Agriculture Committee on March 19th, 2018

[Sean Finn]

If I may, we have taken very concrete steps since 2014. As an example, CN's annual capital investment last year was $2.7 billion. This year it will be $3.2 billion, an increase of $500 million. We set a big number for capital. It's a great network that we're investing in, but clearly it's where you invest the capital that makes a difference for resilience and fluidity, so under the leadership of Mike Cory and Jean-Jacques, we've looked at our capital constraints and where the bottlenecks are that we can address very quickly.

You're going to see, as of this spring, reactions being made. It is true that it's somewhat reactive from what happened this fall, but the big difference this fall was this unforeseen surge in traffic that we had to address as we went along here as winter hit. It's important to realize that this year, the $3.2 billion is way more than 20% of our gross revenues, which is probably a rule of thumb for some of the railways in North America. We're investing more capital to ensure that we can address the bottleneck issues. We're hiring employees at a rate we haven't seen for many years. We are hiring for what should be many years to come.

I think the big difference compared with 2014 is that in 2014 we had an increase in volumes and all of a sudden a dip. Obviously, we didn't react quickly enough. I think this time the railroaders in the room have probably learned a lesson that we have to reinvest early on and see the trends coming earlier. Part of Bill C-49 will be this exchange of information between us, Transport Canada, and our customers to try to get a better feel for logistics planning. If we do have an increase in volume, how do we address it?

I think the best answer to your question is that the railways must invest in the network at a point to avoid the bottlenecks so we can face the surge in traffic as it comes along.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Finn and Mr. MacGregor.

Mr. Peschisolido, you have six minutes.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Thank you, Mr. Chair.

I'd like to thank our guests for being here today.

I'd like to begin by following up on the approach of Mr. Barlow and Mr. MacGregor. We've seen this movie before. I'm kind of struck by the fact that we actually have to be here. I understand that there's a bill coming out and that the Senate should act, but we have two major companies that have dealt with this issue before, and we needed a minister to come out and say, “Hey, guys, we need an actual plan out here. Get it done.”

I think the main concern is that farmers and Canadians want assurance. We have a backlog, so let's get rid of the backlog and make sure it doesn't happen again.

I appreciate the minutiae, but my question is to both lines: how can you assure farmers in a plan that you're going to get rid of the backlog and that we're not going to be here again in two or three years with other surges?

[Michael Cory]

I'll speak on our behalf. We have made considerable strides in the last three weeks since the bottoming out in February. As James mentioned earlier, everything we're doing right now—having retired employees come back, delaying vacations, hiring, leasing locomotives—is to clear the backlog.

Longer term, I'll go back to my counterpart Sean's comments about the exchange of information and how crucial it is so that we do have a better planning horizon and we can actually continue to invest in the right places. That's our commitment. We will and we are. This year, to Sean's point, is the biggest capital program we've had. Much of it is in those locations in western Canada that felt more than 11% volume growth. In some areas, it was 20% to 25% volume growth.

Therefore our focus is pinpointed, but having the right information at the right time allows us to plan better for the future. I can assure that you we will clear the backlog. Our focus is on that. We won't stop until it's done.

[James Clements]

On our side, I'd make the same comments. We look forward and continue to plan, and the more information and the more visibility and understanding of what the changes are.... We're what I'd call capitalists out here. We want to make money. Not moving demand isn't in the interests of our shareholders. We're going to go through a process to ensure that we can understand that demand and rise to the challenge and move that demand for our customers and for the economy of Canada.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

I'm blessed to represent a riding called Steveston—Richmond East, right underneath Vancouver. We had Minister Garneau in the area to announce a review of ports and Port Metro Vancouver. I spent a good chunk of the past two weeks calling and speaking with farmers in the east part of Richmond and in Steveston talking about issues relating to farming in Port Metro Vancouver. I was struck that they were talking about the movement of grain. They are concerned about what can happen to grain farmers/. It worries them.

The group of folks that I have the most trouble getting a meeting with are farmers, because they're always working. They work really hard. The farming population in Steveston—Richmond East isn't that large—geographically it's large, but it's just a few thousand farmers.

How can we as a government be helpful to you in making sure that this never happens again?

[Sean Finn]

Obviously passing Bill C-49 through the House of Commons would possibly be a good step in the right direction, first of all.

Second, I think that part of that bill will require that the railways exchange information. We realize today that this impacts not just farmers and the farming community but also Canada's reputation abroad. In the end, we have to realize that when we do this, we don't just impact our local customers but our reputation around the world, and it's important that the railways and the supply chain realize that customers around the world have choices. Canada is a great place to enter North America and to have access to two great railways, but if we can't deliver the goods, we have an issue going forward. I think there was an acknowledgement on the part of the CN board of directors, which made a very decisive step two weeks ago in changing the leadership and then within two days coming out and saying, “We realize that it's part of our DNA to move Canada's goods to the market.” This is as much as saying, “We have a role to play to ensure Canada's reputation abroad is what it should be.”

You can't just have talk. You have to make sure you deliver.

My answer to your question is that you have a commitment on the part of CN to ensure that's always in the back of our minds. All 22,000 railroaders at CN realize it's not just about serving customers; it's about serving all of Canada.

[James Clements]

In terms of what the government can do, first I'd say that we have 12,000 railroaders, men and women, who are out there tirelessly working to move all the commodities that are produced in Canada and across this country, not just grain.

In terms of how we move forward, there are some initiatives around supply chain visibility. It's not just about measuring the railways; it's creating visibility to the health of the entire chain and understanding what's going on so that everybody can make decisions that optimize the utilization of the resources that are out there, rather than just focusing on an individual rail's performance.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Mr. Chair, thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you.

Ms. Nassif, you have six minutes.

[Eva Nassif, Liberal, Vimy, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for being here in response to our request last week.

My question is for Mr. Finn and Mr. Cory.

You delivered roughly 6,000 cars of grain per week in the past two weeks. Is that your maximum capacity?

[Sean Finn]

In February, we provided grain producers an average of 3,400 cars during the worst part of the winter. We were able to increase that to 4,500 cars three weeks ago, and to 5,000 cars two weeks ago.

We clearly indicated that the capacity of the network and of the supply chain was about 4,000 cars per week in the worst winter conditions. We can see that the harsh winter is finally letting up, maybe not here in Ottawa or in eastern Canada, but in some regions. Now that the weather is not as bad, we think we will be able to systematically provide over 5,000 cars per week.

You have to consider the process. We have to provide the rail cars, then pull them and get them moving. It is not enough to put them on an elevator and hope they will be filled. Clearly, it will take a lot of work for Michael Cory's team and all our railroaders to meet the objective of delivering 5,000 cars per week in the coming weeks. If there is an incident or bad weather, that figure could be a bit lower, but we think we can do it.

During the worst part of the winter, we usually aim for 4,000 cars. In February, our average was 3,400 cars, so we did not reach our own objective in February and we will work harder to get there. We have a commitment to the market. We hope to be able to deliver 5,000 cars per week so the producers can unload their grain.

[Eva Nassif, Liberal, Vimy, QC]

I have another question that is also for the CP officials.

You had your most disappointing performance this winter. What is the reason for that? Of course you had winter weather conditions to contend with, but how did they differ from those during the crisis in 2013-14?

[James Clements]

You asked about the performance that challenged us the most, and the first thing I'd say is that we had a period of about 10 days or so in which we had a series of derailments in western Canada. That was the most challenging period of time that we had. If you look at the statistics, you'll see we really experienced a sharp drop and then a continuous sort of rebound as we recovered from the backlogs that were created there. In that period it was cold, it was snowy, and then we had multiple incidents across the network occurring in close proximity. That was really the challenge. We would have said it was episodic.

In 2013-14, I would have said we were still moving record amounts of grain. We had never moved as much grain as we did that winter in any previous period prior to that. We've subsequently done better than that, so we weren't disappointed. It was just that there was an intense focus of demand in a small period of time. Back then, we got off to a start when there wasn't demand in August. The focus of demand was different in terms of the time period that grain wanted to move, whereas this year we had an episodic event on our railway that created a backlog that we now have to work forward from.

[Eva Nassif, Liberal, Vimy, QC]

Thank you.

Mr. Cory, you said earlier that you were disappointed by the lack of people in the supply chain. Could you elaborate on that please?

[Michael Cory]

Absolutely. We're just disappointed that we're not meeting the expectations of not just the supply chain but of our customers specifically. As James mentioned, we had a pretty tough run from late October in the fall. Again, we had unprecedented volumes that were moving, but then we ran into a series of incidents that took us into some very cold weather in December and effectively shut us down around Christmastime. Around Christmastime the railways generally only shut down for 24 hours, but because of the extreme cold, we were unable to get our railway back up and going for a good 10 days, until we saw some better weather in January. Then in January, we knew we had high volumes, so we took as much action as we could, because there are lead times involved in bringing on crews and bringing on locomotives. Some of the action we took in the previous month started to come through, and then in February we had a good 18 days of extreme cold and snow, to the point where.... That was my biggest disappointment, what we did in the Prairies, because that's where the grain originates. The very northern climes are where the grain originates, and we did not have the resiliency in our network to withstand what the cold was doing, which was slowing our trains down. That's our focus, going forward.

[Eva Nassif, Liberal, Vimy, QC]

My next question is for the officials from CN and CP.

What are you doing to get the Senate to pass Bill C-49 as quickly as possible?

[Sean Finn]

I would like to clarify something. We are not blaming it on the winter. Nonetheless, when winter arrived, we were not as well prepared as we should have been, and we admit that. So that is why we announced specific measures. In particular, we increased the number of locomotives available right now and increased the number of staff. The people we hire will be with us for years to come. So I would say that the problem is not the winter itself, but rather the fact that we were not well prepared.

We have been very active in the House, including in the Standing Committee on Transport, Infrastructure and Communities. We have drafted briefs and talked to various MPs. Right now, we are working with the Senate on an ongoing basis. The Senate is clearly a different environment than it used to be, and we have to talk to various senators. At CN, we have spent a lot of time meeting with senators and explaining the issues in the rail industry, and the importance of a balanced bill for all of us. We do think it is a balanced bill. While the rail companies clearly do not like additional regulations, we have to admit that certain provisions of the bill will among other things speed up the investments that we need to meet our challenges.

Michael Cory and I have 37 and 25 years of experience in the industry respectively, so we can say that if we had the missing information, the information that is not shared, we could be better prepared.

[Eva Nassif, Liberal, Vimy, QC]

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Finn.

Thank you, Ms. Nassif.

Mr. Berthold and Mr. Barlow now have the floor.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you very much, Mr. Chair.

Let me just mention something quickly. The letter in question is actually not on the CP site in French. I looked for it for a long time, but it simply does not exist. It is on the site in English, however. Perhaps that could be checked, please.

I will now give the floor to Mr. Barlow.

[John Barlow, Conservative, Foothills, AB]

I just want to give the group a chance to answer my initial question.

Mr. Cory, you touched on it yourself when you said it takes six months to train a train crew. When we saw these numbers in October, why did CN and CP not act on this issue sooner, rather than doing these things now?

[Michael Cory]

We did. We acted on it before October, and it's not just the train crew, but locomotives as well. Then on top of that, the lead time for track capacity can be upwards of 12 to 18 months. We did everything possible we could to inject the resources, actually starting back in the late summer or early fall. Again, we were able to withstand the volume that came at us, but then once winter hit, the resources that we brought in weren't nearly as productive as they would have been if we had had them in the summer.

For us, the key is to build track capacity and resiliency, as well as to have locomotives and people, and that's what we're doing.

[John Barlow, Conservative, Foothills, AB]

Thanks.

[James Clements]

Similar to what Mike said, we started hiring crews in the fall for the training process. It is six to nine months before they're productive operators on our trains. We started in the fall, and we also started bringing on locomotives. We did have a forecast in terms of demand, but, as I think we said in our remarks, the volumes were bigger.

The other thing that happened—I would call it an event—was the failure of the Keystone pipeline, which, when it restarted, had to operate at 80% capacity. That 20% loss created a sudden spike in demand because of a change in the pricing of crude oil. That was unforeseen. We also then reacted as a result of the changes in demand that this event created.