the importance of having a regulatory system that encourages investment in infrastructure and enables the transportation sector to attract the capital needed to invest in growing capacity.

I am sure that you are familiar with CN, but I would like to remind you of some important aspects.

CN operates its own 19,600-mile network, serving three coasts, the Atlantic, the Pacific and the Gulf of Mexico, as well as the port of Trois-Rivières. In Canada, our network extends over 13,500 miles, linking all main centres and access points. This makes CN a strategic partner in Canada's logistics chain.

We have an extremely diversified commercial portfolio. Our biggest sector is intermodal transportation, or import and export container traffic. Container transportation is the fastest growing and most competitive sector in the rail industry.

More broadly, I think it's imperative for the committee to know that deregulation and market-driven forces over the last 20 years have been the key underpinnings enabling investment and innovation in Canada's rail sector. According to the OECD, Canadian shippers today benefit from rail rates that are the lowest in the industrialized world, lower even than in the United States. In addressing Bill C-49, we acknowledge the minister's attempt to design a package that addresses the interests of both railways and shippers; however, we are concerned with the failure to recognize the degree to which deregulation has led to an environment of both lower prices and more reliable services for shippers and the degree to which deregulation has enabled railways to invest heavily in maintaining and growing our network. CN's capital investment over the last 10 years has totalled approximately $20 billion.

I'd like to turn the microphone over to my colleague, Janet Drysdale.

[James Clements, Vice-President, Strategic Planning and Transportation Services, Canadian Pacific Railway]

The rail supply chain is the backbone of our economy. Not only is the Canadian freight rail system the safest, most efficient, and environmentally friendly means of transporting goods and commodities, it achieves these goals while maintaining the lowest freight rates in the world. This is a key point. A healthy rail system is critical to Canada's international competitiveness, given our vast geography. Without a competitive, economic, and efficient rail system that can move products thousands of kilometres to ports for export, at the lowest cost in the world, much of what Canadians sell on international markets could not be priced competitively.

Canada's freight transportation system has been successful because the legal and regulatory environment, particularly in recent decades, has recognized that competition and market forces are the most effective organizing principles. These principles are articulated in Canada's national transportation policy declaration, contained in section 5 of the Canada Transportation Act.

It is important not to lose sight of these principles when reflecting upon legislative changes to the framework that has been proven to be so successful in delivering economic benefit to Canadians. CP is pleased that the government has decided to allow the extended interswitching regime of the previous government's Bill C-30 to sunset, as it was based on what we saw as a deeply flawed rationale, and it generated a number of harmful public policy consequences that ultimately disadvantaged the Canadian supply chain.

Similarly, however, the proposed new long-haul interswitching, LHI, regime contains a number of problematic elements. Most fundamentally, the LHI regime, like the extended interswitching regime it is replacing, is non-reciprocal with the U.S. As such, American railroads would be granted significant reach into Canada, up to 1,200 kilometres, to access Canadian rail traffic, but Canadian railways will not have the same reciprocal ability under American law.

The LHI regime is constructed in such a way that it is asymmetrical in its impact, both in terms of non-reciprocal access for American railroads vis-à-vis CP and in terms of CP and CN, because CP's exposure to American railroads under this regime is much greater than is CN's, given the geographical location of our respective networks, further compounded by the two excluded corridors.

The LHI regime could undermine the competitiveness and efficiency of the Canadian supply chain by incentivizing the movement of Canadian traffic to American railroads and supply chains, thereby eroding traffic density for Canadian supply chains.

The negative consequences to the Canadian economy will not be limited to the rail industry. If Canadian rail traffic is diverted to American trade corridors, it will also dampen shipping volumes at Canadian ports. For CP alone, there is a significant amount of our annual revenue that could potentially be moved to American railways and trade corridors under this proposed LHI regime.

A decision to allow non-reciprocal access for American railroads represents a significant concession by Canada to the U.S. while NAFTA is being renegotiated. This strikes us as an unwise public policy choice for the Canadian economy. The proposed LHI regime ought to be reconsidered in that context.

As drafted, Bill C-49 also imposes an obligation on connecting carriers to provide rail cars to the shippers in addition to their other service obligations. It has been well understood that as part of its common carrier obligation, a railway is required to furnish adequate and suitable accommodation for traffic. However, in some cases, the provision of railcars by a connecting carrier is not practical. For example, tank cars are typically owned by the customer, not the railway. The Canada Transportation Act already addresses a railway's car supply obligation, so it is important to clarify that the railway does not have a higher standard to provide car supply under LHI than already exists.

Since the LHI rate is to be determined by the agency, based on the commercial rates charged for comparable traffic, it follows that traffic moving under an LHI rate or any other regulated rate, such as grain under the MRE, should be excluded from the LHI rate determination since those rates cannot be considered commercial.

Further, American railways operating in Canada and regulated by the federal government should also be compelled to provide rate data to be used by the agency in determining LHI rates.

We will conclude our opening remarks there. I know there are many other elements of Bill C-49 that we have not discussed this morning. Our letter highlights some considerations on those points, and, of course, we are happy to take questions on any element.

Thank you, Madam Chair.

[Jeff Ellis, Chief Legal Officer and Corporate Secretary, Canadian Pacific Railway]

Thank you, Madam Chair, and good morning.

I'm Jeff Ellis, chief legal officer for Canadian Pacific. I am joined by James Clements, our vice-president for strategic planning, and Keith Shearer, our general manager of regulatory.

Thank you for the opportunity to speak with you today. In the interest of time, we will focus our remarks this morning on just two issues, LVVR and long-haul interswitching.

As one of Canada's two class I railways, we operate a 22,000-kilometre network throughout Canada and the United States. We link thousands of communities with the North American economy and with international markets. CP has made and continues to make significant levels of capital investment to improve safety and grow the capacity of our network. Since 2011 we've invested more than $7.7 billion on railway infrastructure. In 2017 we plan to invest an additional $1.25 billion. Should the changes to the maximum revenue entitlement come into effect in their current form, CP will likely make a major investment in new covered hopper cars, creating new supply chain capacity.

CP has been recognized as the safest railway in North America by the Federal Railroad Administration in the U.S. We've achieved the lowest frequency of train accidents in each of the past 11 years. That being said, safety is a journey and not a destination. One incident is too many. LVVR technology is essential if we are to materially improve railway safety in Canada, because human factors continue to be the leading cause of railway incidents. Since 2007 we've had a 50% reduction in safety incidents caused by equipment failures. Similarly, track failures are down 39%. However, human-caused incidents have seen little change over the same time period. According to data published by the TSB, 53.9% of railway incidents in 2016 were caused by human factors. It's clear that we must take action to tackle this category of rail safety incidents.

The evidence is also clear. One example is that since the implementation of DriveCam in New Jersey, New Jersey Transit saw a 68% reduction in bus collisions from 2007 through 2010. The number of passenger injuries fell 71% in the same period. Rail commuter Metrolink in California similarly saw a significant reduction in red-signal violations and station platform overruns.

It's imperative, however, that these regulations allow for safety issues to be exposed before an incident occurs. That would enable us to proactively develop effective and appropriate corrective action. It would be a mistake to amend Bill C-49 to prevent any kind of proactive use of LVVR data by railway companies. It would negate a key safety benefit of adopting the technology. CP recognizes the need to use this technology in a way that is respectful of our operating employees, in accordance with Canadian privacy laws, and we are committed to working closely with Transport Canada and our unions over the coming months to do so.

I'll now turn it over to James.

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

Thank you, Madam Chair.

The Railway Association of Canada represents more than 50 freight and passenger railway operators composed of the six class I rail carriers identified in this bill, and 40 local and regional railways, known as shortlines, from coast to coast, as well as many passenger and commuter rail providers, including VIA Rail, GO Transit and RMT, and tourist railways, such as the Charlevoix Railway.

I should mention at the outset that Bill C-49 potentially affects all of our members, including provincial and commuter railways, because of the proposed safety measures included in the bill.

When I appeared before you last year to comment on the Fair Rail for Grain Farmers Act, I mentioned the negative effect that extended interswitching could have on the short-line rail sector and suggested letting these provisions sunset. We were relieved to see that Bill C-49, by creating the concept of class I rail carriers in its clause 2, has made clear that long-haul interswitching does not apply to short-line railways.

In your report you recommended:

That the Minister of Transport request the Canadian Transportation Agency to examine the railway interswitching rates it prescribes to ensure that they are compensatory for railway companies.

Bill C-49 does not request the agency to review interswitching rates but goes one step in the right direction with respect to LHI, by specifying that the rates set by the agency shall be based on comparable commercial rates.

In addition to setting this average as a minimum, the act says that the agency must consider the traffic density on the line and the need for long-term investments, which, if applied properly, should lead to rates above the minimum, which is the average rate. That is good news, but the devil will be in the details of future decisions from the agency.

There are more experienced people from CN and CP with me to speak to the impact of long-haul interswitching and related service provisions on their businesses. Instead, I thought it would be useful to speak to the recent history of the railway industry, the success of Canadian railways in a public policy context, and some important and hard-won lessons from the past three decades of rail regulation and deregulation.

Successive governments, and indeed this committee, have enabled the positive accomplishments of Canada's railway industry by introducing and improving a regulatory regime that prioritizes commercial freedom and reliance on market forces over government intervention.

Before the introduction of the National Transportation Act in 1967, railway economic regulation in Canada involved increasingly restrictive regulation focused on freight rate control and uniformity. This approach led to inefficient railways that had difficulty undertaking much-needed capital investments to maintain and grow their networks.

Railways in the United States faced similar challenges, leading to the adoption of the Staggers Act and, as a result, significant deregulation in the U.S. rail industry. Canada's National Transportation Act represented the beginning of a dramatic shift in the regulatory environment for Canada's railways. Rigid regulatory constraints on pricing were removed, allowing railways to compete more effectively.

By the 1990s, decades of incremental deregulation placed an increasing emphasis on market and commercial forces, while maintaining a number of protections to ensure balance between railways and shippers. The passage of the Canada Transportation Act in 1996 introduced additional changes that reduced market exit barriers, allowing railways to discontinue or transfer portions of their networks to other carriers so as to become more efficient. This gave railways greater freedom to control costs and generate efficiencies. It also fostered sharp growth in Canada's short-line rail industry. Around the same time, CN was privatized, creating competition between two privately held, publicly traded national systems.

As a result of these policies, Canadian railways evolved into highly productive companies capable of providing low-cost service while generating revenues needed to reinvest into their respective networks. Shippers meanwhile gained access to a world-class railway system and today benefit from freight rates that are among the lowest in the world. Canadian railway performance, in terms of rates charged, productivity, and capital investment, greatly improved under these regulatory freedoms.

Since 1999, Canada's railways have invested more than $24 billion in their infrastructure, which has resulted in a safer and more efficient rail network that benefits customers directly.

Despite this record of public policy success, and a national transportation policy that clearly recognizes that competition and market forces are the most effective way of providing viable and effective transportation services, we are here today debating a bill that adds recourse mechanisms for the sole benefit of shippers.

Three weeks ago, the president of the Canadian Transportation Agency gave a speech in Vancouver in which he stated that existing mechanisms—including mediation services, final offer arbitration on rates, arbitration on service levels that allow the agency to craft service-level agreements, and adjudication on the adequacy and suitability of services provided by railways—are not used very often, and that in fact the agency is planning outreach to stakeholders who are not taking advantage of existing provisions. Yet we're here today to discuss new provisions on top of existing recourse mechanisms that are currently underutilized.

Under this bill, long-haul interswitching is available to a rail customer even if they have access to trucking or marine transport, which are competitive services. It is an example of how we can lose sight of the need to recognize competition and move backwards toward regulation.

Let me now turn to safety, and to the locomotive voice and video recording, or LVVR, provisions of the bill.

Yesterday, I sent all members of this committee an article outlining the reasons for our support of LVVR for both accident investigation and accident prevention. For a long time, railways have advocated the right to use this technology as another safety defence within railway companies' safety management systems. It has always been the industry's belief that LVVR will, simply by its presence, help to prevent accidents by discouraging unsafe behaviours and unauthorized activities that may distract crew members from their duties.

We believe that this technology will increase safety and that it can be introduced in a thoughtful way and used responsibly. Even with significant investments, there are still accidents that can be prevented. The record of class I railways in North America is excellent, but it is not perfect. Until we have full automation of both freight and passenger trains, we are going to see accidents that can be traced to human error.

LVVR is not a silver bullet. Rather, it is an important, proven tool that can help identify dangers and act as a deterrent for the very small percentage of employees who might be tempted to use their smart phone or read a book when they should be alert and working. In this respect, it will help to change the culture of the workplace in a positive way. This has been the experience of companies such as Phoenix Heli-Flight, a Canadian helicopter company that today uses voice and video recorders in their aircraft. In addition, it is expected that in most cases the LVVR evidence would corroborate the statements and explanations provided by the crew members themselves.

Let me talk about privacy versus safety. Some have expressed concern about privacy, but we already know from the introduction of other technologies and from video in the workplace that there are tests imposed by the Privacy Commissioner to guide us on the responsible implementation of LVVR. We are anxious to work with you and with the department on the creation of these regulations.

LVVR is a technology that will prevent accidents. Investigative bodies such as the TSB and the U.S. NTSB have called for its use. When there is an accident, investigators from the Transportation Safety Board will better understand what happened, and everyone will learn from it.

Thank you very much.

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call to order meeting number 68 of the Standing Committee on Transport, Infrastructure and Communities. Pursuant to the order of reference of Monday, June 19, 2017, we are studying BillC-49, an act to amend the Canada Transportation Act and other acts respecting transportation and to make related and consequential amendments to other acts.

Committee members, welcome. I'm glad to see that you all came back for a second day, a week ahead of everybody else.

To our witnesses, thank you for coming this morning. We appreciate it very much.

We will open with the Railway Association of Canada, if you'd like to take the lead.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Yes, thank you, Madam Chair. I wanted to follow up on my earlier question about the health and well-being of short-line railways. Saskatchewan certainly has a very robust network. Last year we took a trip to Lac-Mégantic to have a look at the situation there. The locals were showing us some pretty horrible things about the state of repair of that line. So from the engineering side and from Saskatchewan's side, I'd like to hear your comments on short-lines and on any issues you think Bill C-49 may need to address.