Agriculture Committee on Nov. 21st, 2006

[Peter Marshall]

Year to year, it might flip-flop a little bit, 48 to 52, but it's pretty close.

[The Chair, Conservative, Gerry Ritz]

Yes, depending on production on their runs and so on.

Good. Thank you.

Mr. Easter, for five minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

On the last comments made by Wade, this is very serious. In terms of poor performance, whether it's as a result of the shipper or the carrier, demurrage or whatever, who really ends up bearing the final cost of that?

[Wade Sobkowich]

It's shared between the grain company and the farmer.

[Wayne Easter, Liberal, Malpeque, PE]

It all seems to get borne back to the primary producer one way or the other.

[Wade Sobkowich]

A large portion of it, yes.

[Wayne Easter, Liberal, Malpeque, PE]

That's the problem.

You mentioned as well, or it may have been Robert, that the May 5 package that went to Transport Canada...you reluctantly agreed to a proposal.

And we do need copies of that, Mr. Chair.

[The Chair, Conservative, Gerry Ritz]

We will get them.

[Wayne Easter, Liberal, Malpeque, PE]

But you need the strength of the Canada Transportation Act.

Well, I found in my dealings, both on the government side and the opposition side, that Transport Canada seems to have always weighted its proposal more in favour of the railways. I don't think there's any question about that. Primary producers seem to be the forgotten factor. So I think we have to keep that in mind as we're moving ahead.

In the act itself, though, as it relates to the railways, there is a legislated requirement for the railways to provide sufficient railcars, pursuant to the provisions of the Canada Transportation Act pertaining to service levels. Do you as shippers believe the railways are meeting those obligations under the CTA?

[Wade Sobkowich]

Well, no, we don't, in a simple response.

[Wayne Easter, Liberal, Malpeque, PE]

Then I'll move to the railways

I agree with you, Mr. Marshall. You said there are a number of pieces to the puzzle.

This is partly in relation to Alex's comment. You do know, as a railway, that there are going to be times when you have floods, as happened recently in B.C., that there are going to be labour shutdowns in other areas. Do you not have within your car capacity some sleeve to protect against those natural events?

[Peter Marshall]

I think what we need to collectively look at is the total available capacity in the system, whether it be with the producer, whether it be with the grain elevator in the country, whether it be with the railroad, whether it be with the ports. Until that available capacity is utilized, I think we incur extra costs that don't need to be there. It's quite easy for me to say, let's add another 1,000 cars into the network. I think that would be a mistake because, as you say, the cost would ultimately be borne by the producer. I believe very strongly that there are components of the system that are underutilized today. We have an obligation, as an industry, which the railroads are part of, to determine where that capability is, to squeeze that extra efficiency out without incurring extra cost to the system.

That's what I believe.

[Wayne Easter, Liberal, Malpeque, PE]

I guess that isn't happening, Mr. Marshall.

I remember before you guys could close down a branch line, you used to appear before the CTC at public hearings in the west. I've been at some of those. That protection isn't there anymore for communities. We've seen branch line after branch line close down. You're basically left with mainly a main line now.

We've seen the Crow rate go, and farmers are picking up huge costs as a result of that. Farmers felt they could get the hopper cars, and now that's gone. We know that in that process the railways were gouging in terms of maintenance costs. So when are we going to see, from the railways, something that's going to improve the system for the benefit of the farm community? We haven't seen it. Government has made move after move after move.

I want to look at these May 5 proposals, but I think we've come to the time when, if the railways have to be penalized, they're going to be penalized, because you're not living up to your obligations.

[Peter Marshall]

As I said in my remarks, I believe the system is one of many pieces of the puzzle. I believe the railways have a strong role to play there and have made a strong contribution. As I mentioned, we have invested in our physical plant, we've invested in locomotives, we have hired people. We are in the business of transporting products. The grain companies and the country elevators have rationalized over the years. They have made changes to their network. If there are no elevators on a grain line and no grain coming to an elevator, other business decisions get made.

So I feel quite confident that we have done a lot of very positive things over the years. Again, I also believe it takes every part of the chain to work together to continue to improve.

[Wayne Easter, Liberal, Malpeque, PE]

I'm not disagreeing. I'm not saying you haven't done positive stuff; you have. But in terms of Canada, where in the Prairies we're an average of 900 miles from tidewater, transportation is functional to marketing, and the primary producer is captive of all the other players in the system. I'm not saying when you're ending up spotting only 60% of daily car spots there isn't a serious problem, because somebody is paying a price and it always ends up back at the primary producer.

So let me just close with this: do you have the capacity to move the total crop between the two railways; and do you have the capacity on a weekly basis to spot those cars, and on a daily basis?

[Peter Marshall]

I can't speak for CP. I know, for CN, we have the capacity to move their crop. Incidents are going to happen that are outside of everybody's control in terms of weather and so on. I also believe that within that there is still room for efficiency in other parts of the chain to help with that ability to spot the railcars.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Marshall.

I'll move to Mr. Storseth, for five minutes, please.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Thank you very much, Mr. Chair.

Maybe just to pick up on that last point, Mr. Marshall, could you help explain what you perceive to be some of these other efficiencies within the system?

[Peter Marshall]

I think the simple ones are continuous operation--24/7, as an example--and in some cases the components, the terminals and the country elevators, do work on a Saturday or a Sunday. This is a conveyor belt, with cars and locomotives going from point A to point B and returning, and sometimes we are collectively subject to things that are outside of our control, such as weather. The farmer may not be able to get to the elevator on a given day because it snows and he can't get his crop there, so there's not as much grain in the elevator. We've had, as described, pretty bad weather in the Lower Mainland. We've had snow in Prince Rupert. We've had terrible weather in Churchill in the last couple of weeks of the grain season there.

When things are out of our control, we need to collectively get together and understand how we can improve what we have available to us. So if the cars are moving in the middle of the night and they get to an elevator at 2 o'clock in the morning, they're going to sit there until 8 o'clock in the morning or perhaps 9 o'clock in the morning. There's some efficiency there that I think can be captured.

I think some of our challenge is that we have third parties involved and we have processes that are a little bit more complicated than they need to be sometimes. A more direct relationship between the provider of transportation and the user of the transportation might simplify things. But those are all things that, again, I think have been on the table previously.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

But these efficiencies you talk about surely are the same kinds of efficiencies as other forms of transportation have to deal with, day in and day out, in this large country of ours and are things that you've been continually talking about for years.

I want to move on. I have a lot of things I'd like to talk about here. This GX 100 program that you have, everybody seems to favour somewhat. Are there any plans for smaller loads as well, such as a fixed carload, and have you consulted at all with the shippers on this?

[Paul Miller]

Yes. We've been speaking with shippers really as recently as last week and yesterday on various aspects of some of the products we're offering: improvements to the basic GX 100 offering, expansion of the GX 100 offering, and then how we move this scheduled sort of approach or mindset down to some of the smaller blocks. So those discussions are ongoing.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

You talk about some of the punitive measures that the rail lines would face in this GX 100 program that you have. Are they comparable to penalties that the shippers themselves would face should they not meet their contractual obligations?

[Paul Miller]

They're comparable. We've had some discussions recently--and I don't have the documentation here in front of me--about whether the time window that we're allowed is the same as the time window that the shipper is allowed to accomplish what the shipper has to accomplish. So we have some discussions ongoing there about moving those around. The penalties are comparable, and that is how it was designed.

[Wade Sobkowich]

I think GX 100 is a good example. It shows how the railways can perform when there are penalties. What we're seeing is that when there are penalties, they're moving, and they're spotting it at a higher level. When there aren't penalties, they're not.

This is also illustrated by some of the other things CN does for other industries. For example, CN has CN tariff 9000 for other industries. This doesn't apply to grain, but in this tariff, CN has the guaranteed car order program, which provides for reciprocal penalties for non-performance. Customers can order the cars by day of the week up to four weeks out. Once these cars are accepted, CN pays the customer $100 per car, if the cars are not spotted on time, to the day of the week. The customer pays a penalty if the cars aren't used. As a result, they're performing in percentages that are in the high eighties and low nineties on these products.

[Peter Marshall]

They are a component of a commercial private contract between CN and the customer.