Agriculture Committee on March 19th, 2018

[Lloyd Longfield, Liberal, Guelph, ON]

Okay. CN, go ahead please.

[Sean Finn]

If I may, obviously with Bill C-49 being in the Senate, CN's position is very clear: pass it as soon as possible. The benefits are probably twofold.

First of all, it will provide additional tools to our customers to hold the railways more accountable, which is not a bad thing in and of itself. I think we're all here today because we recognize that we have to be a lot more accountable to both Parliament and our customers.

Second, when talking about investment, there's no doubt that this will allow us to better prepare, to Mr. Barlow's question. A lot of provisions in Bill C-49 require that we provide additional information, but Transport Canada can help us, obviously, to better forecast and better plan our demands—not alone, but with them.

I think the investments are required. Therefore, as we better understand the weaknesses in the supply chain, we as a railway can help invest in the parts we have to invest in and, more importantly, realize that we're only as strong as our weakest link. Obviously, there are weak links in the supply chain. We can't just hide behind them. We must address them together for the benefit of farmers and Canadian markets.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Finn.

To compare to the solution last time, the previous government was putting in place an order in council, with threats of fines and punishment for not meeting service requirements. What effect did that have on the overall volumes?

[Sean Finn]

In 2014, as we had the order in council, CN committed under the order in council to move x tonnes of grain on a weekly basis. Obviously, when it came into effect in March of 2014, the weather broke two weeks later, and all the grain was moved before the end of the crop year. We use this argument at CN: press releases don't move grain; people and our locomotives do.

[Lloyd Longfield, Liberal, Guelph, ON]

Right.

[Sean Finn]

I guess the same idea would be that orders in council don't move grain; doing that requires that the railways face the issues up front and do so in a very organized fashion.

Obviously, in 2014—you can debate whether it was required or not—as soon as the weather broke, both railways started moving their grain. We didn't stop until the grain crop was over at the end of July. That's probably a good example of it not being the order in council that provoked us to move more grain; it was the fact that the weather broke and we could make longer trains to serve the farmers and customers in a better fashion.

[Lloyd Longfield, Liberal, Guelph, ON]

I'm originally from Winnipeg. I did some work on hydraulics and pneumatics in the western yards, in the Symington Yard, and I worked in the Transcona yards. There are ways of getting compressed air through brake lines when it gets cold, but there are constraints on contraction between tracks and wheels and equipment.

Could you speak to what might have been done in terms of putting intermediate compressors within the car system, things that you might have tried in order to solve the technical part of cold temperature operation?

[Michael Cory]

Do you want me to go first, James?

[James Clements]

Go ahead.

[Michael Cory]

We have been investing in mid-train remote distributive locomotives for the last many years, as have my friends at CP. The ability to place that air compressor in the middle of a train allows you to continue to run the same length you run all year round.

On top of that, what we've built in-house over the last few years are air compressor boxcars, and we're going to increase that fleet by 50%. Incrementally over the last few years, we've really focused on ways to reduce the number of issues we have due to air compaction, as you say.

[Lloyd Longfield, Liberal, Guelph, ON]

This is unique to Canada, you could almost say, and maybe parts of Russia. Are there any comments on how Canada is leading in innovation in this area?

[Michael Cory]

We're not doing it well enough, but yes, absolutely.

[Lloyd Longfield, Liberal, Guelph, ON]

Further investments are required.

[Michael Cory]

Yes. We fully understand that three to four months a year we have to deal with this issue, and we will not be sitting back at any given time and not taking the necessary action—and not just necessary action, but trying to innovate and trying to use whatever technological means we can to reduce the amount of not just complexity, but the effect that severe winters have on the nature of the railroad itself.

[Lloyd Longfield, Liberal, Guelph, ON]

Very quickly, Mr. Clements, maybe we could bridge into.... We have a motion on the floor and we're going to begin a study on getting to $75 billion in exports and needing new technology. Rail will be a part of that. Do you have any quick comments?

[James Clements]

Yes, I have a couple of quick comments. We made the call for the national trade corridors fund, and I think you have to look at Vancouver and what the opportunities are to continue to enhance the capacity at that end of the supply chain. That's going to be one of the most critical components, so as we said in our remarks, we would encourage looking at investments that will reduce that bottleneck.

For CP, one challenge we have to think about is that we have West Coast Express, a commuter rail operation that shares our line between Port Coquitlam and the waterfront. It's very valuable capacity, both for the passengers who utilize that service and for rail. How do we enhance the capacity in that corridor?

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Clements.

Thank you, Mr. Longfield.

Mr. MacGregor, you have six minutes, please.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you, Chair.

Thank you all for appearing today.

Four years ago, over the winter of 2013-14, we had a similar situation. I believe you appeared before the committee then. I just want to know what lessons you learned from that incident. If you did learn them, why are we here again asking you similar questions?

[James Clements]

I can start.

One of the biggest challenges we had was how we work with our customers and communicate in terms of creating expectations and an understanding of capacity. We had what we called an open-request system for car orders back then, and the numbers that people brought to this committee, I think, showed we were 120,000 orders behind. We felt that was a very ineffective way to express what was going on with our network, and it also didn't align with stakeholder interests.

Today 80% of our grain volume moves in what we call the dedicated train program. We feel that's very innovative in that it aligns our interests with the customers' interests. They actually control the cars that are in that train, so if they can get a car unloaded more quickly, it's back at an elevator more quickly. Then obviously we also have a component in there that we have to deliver.

That innovative contract also does have reciprocal performance penalties in it: we've made commitments to our customers about what we're going to do with that train set and they've made commitments about how they're going to fill and use that set as well. That is a major change in the system, and we feel it gives the participants in the supply chain a better understanding of how we work.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Is there anything from CN?

[Michael Cory]

We're exactly the same, in that 90% of our grain business is contracted. To James's point, reciprocal penalties are in place. The idea is to make the best use of the capacity in the fleet.

The one thing that we continue to learn is how to understand our capacity and resiliency better, and again I go back to the unprecedented volume increase, which really focused our attention on having a much more robust forecasting capacity model. That's what we're working on right now.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you.

Both of your companies have stated that you're in the process of hiring new crews and leasing or buying new locomotives. Since the last grain crisis, what has been the net trend for both of your companies in terms of the number of locomotives you've operated and the crews you've retained? Have we seen dips? Now that you're reacting to this again and having to rehire, I'd like to know the net trend over the last four years.

[James Clements]

I don't know the absolute net trend from 2012 until now. CP went through an unprecedented change in our operating model, with precision schedule railroading. You can't compare how CP was operating back then to how we're operating now. We've made vast improvements in our efficiency and effectiveness. In the last couple of years we had a period of declining demand, and as it has been rebounding, we have been adding back locomotives in a fairly significant way over the last couple of years.

[Michael Cory]

We're not a lot different. We had six quarters of either flat or decreasing volume demand. I can't really give you information on retention; however, our focus is to be ahead of that curve and to not get caught as short as we have been.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

I represent a riding on the coast of British Columbia, and this issue is going all the way to the coast. All around my riding in the Gulf Islands, we have tankers at anchorages that are very rarely used. If you look at English Bay in Vancouver, you see it's chockablock full, so this issue is going all the way down to the west coast.

You've been saying that if Bill C-49 is passed, you pledge to do better and you're investing in this. It seems to be very reactive to the situation at hand. I'm wondering if we'll be in this situation in another four years and we'll have to ask you to come again before the committee.

Yes, you know that at -25° you have to reduce your speeds and decrease the length of the train, but anyone who lives in Canada in the winter knows that we have this weather on a regular basis. You know the long-term trends of what our country is hoping to do, which is that we're hoping to increase our exports, but we're still operating in that same environment. I want to be assured that we won't revisit this situation in another four years. I hope that instead of being reactive to the situation at hand, you'll be very much proactive so that in 2023 we don't have to repeat this same exercise.