Agriculture Committee on April 2nd, 2014

[The Chair, Conservative, Bev Shipley]

Great. Thank you. Perfect timing.

[Mark Hemmes]

Thank you.

[The Chair, Conservative, Bev Shipley]

I'll now go to Mr. Xotta from Port Metro Vancouver, please, for eight minutes.

[Peter Xotta, Vice-President, Planning and Operations, Port Metro Vancouver]

Thank you very much, Mr. Chair.

I appreciate the honourable members giving the port the opportunity to provide comment. I'll try not to duplicate Mr. Hemmes' comments.

As members may be aware, Port Metro Vancouver is Canada's largest and busiest port. We serve as a vital strategic gateway for domestic and international trade and as a significant economic force in Canada.

We're a diversified port, and that's very relevant to the discussion around rail service, facilitating trade with 160 economies and about 130 million tonnes of cargo in the most recent calendar year. We handle that cargo at 28 major marine terminals. We have three class I railways and a full range of other facilities to support our role in international shipping.

The port is also a cornerstone, as you can imagine, of the economic activity of British Columbia's Lower Mainland, with about 80,000 folks earning their livelihood from port- and transportation-related activity.

With regard to handling of grains, special crops and feed, it's a significant part of the port's activities. In 2013 approximately 19 million tonnes were handled through the various facilities outbound to markets, including Japan, China, India, Indonesia, Italy, Colombia, and others. Those numbers for 2013 represent about a 5% increase in overall volume of these crops.

As with any commodity, the port's primary interest in the handling of agricultural commodities is to ensure their efficient flow through our gateway, maximizing available capacity at our terminals without creating backlogs or extending wait times. At present for grain loading, the port has available terminal capacity, berth capacity, and rail unloading capacity at the five separate grain terminals that operate within our jurisdiction.

As Mark has indicated, we've had a significant backlog of vessels. We operate 32 anchorages, 23 of which are available at any given time. The remainder are dedicated for emergencies or short-term use.

As of this morning, there are currently six grain vessels alongside terminals in Vancouver and 16 grain vessels at anchor in English Bay and the inner harbour. There are another 15 grain vessels currently anchored at designated Vancouver Island anchorage locations that serve as an overflow for port activity, although Port Metro Vancouver does not have direct control.

To put these numbers in context, the average grain vessel time in port is greater than 18 days today, while the other bulk commodity vessels average around six days in port. It's also important to remember that anchorages are a finite asset that require logistical rigour and proper management in order to keep the port fluid. We will be undertaking a review of our anchorage policies because of this particular situation that is ongoing in Port Metro Vancouver.

To ensure we're able to handle Canada's grain year over year and support growth in the agriculture commodity export sector, the port has worked in close cooperation with municipal, provincial, and federal governments, industry, shippers, and railways to develop and fund more than $6 billion in related off-terminal infrastructure, essentially to provide the capacity for the gateway to continue to grow across all sectors. The effect of this has been to reduce landside conflicts around the Lower Mainland, where there were points of intersection between road and rail crossings, so a tremendous increase in our capacity.

Examples of this collaboration include the 800-metre elevated roadway on the south shore of Burrard Inlet near three of our grain facilities, which went into service in December of last year. The roadway allows unimpeded rail switching across what were formerly 10 level crossings. Now, unrestricted access to those facilities can be gained by virtue of this investment. The Low Level Road project in the north shore trade area in North Vancouver is enhancing rail and port operations, as international trade continues to grow in this area as well.

One year ago, in April 2013, Port Metro Vancouver granted a project permit for Richardson International's expansion of their facility in that jurisdiction. This $200-million project involves construction of two 40,000 metric tonne concrete silos. We're also encouraging increased capacity on port lands in other parts of our jurisdiction and are working to advance specific initiatives in collaboration with industry to deal with things like inclement weather loading, where there has been significant progress made.

Other initiatives include efforts that will drive labour stability, rail collaboration, trucking and gate initiatives, and as mentioned, anchor management and availability.

Crucial to the success of these endeavours is collaboration and transparency in the supply chain. The better informed we are, the more efficiently we can plan and work.

In this context we have a profound appreciation for the importance of our role as a data collection and reporting point for industry and for government. We will continue to focus on monitoring, measurement, and reporting of data with as much transparency as possible across each of our business sectors for the purpose of informing initiatives and government decisions.

Port Metro Vancouver understands the provisions in the act under review here that will enhance the Canadian Transportation Agency's ability to prescribe elements in arbitrated service level agreements between shippers and railways, as well as provide for the collection by the agency of more data from railways.

We would further recommend requiring data collection from other supply chain partners, such as marine terminals and terminal elevators. This would allow for greater transparency into supply chain performance on an ongoing basis.

Acknowledging that market forces should be the primary drivers of capacity allocation and the need to address the current situation of significant increase in overall agricultural product volume, it is important that this type of legislation include a sunset clause, as this bill does. It's our understanding it does.

Governments and transportation sector partners, including the railways and Port Metro Vancouver, have made significant market-based investments in the Asia-Pacific gateway. Certainty of the regulatory regime is a precursor for capital investment, be it at the port or in the prairie provinces.

Anticipating the impacts that certain provisions of the bill will have on other sectors and commodities trading through Port Metro Vancouver is a significant challenge. As such, we ask the committee members, as you navigate this bill forward, to consider the long-term implications of future capital investments needed to support the growing demands of the supply chain.

In closing, the port clearly understands our role as a vital transit point for Canada's agricultural exports and in that context appreciates how our actions, performance, and the performance of the supply chain can have a dramatic effect on Canadians seeking to deliver their goods to market. It's with this responsibility in mind that we continuously review our operations in collaboration with supply chain partners to make sure that this happens.

I thank you for the opportunity to present to you today and I'm happy to take any questions that you might have.

[The Chair, Conservative, Bev Shipley]

Thank you very much for your presentation.

We'll now go to Mr. Ballantyne, from the Freight Management Association of Canada. Mr. Ballantyne is the president.

Welcome, sir. You have eight minutes.

[Robert Ballantyne, President, Freight Management Association of Canada]

Mr. Chairman, thanks for the opportunity to present to the committee tonight.

The Freight Management Association, formerly the Canadian Industrial Transportation Association, has been representing the freight transportation concerns of Canadian industry since 1916. I was not at the first meeting.

[Voices]

Oh, oh!

[Robert Ballantyne]

The 100-plus members of the association spend approximately $6 billion annually on transportation services by all modes. We advocate for our member companies' interests with regard to air freight, trucking, marine, and rail. FMA will only comment on the sections of Bill C-30 that would amend the Canada Transportation Act, and also on the government's related announcements that relate to the transportation elements in Bill C-30.

I will attempt to provide some context on how we arrived at this point with regard to rail service, provide some comments on Bill C-30, and more importantly, look at what needs to be done to ensure that the rail system and other parts of the supply chain system have the capacity to meet the future needs of rail shippers.

During the run-up to Bill Bill C-8 which amended the Canada Transportation Act in 2008, there were widespread complaints about rail service from across the country. When Bill C-8 was passed in June 2008, the government agreed to undertake an independent review of rail service. The review panel published their final report on January 2011.

One of the panel's consultants, NRG Research Group, found in its independent survey of 262 shippers that only 17% of their respondents rated their satisfaction at a six or seven on a scale of one to seven, where seven was the most satisfied. NRG also reported that 62% of shippers reported they had suffered financial consequences as a result of poor service performance. The rail freight service review panel recognized the fundamental problem, and said in its final report, “This railway market power results in an imbalance in the commercial relationships between the railways and other stakeholders.” Canadian railway law has acknowledged for over a century that rail freight is not a normally functioning competitive market.

Part of the government's response to the rail freight service review was to introduce Bill C-52, the Fair Rail Freight Service Act, which became law in June 2013. Bill C-52 breaks new ground by providing for the first time in Canadian law the right of all rail shippers to a service level agreement, and if it can't be negotiated directly with the railway, it can be achieved through arbitration. The shipper community, through the Coalition of Rail Shippers—and there are a number of our associations, some of which you've already heard from, that are members of Coalition of Rail Shippers—identified several areas where Bill C-52 could be strengthened in a way that would minimize uncertainty and give better guidance to our arbitrators. Also, some of the most significant recommendations of the rail service panel did not find their way into Bill C-52, particularly the review panel's list of elements that should be included in service level agreements at the option of the shipper.

The Coalition of Rail Shippers' proposed amendments to Bill C-52 were designed to strengthen it and make it more likely to effectively rebalance the commercial relationship and meet the government's stated objectives for the bill. The government declined to accept any of the six recommendations proposed by the Coalition of Rail Shippers. Consequently, to my knowledge at least, there have been no shipper attempts to achieve a service level agreement using the provisions of Bill C-52.

Bill C-30 provides another opportunity to revisit the shortcomings of the Fair Rail Freight Service Act. Clause 7 of Bill C-30, for example, provides the authority for the agency to extend interswitching limits “for the regions or goods that it specifies”. This amendment to the interswitching regulations will allow the agency to give effect to the government's policy announcement to extend the maximum interswitching on the prairie provinces from 30 kilometres to 160 kilometres. The interswitching regulations have been useful to shippers over many decades and are an effective surrogate for real competition. Given the current backlog of grain, this temporary provision may give grain shippers more flexibility in arranging service, and it will be available to all shippers who may have facilities located within the 160-kilometre zones that will be established.

Once a more general review of the Canada Transportation Act is undertaken, the maximum interswitching limit across the entire country should be investigated to determine if the current 30-kilometre limit should be extended.

The other significant provision of Bill C-30 that's relevant to all shippers is clause 8, which authorizes the agency to “make regulations specifying what constitutes operational terms” to be included in a service level agreement through arbitration. While it's unclear how the agency and the government will use this provision, it could be a vehicle for achieving some of the shipper amendments that were rejected during the Bill C-52 debates. FMA will certainly engage with the agency as these regulations evolve.

I'm not going to comment on the provisions related to potential fines for the railways for missing targets, or the provision that allows the Governor in Council to set targets in the next two crop years. It is acknowledged that the current backlog of grain is an unusual situation, and clearly the government felt compelled to intervene at an unprecedented level of detail.

As you've heard and you probably will continue to hear, there is concern among some of the shipper community that singling out one industry group in such a manner could cause service problems for other shippers. FMA includes among its members grain companies but also many shippers in many other industries. We've informed our membership that the targets set in the order in council and in Bill C-30 originated with CN and CPR, and we have to start from the premise that the railways would have offered those targets only if they felt they could maintain the current level of service for their other shippers.

Intervention such as that in Bill C-30 needs to be applied very carefully and only under the most extraordinary circumstances.

With regard to the future, a welcome announcement in Bill C-30 is that the statutory review of the Canada Transportation Act will be moved to an earlier date rather than its mandatory latest start date of June 2015.

Two basic issues that the statutory review should address are: one, the need to provide appropriate rail capacity for the needs of Canadian industry over the coming decades, and Mark Hemmes made some comments about the growth that is expected to take place in at least some of the agricultural commodities; two, the need to improve the relationship and trust between the railways and significantly large segments of their customers.

With regard to capacity, this will require significant investment by the railway companies, by other supply chain partners as Peter mentioned in his remarks, and possibly by several levels of government. The statutory review will provide an opportunity for an in-depth analysis of the capacity needs going forward and the role the various stakeholders should play. How this is addressed will have a significant impact on the national economy and our global competitiveness.

Last, with regard to shipper-railway relationships, it will be difficult to overcome the distrust, and to some extent, the acrimony that currently exists. In this connection, there have been informal discussions under the academic umbrella of Carleton University School of Public Policy and Administration. They run a process called critical conversation, which involves direct and confidential discussions within an academic environment among stakeholders to start a dialogue to overcome distrust. While arrangements have not yet been confirmed for critical conversations involving the railways and shippers, the planning discussions with the various stakeholders continue.

Rail service is vital to the Canadian economy, and the members of the Freight Management Association are ready to work in a constructive way with the government and the railways to improve Canadian supply chains for the benefit of the railways, their customers, and the Canadian economy.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Ballantyne.

We will now go straight into questions.

Mr. Allen from the NDP will go first, please, for five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, witnesses, for being with us this evening.

Perhaps I'll start with Port Metro Vancouver and ask for help with a statement that was made last night by one of the rail shippers, one of the railroads, who simply said there were 1,600 cars unloaded in the port of Vancouver and that the port of Vancouver was going to be part of the problem because they weren't able to do things.

Are you experiencing that type of problem? Are you not able to unload cars or not able to get them back to CP and CN so they can get them back into their system? Is there an issue?

[Peter Xotta]

Thank you for the question.

I'll probably look to Mark to provide some additional context to this, but what I was trying to frame up is that we're at an all-time low of average in store in Vancouver. There's nothing I'm aware of that is stopping us from handling a significantly larger volume, week over week, other than the points that have been made on product arriving.

This has been a very challenging winter for the railways, and we accept that there are some very legitimate reasons that it has been a challenge, but the reality at the port is that for a whole bunch of reasons, including a recent truck disruption, lots of folks are ready to handle cargo at the bulk facilities.

[Malcolm Allen, NDP, Welland, ON]

Really, they were saying it is an issue now. They weren't actually talking about their problems over the winter or anything else; they were saying they're bottlenecked now. That was Mr. Creel's assertion last night. I don't have his testimony directly in front of me, but what I'm hearing from you is that you don't have stuff stuck there at the moment.

I asked Mr. Creel to supply the committee with that particular factual information from the document. I will wait to see whether we get it.

Let me ask one more question. Either you, Mark, or Peter can answer this. I think you said it's six days to turn around other commodities to ship and 18 days to turn around a ship if it is grains, oilseeds, etc. Can you explain the differential in the timeline? We're talking six days. We're not doing a rounding off of numbers here; it's not six and a half versus seven days. We're talking three times as long.

Can you give us an explanation as to how that happens?

[Peter Xotta]

Once again, I'll offer up a view from the port's perspective.

We track vessels coming in of all varieties, and consistently with the previous system under the Wheat Board and even today, the average duration of port call for grain vessels is higher. A number of reasons for that relate to the number of terminals they might go to, etc., but under normal circumstances, the average stay at port for grain vessels is typically higher than for other commodities.

It has become exceptionally high in recent months and over the years there are periods when it has become problematic. As port volumes grow, we have not been able to identify as many additional anchorages as might be necessary to support that. In the future, it's going to become much more critical that we manage those available anchorages with increasing discipline.

The current backlog and imbalance in the supply chain is at the root, I believe, of the delays. Clearly, there are vessels available to take cargo and terminals available for that cargo, and the priority needs to be to rebalance our supply chain.

Mark, I don't know if you want to add something to that.

[Malcolm Allen, NDP, Welland, ON]

I have five minutes, and I want to get to Mr. Hemmes about some of the issues he raised.

I thank you, gentlemen, for that. Maybe someone else will come back to you about it and Mark can maybe get in.

Mr. Hemmes, you talked about the carry-out. I may have missed it, but I thought you said that you expect this to be perhaps not as good as what folks are hoping for as we go forward, with additional carry-out as we go forward, if we have just an average crop year. Was that where you were headed with that statement?

[Mark Hemmes]

Yes, in essence, if we do not see the kind of performance we're hoping for from the railways, we're looking at a carry-out in excess of 20 million tonnes. If we have that, we're going to be carrying it forward into next year, and we're going to be in the same boat next year as we are in this year. The problem is that so much of that grain is going to be old grain sitting on the farms. That's problematic because it causes a cash-flow problem for the producers. It's just taking the same problem we have now and moving it forward. What we have to do is find a way to whittle away at that.

If I might just take an opportunity to follow up on that previous question—

[The Chair, Conservative, Bev Shipley]

Very quickly, please, as we're out of time.

[Mark Hemmes]

I think I would challenge the point made about a problem with congestion in Vancouver. Our office is in regular contact with all the grain companies and the terminals in Vancouver and Prince Rupert, and I can say with certainty that they are not congested by any stretch of the imagination. Every time they get cars, they unload them as quickly as they can.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

We'll move Mr. Lemieux from the Conservatives, for five minutes, please.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you to all our witnesses.

I was at the port of Vancouver at the end of January. Let me give my thanks to Marko for showing me around. It was an excellent tour. It turned out to be very fortuitous and extremely well timed, given where this legislation is. Certainly, when we went around the port, we were looking at grain terminals and rail into grain terminals. We were looking at the overpasses as well to minimize blockages and slow traffic and congestion. At the time most of the terminals were, and I don't remember the number, but they were definitely under capacity in terms of were they full or were they not full.

Certainly Monsieur Mongeau, from CN said yesterday that they're ramping up right now, of course, to meet the targets we have set. He commented that the port is filling up. He didn't say there were any red flags yet, but certainly he tabled a concern about other players in the supply chain not being able to keep up with the delivery capacity of rail.

I wrote down some of your numbers and some of the numbers that Quorum gave us during this presentation. Do you foresee a possible choke point at the port—not now, not in the next two weeks, but I'm talking months, maybe in six or eight months—and what sort of forward planning would you do to mitigate that type of situation, should you see it starting to present itself?

[Peter Xotta]

From a port perspective I think we're the convergence of a number of supply chains across commodities. At the centre of that, of course, is rail service and nobody is better placed to do that forward planning than the commercial partners involved in that, both rail and grain terminals.

We know there is a significant backlog and a tremendous amount of grain that wants to get to the west coast. As Mark said, there's ample capacity to grow that volume substantially. We would expect other supply chain partners, including terminal elevator operators, to make every available hour available to the railways to operate. In some instances when volumes are lower, they won't work 24 hours a day; they will work eight or 16 hours a day. I think under the current circumstance we can expect they will be making all those hours available.

The other parties to the vessel loading operation, at least, and there's a variety of them, including longshore labour, are available and ready to work on demand. That requirement on grain vessels is lower than other types of activity. All partners are available and ready to work. I have no indication that we're expecting a backlog of any kind at the port, but managing that comes through the work of Quorum, and as I said, the private partners to the activity.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you. Let me move over to Mark from Quorum.

Under this legislation, you're required to report weekly. Does that pose any type of challenge for you, or not really?

[Mark Hemmes]

In terms of legislation or the order in council, we're not being called upon to report on it weekly. We'll be reporting on it monthly. No, it doesn't pose any problems. We have been reporting weekly to the federal government through this difficult period, but going forward, it will be monthly. You might be confusing that with the requirements under the order in council, and Transport Canada is dealing with that themselves to the best of my knowledge.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Okay.

Can you provide us quickly with some of the metrics that you report on?

[Mark Hemmes]

Presently what we report on is everything from the farm gate to the time that it gets loaded on the vessel, which includes the volumes in each section of the supply chain at the country elevator, on the railway, at the port, and with the vessel loading.

We report on the performance of the country elevator network, their loading capabilities, and the time the grain spends in the system. We follow railway performance in terms of what the cycle times are and what the transit times are. One of the things we do not presently report on but will be reporting on in the future is order fulfillment. Basically that's how many cars are ordered, how many cars are actually committed to by the railway, and how many are actually placed in the country, and then we'll follow that on with how many cars are actually unloaded.

We track at the port terminal when trains arrive, when cars arrive, and when grains are delivered to the terminal. We track the terminal performance, how long grain stays in the terminal, and what the dwell time is in how long terminals are taking to unload cars. We track how long vessels have been in the port. We do that in conjunction with the port of Vancouver and the other ports. We track how many times vessels berth. We also track how long they've been staying in the port and when they leave. We do track that on the railway side on a car-by-car basis, and on the vessel side on a vessel-by-vessel basis.

That's a highlight, but essentially in the grain monitoring program, there are about 240 separate measures, so I hit the top end of it.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Great, thank you.