Agriculture Committee on April 1st, 2014

[Wade Sobkowich]

First of all, as you said, we're talking about a monopoly situation, or a duopoly situation, depending on how you want to identify it. Contracts that have dispute resolutions for liquidated damages between commercial parties in a normal functioning marketplace are not unusual, but you don't need legislation to support it because competitive factors are at play. In other words, if you don't like the contract you have with one supplier—

[Jeff Watson, Conservative, Essex, ON]

Fair enough, breach of contract is still breach of contract. Why would I not want the same access if I'm in a different mode of transport, or if a failure of another mode of transport lets me down?

[Wade Sobkowich]

I'm not sure how to answer that question, other than to say that either we have effective competition or we don't. If we don't have competition, we need to look at propping up the system to simulate what you would otherwise find in a competitive environment, and liquidated damages are a normal part of a normal functioning marketplace.

[Jeff Watson, Conservative, Essex, ON]

Of course, yes.

[Art Enns]

I want to re-emphasize what Wade said because in your example, if the truck didn't come on time, you have lots of competitors you could go to. I don't have those competitors in the rail system. I have one or two choices at best. There are no options. I still call it a little bit of a monopoly that the railways have on our system over here.

[The Chair, Conservative, Bev Shipley]

Thank you very much, and thank you, Mr. Watson. Our time is up.

I want to thank the witnesses for coming and being on teleconference. Thank you very much for your input.

We'll take a break of three or four minutes.

[The Chair, Conservative, Bev Shipley]

I'll call the meeting back to order, please, and we'll get started.

With us, from Canadian National Railway, we have Mr. Claude Mongeau, president and chief executive officer. From the Canadian Pacific Railway, we have Mr. Keith Creel, president and chief operating officer.

Thank you very much for attending tonight. We will ask that you give an opening statement. You have up to eight minutes.

We'll start with Mr. Mongeau, please.

[Claude Mongeau, President and Chief Executive Officer, Canadian National Railway Company]

We're providing you with a short presentation, in both languages. I don't intend to go through all of it, but I thought it would help to frame the issue. It's been a very difficult winter, and I think it's important that we follow the facts if we want to make the right policy. There's been a lot of advocacy, and at the end of the day following the facts is the only way to make sure we make wise decisions.

I'll refer to page 2, and let me just say very briefly what this line situation is not about.

It is not about a conflict between crude and grain. We move less than 1.8% of our carloads in crude at CN. We have been planning every one of the loads for months. The loading facilities are being built. It takes months. We have the crews, the locomotives, and we move the traffic when it's handed to us. It's a very, very small portion of our overall traffic.

It is not about flatlining. Sometimes you may hear Wade Sobkowich saying that we only want to move so many per week, that we don't care about demand and we move grain the way that fits our interests or our shareholders. Those are not the facts. The chart you see shows that in reality we surge very significantly in the fall, and then in most years, following the winter, we have very little demand for our services. The so-called “peak to trough” is about 80% from the surge that we do in the fall to the trough in the summer.

It's not about flatlining; our interests are aligned. And it's not about crude. What is it about, then?

Page 3 shows you what it's about. First and foremost, it's a hundred year crop. It's a shattering of prior records. We've never moved anything close to that in Canada. Production has never been anywhere near that overall. The portion that's the extra tonnage all has to be exported. We don't eat more Quaker Oats or more Cheerios in the morning because there's more grain being grown. The excess has to move, and the actual excess is close to 55% more grain than in an average year.

In tonnes, it's about 10 million tonnes. To give you a sense of things, if we plan our assets perfectly and have exactly the right amount of locomotives and crews.... Of course, we always have more to be able to surge and meet volatility. But if we were doing it perfectly, the only way we can move all this extra tonnage of grain would be by stopping the movement of all the lumber that we move. It's twice as much as all the potash that we export at CN. In order of magnitude, 10 million tonnes is that much grain. To find resources to be able to move that on short notice, no supply chain in the world can be expected to be able to do that.

The Minister of Agriculture, at the end of September, was calling for a crop of 62 million tonnes. It was only in late November that it was made official at 76 million tonnes. Now, all of us in the grain transportation business or grain trade knew that we had more to move, but it was very late in recognizing that we had that extra tonnage to move.

Turning to page 4, it's not the big factor, but it was also about a very difficult winter. I'll let my colleague Keith tell you a bit more about that, but a picture tells the whole story. We've not had a winter like this for at least 50 years, if not 60 years. Winter plays havoc with our capacity, not just for grain, but for all the commodities we move, every one of them. From intermodal to crude to potash, every one of the commodities we move was impacted by this winter. Every one of you who used an airline was impacted by this winter too. It was a winter that impacted all transportation modes, not just railroads.

Turning to page 9, you have the details in your presentation, blow by blow. I would encourage the committee to study it carefully because it's important. However, I will give you a summary on page 9.

That's our performance at CN since the beginning of the crop year. You will note that for the first five weeks we had a very slow start.

We moved far less than what the capacity of the railroad is. About 10,000 to 12,000 cars could have been moved in the first five weeks of the crop year while this huge crop was being grown in the backyard of Mr. Sobkowich. After that, when orders started to ramp up, we were able to move a record amount of grain. In fact, we moved 22% more than in an average year, and we established our record best performance in our history, moving more than 5,000 cars straight all the way until winter hit, unfortunately, very early in the year.

For those of you who are from Winnipeg, in December, at the very beginning, winter hit hard, and we had impacts all the way until the beginning of March. During that period, it's important for you to know, versus an average year, we moved about 10,000 fewer carloads than what a normal winter would have allowed us to move. So 10,000 to 12,000 carloads were not moved because they were not ordering in August, and 10,000 to 12,000 carloads did not move because of the winter of decades. I call it a wash.

Right after the winter stopped, we started to move a lot of grain again, and last week we moved more than 5,000 carloads. In the last four we were moving 22% more than in a normal month of March. That's what we performed. On balance, given the winter, we performed reasonably well. The root cause had to do with winter to a small degree, but it was mostly about a very large crop and a few other factors, which I will take a minute to describe.

What you see on page 10 is a red line that shows the orders we received from the grain elevator companies. In the first five weeks they were not ordering, unfortunately. When they realized we had a big crop, in week six, they started to order more. In week seven and beyond they started to order far more than we were ever able to move in the history of the rail supply chain of Canadian grain. In fact, they were ordering close to 7,000 orders every week from CN. For the whole industry, that would be 14,000 cars. Of course, we never did anything close to that. In fact, we saw a continued pattern of very high orders by the grain companies that were all looking for market share and all looking to place orders, to order ships, to take contracts with farmers, and to promise deliveries, but the deliveries they were promising were well in excess of even the best performance ever.

You referred earlier to an automotive company. In any business, when you're trying to plan a supply chain, normally if you look at average performance, and maybe if it's a great year, then look at best performance, or performance somewhere in the range of average to best, that's where you should place your bets. To place 28,000 more orders over the period than the absolute best performance of CN over the last 10 years is a lack of coordination. It's too many orders for a system in which not only railroads would not be able to deliver, but railroads and grain elevators themselves would not be able to deliver.

I hear a lot of people saying that there are some 35,000 orders on the waitlist at CN and some 30,000 orders on the waitlist at CP, which is a total of 65,000 orders. At CN, of the 35,000 orders we have on our waitlist, 28,000 are orders that have been placed in excess of our best performance ever. Some of the responsibility for those promises, the boats that are waiting at anchor, and the delivery contracts for farmers that are not being fulfilled is the railroad's. An awful lot of it belongs to the grain elevator companies that are lacking coordination and that are having growing pains in lining up their aspirations with the supply chain capability.

I'm finishing, Mr. Chairman. Give me eight and a half minutes. It's my industry you're about to target.

The next page is the actual story in a nutshell. The best ever for the entire industry is 9,500 cars in a week. That's the best performance ever in the last 10 years. The government grain order is asking us for 11,000 cars per week or thereabouts, which is a stretch but a stretch we're prepared to sign up for.

Some in the industry, like Mr. Sobkowich a minute ago, at some point were calling for 20,000 carloads. He was told that it's a little too much, because we wouldn't be able to unload them. Now they're calling for 14,000 carloads. It's not possible to move 14,000 carloads. We will be lucky if we move 11,000.

In order to move 11,000, the grain elevator companies will have to start selling hard at Thunder Bay, because we are at capacity in Rupert as we speak. We are a whisker away from being in excess of what they can unload in Vancouver. The sum total of those two corridors is about 6,200 cars. If we want to get anywhere close to 11,000 cars, they had better start selling at Thunder Bay hard, soon, even though it costs a little bit more to go through Thunder Bay, and even though there might not be as much shipping capacity as one would like, because they did not ship enough last year going to Thunder Bay, and because they make more money going to the west coast using their elevators in shipping lanes that are less costly.

A lot of this is about grain elevator companies. There are only three controlling the market, so when they say there's a duopoly in railroads, there's an oligopoly in grain elevator companies. They're taking advantage of the situation at the moment in many ways, and it's not just railroads, it's a team sport, and the supply chain capacity we will prove very soon is close to 11,000, no more.

Last, in my view, the regulation you're considering will set the grain handling industry backwards. You're encouraging adversarial relationships, as we are demonstrating right now. You're undermining collaboration. You're going to be driving rigidities, and in many ways, setting ourselves backwards.

The physics are clear. The capabilities depend on assets in the ground. Assets get in the ground if investment is possible. There's no amount of regulation that can move grain.

One piece of the puzzle that I believe is misguided and is bad policy is this notion of extending interswitching to 160 kilometres, without any due process, and to do so not just for grain but also for other commodities. I think this has been done in haste, without any due process. It's not just the rail industry that you're going to be damaging. You're going to be damaging the Canadian economy.

If you do anything, Mr. Chairman, you should start by being a little bit more prudent. Limit the extension to grain—it's a grain bill, after all—and let's find out how it works. If everybody loves it and we all agree that it's the best thing for Canada, you then can extend it to all commodities everywhere. But don't do it without due process, and don't do it under the guise of a 100-year crop with a difficult winter and grain elevator companies that are lacking coordination and are as big a part of the problem as we are in the rail industry.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Mongeau.

I'll now go to Mr. Creel, please, for eight minutes.

[Keith E. Creel, President and Chief Operating Officer, Canadian Pacific Railway]

Good evening, Mr. Chairman. Thank you for the invitation to appear before you to discuss the grain supply chain in bill C-30. This is obviously an important conversation, not only for farmers and Canadian Pacific but for all Canadians, which is why I'm personally here to talk about this matter tonight.

For more than the past two decades, I've obtained considerable experience as an operating officer in both Canada and the United States. For the last 12 years, I've served in a number of increasingly senior operating positions at both Canadian National and Canadian Pacific, which has provided me experience in this grain supply chain in western, central, and eastern Canada.

My comments today will focus on the supply chain capacity, how CP, despite exceptional weather challenges, has performed this crop year, and why interswitching is not a compelling solution to this matter.

Specific to the supply chain capacity, I am not here to debate the new normal in crop sizes, but I'd be remiss not to emphasize the absolute fact that this crop is 37% above the five-year average of 58 million tonnes and an all-time high. In a normal grain year, Canadian railroads export approximately 33 million to 34 million tonnes. This year's exceptional crop requires the supply chain to move an additional 20 million tonnes, which equates to an over 50% increase. The reality is that the supply chain cannot move these types of volume over a short period of time. To put it in perspective, the surplus alone exceeds the total volume of potash that Canada typically exports every year.

This is clearly a total supply chain capacity problem. We need to be searching for a total supply chain capacity solution.

From a capacity perspective, the challenge is to create a grain supply chain that can meet today's and the future's demands. It is important to understand that this is not a single-component supply chain. This total grain supply chain is made up of essentially five components: first, the grain originates in a truck; second, it gets elevated in country; third, it moves to port by rail; fourth, it is then offloaded by a port terminal elevator; and fifth, it is finally loaded on a ship by the port terminal elevator again. To suggest any component, let alone a single component, could ramp up capacity with little to no warning to handle this exceptionally large grain crop is simply unrealistic.

I'll shift my comments to share the facts about CP's performance this crop year. In August, with an approximately nine million tonne carry-over from the previous crop year, we practically had no grain to move. At CP, we started storing grain cars in May and June. In fact, we had 4,000 railcars stored due to a lack of demand to move grain at the beginning of August when a normal crop was expected at that time, according to Statistics Canada.

From September through November with the harvest in full force, CP responded by moving more grain than we've ever moved during this comparable time period. We moved 20% more grain in Canada than the five-year average, and 14% more than the previous year. This demonstrated the surge capacity CP has to move more grain in response to strong demand.

In December and January, our double-digit growth was impacted by the extraordinary cold weather. To quote Environment Canada, “If we take the two months and combine them, we find it is the coldest December-January since 1949-50”. The facts are that December, January and February were extremely cold, with 49 days below -25°C from Kamloops, B.C., across the Prairies, and through to the east versus 25 days on average in a typical Canadian winter. I can tell you that I have never experienced anything this extreme in over two decades as a railroader.

I say -25°C because it's a critical tipping point in railroad operations. Sustained temperatures like this across a network or a country cause significant capacity reductions and safety concerns to operations. Train sizes decrease. The technology of railcar airbrakes does not allow maintaining brakes on a normal length grain train, let alone any train, in these temperatures. A 50% reduction in train size is not uncommon. Safety concerns increase. Trains must be slowed to safely operate to avoid derailments. As a result of these two key factors, the velocity slows, congestion increases, and therefore our effective capacity goes down. No one in the supply chain is immune to this capacity-reducing weather, from the country elevators to the ships on the Great Lakes and the trucks on the highways.

Moving to February, even in the face of record cold, CP was up 15% for grain. So far in March, we're up 20% over last year in Canada.

Mr. Chairman, in face of these extreme weather conditions, I am proud to say that our railroaders as well as CN's—who worked tirelessly 24-7, 365 days a year, even with crews operating grain trains Christmas Day to move this record crop—did this despite the fact that our efforts are absolutely not being matched by other partners in the supply chain, despite what some of the naysayers are saying, despite what some of the elevators and the grain companies are saying. In times like we've faced and are facing trying to move a record crop, it's critical that all components of the grain supply chain step up with the same efforts. This simply has not happened.

While some report to the contrary, CP has shipped and continues to ship record volumes to the betterment of farm communities, grain companies, and the Canadian economy.

As I have stated a number of times in the past two months, weather permitting, we would get back to a performance level like last fall. This is not because we've been ordered to do it; it's because the extreme weather has lifted, and we have the capacity and operating conditions to perform to this level.

Given the last two weeks of performance by CN and CP, operating at levels consistent with the government order, we are in fact bumping up against supply chain capacity limits. This is slowing velocity and reducing capacity at Vancouver and Thunder Bay. The railway is not the bottleneck, nor can it solve this capacity problem alone.

That said, rather than finger pointing, we need to have a constructive dialogue about how we can create additional total supply chain capacity. In the near and long term, additional capacity can be brought online if railcars are unloaded, when available for unloading, seven days a week, 24 hours a day.

For instance—this is fact, not rhetoric—yesterday morning, consistent with what we have experienced over the last three weeks, we had over 1,500 cars to unload in Vancouver between both railroads versus a run rate of 600 unloaded per day by the shipper terminals over those same past three weeks. This is because some terminals operate three shifts per day, five days a week, while others operate two shifts per day, seven days a week.

There is only one terminal of five in Vancouver that operates consistently three shifts per day, seven days a week. Unloads, using the last three weeks as an example, are 34% higher on weekdays versus the weekend. We need the entire supply chain to be thinking velocity to create additional available capacity. Instead of cars sitting, waiting to be loaded or unloaded, these cars should be cycling back to the prairie elevators and to the ports.

I'll now turn my comments to extended interswitching. l'm not here today to talk about the commercial implications of extended interswitching. I will, however, talk to the capacity concerns and implications of it. It will not allow the supply chain to move more grain, and has the potential for unintended consequences to a system that is world class. This could include competitive impacts for the Canadian economy. More specifically on capacity concerns, extended interswitching will lead to multiple handlings of grain shipments that will slow down the grain supply chain, negatively impacting transit times. It can also create circuitous routings, further complicating the supply chain and reducing capacity. That is the exact wrong thing to do.

In summary, if the supply chain is to do better, we need to find a collaborative approach in the near term and create capacity in the total grain supply chain in the longer term. This is how we will ultimately benefit the farming community and the Canadian economy.

Thank you, Mr. Chairman.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Creel, for your presentation.

I have to say that both of you have put a lot of effort and thought into this, and I appreciate that very much. All of us do.

We'll start off our questions with the New Democratic Party.

Mr. Allen, you have five minutes, please.

[Malcolm Allen, NDP, Welland, ON]

Thank you, both of you, for coming in.

As you can tell by the comments you've alluded to from others as well as some of your own, this is a contentious issue between the parties, quite frankly.

To be perfectly candid with both of you, the tenor and tone of your comments is such that it doesn't bode well for trying to work out the problems. I would agree with Mr. Mongeau that the idea of finger pointing is not always helpful. If one wants to actually do something here, I would suggest that we all need to take half a step backwards and take a deep breath. I would say that to all players, not just the railroads, so that folks can get to a place where there's a conversation happening.

Without a conversation, there will be no solutions, unless of course we impose them, which we have the absolute right to do. As the governors of this country, all of us in this Parliament get that right through the Canadian public. We don't suggest that everyone always loves what we do or agrees with what we do, but we have the absolute right to do it. I would suggest that folks need to think about that as we head forward.

There needs to be a solution to this issue in the short term, and indeed over the longer term, where all players are a part of the solution and not simply standing idly by saying, “It's not my fault. It's their fault.”

I think you've raised some interesting points about the grain handling system. I believe they are part of the problem, quite frankly. I would agree with you, sir.

I heard what Mr. Creel just said. He floated around some numbers.

The first question would be on whether you have those numbers. If you could table them with the committee, on the port of Vancouver, I'd appreciate it. The information I have, which was just given last Wednesday, by the way, in Saskatchewan, by the head of the union at the port of Vancouver, is that it's not true that it's backed up, and it's not true that they're not available to go to work. There may be an issue about the grain companies asking them to come to work, but he's saying that's not his members' situation. They're saying that they're ready to work the weekend as well in those ports in Vancouver.

If you have the numbers, sir, that you just quoted, and you can get them to committee, we'd appreciate it.

The minister said the other day that their expectation is that commodity movement across the country will go up. The question for both of you would be what the long-term plan is for the railroads as far as this excess is concerned. I'm not suggesting a surge here. I understand surges are hard to play with; they are hard to figure out, hard to anticipate.

What is your long-term strategy? I'm not asking you to divulge to each other; you may have different things. Do you have a long-term plan? Let's be truthful: you're an integral part of the economy. There's not anybody in this room who doesn't know that. There's no Canadian who doesn't know that. The railroaders are iconic, in a way.

We see surge and we see excess capacity. Do you have plans for this? Is this simply going to be, “Well, we did our best, and that's about as good as we're going to do. We made money for our shareholders and we don't have to make it any better”?

[Claude Mongeau]

We do have plans and we meet the demand every year in grain, except in exceptional circumstances like this year. It's not perfect. People would like us to surge even more in the fall and park cars in the summer. We have to find the right balance. In terms of moving grain, the average crop is 58 million tonnes and the normal range of crops is anywhere from 52 to 65 million tonnes. We have the assets and the capability to move that.

Now, that bar will move up. Next year, Agriculture Canada is calling for 62 million to 63 million tonnes as a crop. That's the trend line. We will be reserving assets and be in a position to handle that. We will build our capability, as the trade grows, with a capability to move up or down.

What we are unable to promise, unless we were all sitting down and deciding the economic cost of being prepared to do that, is to be able to move a 100-year crop on short notice. That is unrealistic as an expectation, and the cost to do that is prohibitive. No one would build a business to be able to handle that. When you have such a situation with huge excess tonnage to move, that's when collaboration is absolutely essential. That's when getting the right facts, sitting down around the table, making sure we sweat the assets from end to end, is the only strategy that I know of.

I've been calling for that since the fall. Unfortunately, through the winter, when things got a bit out of sync, there was an awful lot of piling on the railroads, and there have been no conversations that I've been able to attend to provide the facts that I'm presenting today. It's unfortunate that I am having a chance to do that when you've already decided that heavy-handed regulation is the solution.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

I'll move on now to Mr. Payne, please, for five minutes.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thanks to the witnesses for coming.

I'm from Medicine Hat. The CP goes right through my riding.

Quite frankly, Mr. Creel, I used to work in the private sector. I worked for a company called Methanex—before that, it was Novacor Chemicals, and before that, it was Alberta Gas Chemicals—and I can tell you that when I worked for that organization, we always had trouble with CP, trouble to get them to get their cars and trouble to get them to move their cars.

After I left that organization, I worked with a number of different organizations, with some of the petrochemicals, fertilizers, carbon black, green growers, and so on, and they wanted to get together and talk about what the problems were. I did that, and we identified that they all had the same problems. CP was not servicing their organizations. They weren't getting their cars. They weren't delivering their cars.

This is not new for me. This goes back a long way. Every year I hear from organizations, particularly from the grain farmers over the last couple of years since I have been a member of Parliament, that they're not getting their cars. That's one of the things I'd like to get out on the table.

As I understand it, CP actually dropped something like 400 engines and some 2,000 cars out of their system in this last year. If you had kept those engines and kept those cars, I'm wondering.... I don't know what kinds of cars they were; obviously, there are all kinds of different products. However, that could have meant putting more trains on the rails, even with shorter trains—because I understand the issue in terms of cold weather—to potentially get to market some of the grain that hasn't reached there.

I'm wondering if you have any comments on that.

[Keith E. Creel]

Yes, sir, if may, I have a couple of comments.

I'll step back to the comments about the history of CP. Unfortunately, I've only been at CP for about 13 or 14 months, so I can't speak to the history, but I can speak to the mandate. That's exactly what our mandate is, what my mandate is, and what the new management team's mandate is: to improve those service levels so that our customers don't continue to experience shortages and poor service. That's exactly what we're focused on doing, and I would suggest that we've had quite a bit of success over the past 13 months in doing that.

Turning to your point about reducing locomotives and cars, you've caught the essence of part of that. For cars that were reduced, the preponderance of those cars were beyond their service life. They have a certain amount of years, according to regulations, that they can stay in service, so they were retired. They were turned back to the people we leased them from. They were scrapped.

On locomotives, we have locomotives stored today. To suggest adding locomotives or adding cars, that I would do that, the answer would be no, because you need three things to run trains. You need cars, you need locomotives, and you need crews. To Claude's point, if we go to the timeline, we understand something as simple as how long it takes to hire employees, how long it takes to hire a conductor, and how long it takes to train a conductor to become a locomotive engineer so they can move those additional trains, if we had the locomotives and cars to do it. There's at least a six-month lead time to go out to the market to identify a need for conductors and to hire someone to test them, to train them, and to qualify them.

You can't respond and turn on a dime when you're told in November that you have an 80 million tonne crop to move. It's just simply impossible. As much as I'd like to do it, and economically and financially it's to our betterment to do it, it's just impossible to do it. That's the challenge we face.

[LaVar Payne, Conservative, Medicine Hat, AB]

I can understand that, because I have a human resources background, so I dealt with those kinds of issues. My understanding was also that CP laid off a number of individuals.

One of the things that I wanted to also touch on is that there's been a lot of talk by the various groups about having service level agreements, but I understand that neither CP nor CN has actually done that. I'm just wondering if potentially both of you could make a comment on why you haven't gotten around to doing any service level agreements.

[Claude Mongeau]

I would say the following. Keith used to be my COO, and we did that, so we can take credit for that while he was at CN, and I know they're doing it at CP. We've actually expanded the concept of service level agreements across Canada. It's caught on like wildfire in the intermodal space. We have a number of them in a number of other commodity groups, in merchandise, in bulk.... The concept is prevalent and we welcome it.

In grain, we have service level agreements. They tend to be more operational, for a very simple reason. We operate under the revenue cap. The notion of having a normal commercial relationship where there are commitments and reciprocity is not the way the system is built at the moment. I'm not here to start a debate on the revenue cap, but the reality is that in any commercial business, you take revenues, you take commitments, you make a contract, and you have service level components to it. When the price is set and when the assets have to be there no matter what in a regime where it's pay as you go, the notion of service level agreements falls on its own head.

[LaVar Payne, Conservative, Medicine Hat, AB]

I'd also like to get Mr. Creel's comment on that.

[The Chair, Conservative, Bev Shipley]

Make it very short. We're out of time.

[Keith E. Creel]

At CP the preponderance of our business is covered by contracts and service level agreements. For any that are not effective, we've made a call to the grain companies and we are more than willing to sit down with them as long as there's reciprocity. That's a key word. It's not a one-way relationship. No relationships work effectively or productively if it's all one way.

[The Chair, Conservative, Bev Shipley]

Thank you very much Mr. Payne.

We'll move on to Mr. Goodale from the Liberal Party, for five minutes, please.

[Ralph Goodale, Liberal, Wascana, SK]

Thank you to the witnesses for appearing this evening. Time is always the enemy here, so I'll try to be as brief as I can.

Mr. Mongeau, tonight you've made reference to other parties in the value chain who aren't performing up to the standard that would be necessary to move this crop. I wonder if you could be a little more specific about exactly where the failures are. Is it in the country? Is it only at port? Is it a failure of planning? Is it a failure of coordination? Is there not enough data available? Is the system not being properly monitored so you can get the hard facts and make decisions based on the things you've actually measured?

I think it would be helpful to us if you could—if not tonight in two or three minutes, in a more detailed form—lay out where you think the others in the system are not pulling their weight. That would be useful for us to know.

Mr. Creel, for your part, I was struck by a speech that your CEO gave in New York about a month ago in which he indicated that CP was particularly sensitive—that was his word, sensitive—to some kinds of movements, intermodal in particular, where if you miss a delivery date, you miss and you lose the business because somebody else picks it up. But that same kind of sensitivity, to use Mr. Harrison's words, did not apply to coal and grain, because essentially they had no alternatives, and sooner or later the railways would move that grain anyway. Yes, it would be inconvenient to farmers, but not inconvenient to railways because they would get all the revenue and be paid in any event.

I think you would appreciate what a negative message that delivered on the Prairies, where farmers were being told that CP was not “sensitive” to their issue, and their issue was described as a “modest” problem. Farmers would think that a multi-billion dollar grain shipping failure is something more than modest.

I just wonder if you can indicate how CP can get past this rather negative messaging to farmers, and find a way forward here that really doesn't say to them, “Look. Don't you ever dare grow another bumper crop, because we can't handle it.”

Farmers want to be thinking in terms of growth and expansion, and meeting world markets, and they'd rather not be told that this is really beyond the capacity of the Canadian system to cope with. Just be average, just be an average crop. The system can handle that, but anything more than an average, forget about it, because the system can't cope with it.

[Claude Mongeau]

I can tell you one thing: at CN we moved the equivalent of 63 million tonnes last year. We can move next year on last year's assets. So we are able to surge, and we surge from year to year because grain moves up and down. It has always been like that. We've never had any crop that shattered all records the way we did this year.

I want to let Keith answer your other question, but I'll just say briefly that I'm not blaming the other sector of grain elevators. I am resisting the advocacy and the fantasies they've been using in setting expectations out there so that the railroads are being piled on. I have that in my throat, big time.

I believe that we should do better every step of the way, and I believe that is happening as we speak. What is not happening is an honest assessment of what can be done. To say they can move 14,000 carloads a week and to write that to Minister Ritz and yell everywhere that the railroads are failing and setting the expectations somewhere between 9,000 and 14,000 tonnes is irresponsible. The minute we started to ramp up—and we are just at 10,000 now—they started to say, “Oh, they're trying to flood us.” Now the speech is different. You have to send it in the right corridor at the right time. Why? Because in reality—and you will find this out, Mr. Goodale, in the next two to three weeks—with the supply chain, the grain elevators, and the railroad together, probably at the moment, with the investments we have, we'd be lucky to do 10,500 cars or thereabouts on a regular basis.

Now, the conversation would be totally different if we had the honest truth on the table. And that's the honest truth. They haven't been able to come up to the table and say so. We will have to prove it over the next couple of months. And you just watch. I gave you the facts in my presentation, and we'll keep tabs on them. That's what this supply chain is able to do, and that's where we have to grow from. We're executing every step of the way, and we're growing that to 11,000 or 11,500, but it's not a railroad problem. It's a supply chain problem.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Goodale.

We'll now go to Mr. Watson of the Conservative Party, for five minutes, please.