Agriculture Committee on June 22nd, 2006

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Atamanenko.

Next is Mr. Bagnell, for five minutes, please.

[Larry Bagnell, Liberal, Yukon, YT]

In a part of your speech you mention four pretty technical reasons that having another player in the field would not be better. Could you please read that part?

Before you do, I have a question. It seemed that Transport Canada and CP said there were a lot of useful cars left, whereas CN suggested they're all pretty well worn out and have to be replaced in the next five to seven years. Was there a discrepancy there?

[Kristine Burr]

We're in a negotiation right now, and there may be differing views as to the lifetimes of some of these cars.

[Helena Borges]

I will add that CN has 2,000 aluminum cars that are very small capacity and are basically at the end of their useful life. CP doesn't have any aluminum cars; all the cars that were provided to CP are all steel.

In addition to those 2,000 aluminum cars, there are the cars purchased in 1972. They are also of smaller capacity and much older, and they're near the end of their useful life.

[Claude Mongeau]

That's correct. CN has more than 1,500 aluminum cars that are 4,100 cubic feet and structurally deficient.

[Larry Bagnell, Liberal, Yukon, YT]

There wasn't much on the reasons FRCC couldn't be involved. The one reason you both gave, I think, was it would be more complicated with another player. I'm not sure; if you're just replacing one player with another one, you still have the same number of players.

Could you read those four reasons you had?

[Judy Harrower]

Yes. The first one was increased line haul and switching costs, which would potentially lead to alternate maintenance facilities other than those where we maintain our cars.

The second is more complex maintenance activities and a perpetuation of a non-homogeneous fleet which, as you heard Jim Buggs say--

[Larry Bagnell, Liberal, Yukon, YT]

Can you explain some of those, because it doesn't seem...you're just having a different owner, so why are all these changes different?

[Judy Harrower]

There was a lot of question, from my understanding, as to exactly how and where the cars would be maintained and exactly who would be responsible for the maintenance. There was also the likelihood that having another party would complicate the maintenance activities. That is as opposed to the railway, which already maintains a fleet of 25,000, as you've heard--well, the total is 25,000, but the railway maintains a fleet of approximately 18,000 railcars within our own auspices, as well as other railcars. The situation is more complex when you bring in another party or owner, who now would potentially advocate to maintain their own fleet of cars at facilities other than those existing today.

The overall railway flexibility was the last point that I mentioned. From a railway flexibility perspective, it gets back to doing what we're in business to do, which is basically to provide railcars for the movement of business and to maintain those railcars at the level and standards we feel are appropriate.

The flexibility side of it is literally.... Quite frankly, the points are relatively intermixed, but when you're potentially having to switch cars out or do something differently from the way you would do it with the rest of your entire fleet of cars, you have the potential to run into some reduced system effectiveness and efficiency.

[Claude Mongeau]

I could add to that, Mr. Chair.

It's a very simple answer. Today CN has 100,000 cars. We have running repair facilities and maintenance facilities across all of western Canada, and it's part of our system to replace the car at the best price possible and in the most efficient manner.

If you introduce another player, the cars have to be moved to fewer running repair facilities, which will be somewhere at a different place. The hand-off and the distances will mean that more of the cars will be waiting to be maintained, as opposed to moving grain for farmers.

[Larry Bagnell, Liberal, Yukon, YT]

With another player, there could, as you said, be more efficiency, because there is less of a monopoly. If they could include those extra transfer costs and still have a lower cost, the benefit would certainly be to the people who are shipping things.

[Claude Mongeau]

It's very tough to imagine a scenario where a railroad with 100,000 cars in its fleet and very extensive facilities would have a higher cost of maintenance than a specialized small repair shop.

[Jim Buggs]

Especially when they are much more limited than what we have in our various networks.

[The Chair, Conservative, Gerry Ritz]

Just on Larry's point, in its last presentation before the committee, the FRCC actually said they were going to have to raise freight rates to farmers by $2 to $3 per tonne. Do you agree with that number?

[Judy Harrower]

Was that to do maintenance?

[The Chair, Conservative, Gerry Ritz]

No, that was just on overall cost factors. They had to raise the freight rate to farmers by $2 to $3 per tonne immediately in order to make their package viable.

[Claude Mongeau]

They were hoping to offset that with $2 per tonne from the maintenance costs. In essence, their approach would be to increase the cost to farmers by having the railroad pay for the leases, and then they would offset it with the argument that the railroads are being paid $2 per tonne too much for maintenance. The net of the two was the hope of breaking even.

[The Chair, Conservative, Gerry Ritz]

I have one other quick point before I turn it over to Mr. Bezan.

How many cars are actually repaired at trackside in order to make them serviceable to get to the repair depot? Somebody talked about having a mobile crew so you could actually go right out and do whatever. I've seen them at work. What percentage of cars are disabled to the extent that you have to do a trackside quick fix in order to get it to the repair facility?

[Paul Miller]

I wouldn't have a number to put on that, sir, but it's the nature of the defect. If it's a safety or running repair type of defect, changing a wheel or a set of wheels, brakes, couplers or things of this nature, a lot of that work can be done on-train, in a yard. If the car is on-line, then that work has to be done on-line to repair the car.

[The Chair, Conservative, Gerry Ritz]

Right. That is so it is not a hazard to tow into the repair depot.

[Paul Miller]

That is exactly right.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Mr. Bezan, for five minutes, please.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Thank you, Mr. Chair.

I want to thank you all for making your presentations this morning. I'm sorry I had to step out for a bit.

I was interested in hearing you say that there needs to be more accountability in the rail handling system and that we need more capacity, and I was glad to hear that more investment is happening.

We hear from our farmers—and I'm a farmer myself—that there is definitely a lack of accountability, a lack of commitment, and a lack of capacity in the grain system. Last year, a lot of the inland terminals were stuffed full and they couldn't get cars to get the grain. At times, the ports were sitting empty, with ships wanting to come in but no grain being delivered.

There is a concern that the service isn't there. We are looking at a bumper crop, as Mr. Anderson has already alluded to, and we have to be able to handle it this fall. Times are tough on the farm and guys are looking to the railways for service.

I wonder if the reason that the service has fallen back a bit, at least in the opinion of grain shippers, is because of the revenue cap. Does the revenue cap restrict how much you want to ship because you're scared to hit that level too quickly?

[Judy Harrower]

The revenue cap of course is adjusted for volume. There would be no reason why we would not ship volume as a result of the revenue cap.

I would have to add, from our perspective, we've been more fluid this year than we've ever been in moving grain. Having made the investments in our infrastructure, the crews, the locomotives and the cars, we intend to retain that fluidity that we've achieved so far this year to move the volumes of grain that hopefully will come to pass with the new crop.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Because of what happened last year, farmers feel they're at the bottom of the pecking order, that when railways are handling their various clients, they put the higher-value goods on top--moving the container loads and things of that nature--and then they move down to bulk goods after that. Even within the bulk structure, moving forestry products, coal and whatever, grain somehow falls to the bottom of that list. Is that the case, or is that just the perception?