Good afternoon. Thank you for inviting the Western Grain Elevator Association to appear. We appreciate the support of the federal government in attempting to address the serious rail capacity issues the grain industry has faced this year.
Bill C-30 sets out a framework for railway volume thresholds to be set by the Governor in Council. The WGEA believes this to be a workable structure. However, it is critical that the details be worked out properly before we can tell whether or not the measure will have the intended effect. For example, if the volume thresholds are set too low or if they don't include enough specificity, the benefits of the legislation will be diminished.
Rail service must flow to where the customer needs the grain and not to where it best suits the desires of the railway. To this end, it is very important that the volume thresholds recommended by the Canadian Transportation Agency and ultimately passed by the Governor in Council include corridor-specific numbers for the west coast, Thunder Bay, eastern Canada, the United States, and domestic movements.
It's important to reiterate that these corridor numbers must be market driven. Grain shippers and exporters will sell into the highest-value markets first, and we have customers in each of these corridors. If we don't have corridor capacity to allow access to all markets, producers will fail to achieve full value for their crop.
It's recognized that it may not be practical to establish hard numbers for each corridor and that such numbers should be treated as a practical minimum.
Legislation ultimately needs to better define the goal lines for service to influence railway behaviour and to provide adequate capacity on an ongoing basis without a connection to the political process.
To address the ongoing capacity issues, the WGEA has recommended a more specific definition of adequate and suitable accommodation and service obligations than that found within section 113 of the Canada Transportation Act, with a view to depoliticizing the establishment of capacity thresholds and taking away much of the ambiguity involved with what actually is proper service. This is something the WGEA will be looking for through the upcoming expedited CTA review process.
While volume thresholds can work in addressing capacity issues from a macro perspective, they do not provide clarity in the relationship between an individual shipper and an individual rail carrier. We presume this issue will be addressed by the new regulatory authority charged with establishing more specificity with respect to operational terms in a service level agreement.
Grain shippers are subject to unilaterally imposed railway tariffs as well as other forms of regulation, which already include shipper penalties paid to the railways for performance the railway deems to be poor.
We continue to seek the commensurate ability to negotiate and, if need be, arbitrate penalities for poor performance by the railway companies in the same way.
Provided the regulatory process included with the announcement on Bill C-30 results in clarification that operational terms include railway penalties, reflecting the way railways penalize shippers through unilateral railway tariffs, and a fair process by which to recover liquidated damages, then this would be a positive measure and would address an overarching issue that the WGEA has been trying to have addressed for a very long time.
Regarding the amendments to the Canada Grain Act, the WGEA does not necessarily object to the changes authorizing the Canadian Grain Commission to create regulations if necessary to promote fair and equitable contract agreements between shippers and farmers. However, this item is inextricably linked with the previous item: railway penalties and recovery of liquidated damages. If grain shippers can recover these amounts from the railway for lack of rail service, competition would dictate that these funds would be used the following ways: to pay vessel demurrage costs, to pay contract extension penalties to the customer overseas or wherever they may be, and to compensate producers for their inability to deliver due to lack of rail service.
Should the CGC see fit to require these elements in producer contracts without providing grain companies the ability to recover damages from the railways, grain companies would have no choice but to respond with some combination of the following: they would probably include a risk premium in their prices to farmers; they might contract with wider delivery windows or nearer-term delivery windows; or they would do more street pricing and less contracting in general.
That's what I mean when I say it's inextricably linked with the railway penalties. We need that in order to be able to properly compensate farmers.
The extended interswitching to 160 kilometres is a positive change. Every grain elevator in western Canada should have practical access to an interchange. I'm advised that interswitching can be a cumbersome process for both the railways and the grain shippers. However, this in and of itself could serve as a motivating factor for a railway to provide better service just to avoid the interswitch.
The government must keep in mind that measuring success on interswitching goes beyond monitoring the increase in occurrence of interswitching. It includes measuring the increase in service levels or added capacity at a particular location due to the elevator's now having some degree of access to an alternative.
We wish to point out that under the current railway tariffs, interswitch traffic from one Canadian carrier to another does not qualify for multiple car rates, so this could make the economics of an interchange very challenging.
The legislation has a sunset of August 2016, and it will be the decision of the government at that time to determine whether to renew the legislation or allow it to expire. Grain companies begin booking business almost one year in advance, so in August 2015 we will be in the position of not knowing what shipping volumes will be while still selling forward past August 2016. To the extent possible, we require certainty on capacity volumes well in advance.
Similarly, the bill provides for the Canadian Transportation Agency to set volume requirements starting in the peak fall period. Given the nature of our business, grain companies are currently selling grain six months and into the future. If the agency is to make recommendations to establish volume thresholds, this must be undertaken immediately.
In conclusion, we still ultimately require a permanent piece of legislation that drives correct railway behaviour without a connection to the political process. We look forward to fully participating in the CTA review process to help establish legislation that will provide balanced accountability between a shipper and a railway that withstands the test of time.
Thank you.