Agriculture Committee on Dec. 5th, 2024

[Nathan Cato]

I would say a number of things in response to that.

We have an excellent track record of collective bargaining with our unions in Canada and the U.S. and now in Mexico, with the exception of the TCRC, which was involved in the work stoppage in August. In that case, 10 of the 11 last rounds of bargaining since 1993 have required intervention of some form from the federal government. When you look at our four other unions in Canada, we've had 36 rounds of bargaining in the same period of time and we've had only one work stoppage. We have an excellent record of getting agreements at the table. We very much want agreements at the table. We believe that's the best outcome.

The question is, what happens when the parties are deadlocked? When we're talking about the transportation sector, whether it's a railway or a port, it is much bigger than just a dispute between an employer and a union. The entire country's economy depends on those critical functions to keep our economy moving. It's a question of what happens to break the deadlock.

You referenced some of the union's statements around that. We were at the negotiating table trying to negotiate with the TCRC for a year in advance of that—

[The Chair, Liberal, Kody Blois]

We'll have to leave it at that.

We're over by almost a minute, Mr. Cannings, but I wanted to give some time for that. I think we got a sense of what the answer is.

We'll go to our last round. It's only about two and a half minutes because we ran over.

Go ahead, Mr. Barlow.

[John Barlow, Conservative, Foothills, AB]

Thanks, Chair.

In the opening comments from both of you—and your wording was very similar—you were talking about the concern that extended interswitching diverts jobs and traffic to the United States, and I quickly looked up the Stats Canada results. When extended interswitching was in place in the previous Conservative government, from 2014 to 2017, rail shipments from the prairie provinces to U.S. destinations were around 33% and went down during the period of extended interswitching. However, when extended interswitching was removed in 2017, the amount of traffic going from the prairie provinces to the United States actually went up to 37%, and to a similar number in 2019.

I'm just curious about that. If you're saying that extended interswitching is an unfair advantage that drives traffic to the United States, why do those numbers tell the opposite? How can you square that circle given the amount of traffic went down during interswitching and went up when interswitching was removed?

[Nathan Cato]

I would say to be cautious around correlation versus causation. I think when you look at traffic that's moved on our rail network across North America, it is overwhelmingly a function of macroeconomic conditions.

When you look at the period from 2014 to 2017, there was a period of relatively soft economic conditions followed by more robust growth throughout North America, especially in the U.S. Looking at that macro level volume, it's primarily a function of how the economy is doing.

[The Chair, Liberal, Kody Blois]

Mr. Harvey, I saw that you want to jump in.

[Eric Harvey]

Our numbers show that during that period of the pilot, back in 2014 to 2017, 25% of the traffic that originated on CN and went to the U.S. was under that measure. It's a significant number for us, because it was at this cost-based rate.

[The Chair, Liberal, Kody Blois]

Be very quick, Mr. Steinley.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

I have a quick question.

I've had a couple of discussions previously with you in my office. When you guys replace railroad ties across Saskatchewan, there are huge piles of ties. These ties are concerning for the communities nearby because if the ties ever catch fire, they're going to destroy a whole town.

I wonder what your policies are for cleaning up used railroad ties in the communities, because it is a safety concern for communities across the country.

[The Chair, Liberal, Kody Blois]

Reply in short order, gentlemen, if you could.

[Nathan Cato]

The challenge with tie removal is that there are a limited number of disposal facilities in North America. This issue needs to be managed day in and day out.

The issue is that there are limited facilities to properly dispose of the ties. It's something we need to manage. We're always mindful of community safety. We manage it as best we can, but the issue is the disposal facilities, making sure it's done properly.

[The Chair, Liberal, Kody Blois]

Thank you. I'll take the last round.

Mr. Harvey, last summer in Nova Scotia we had a major, significant rainfall event—hundreds of millimetres of rain over a short period of time—which is becoming sadly part of the new norm of extreme weather.

In my home community of East Hants, particularly in the community of Lantz, there were concerns from residents about drainage ability. Mr. Epp asked questions on that. In Nova Scotia, we don't have a similar type of provincial act that would govern that. Residents with engineering backgrounds have been conversing with CN on the size of the culverts and their ability to move water outward towards the river, and of course, if there's an inward flow, what that means.

To the credit of CN, you guys have been good about engaging, but there is a difference of opinion about whether the current infrastructure is adequate enough to manage the flow of water from the residential side. The municipality is engaged as well. I've written to CN and you guys have engaged.

If there is a difference of opinion on what should happen, is the next course of action for the residents or the municipality to take that to the Canadian Transportation Agency? Where are these things litigated? Is it the CTA?

[Eric Harvey]

I would say so, frankly. I want to say publicly, though, that before you guys move there, I'd like to have a discussion with you. If it's a question of the technical capacity of the structure to accommodate water, I suppose there's room for discussion, especially if it was recently done.

My suggestion would be that we see how it goes and that we engage collectively to try to find a.... Clearly, it's about safety for us. If the capacity is not there and there's a risk of washout, we will take the proper measures, no doubt.

[The Chair, Liberal, Kody Blois]

I'm happy to take that conversation off-line.

On the technical side, I'm being presented with information by my constituents. I'm also equally having those conversations, I would say, with some of your senior management. We'll have that conversation off-line.

Mr. Epp asked about carbon pricing and some of the associated costs. He's asked you guys to table them.

My question is for the two railroads.

You've talked about the maximum revenue entitlement. With regard to carbon pricing, beyond the cost—I'm not necessarily transfixed on the actual cost—is the entirety of the carbon price that you pay on your freight passed off to shippers? That's my question. When we have conversations with agricultural associations in western Canada, their assertion is that they understand there will be costs passed down as a result of this policy. They're saying they're in a situation where some of them should be borne by the railroads.

The concept of carbon pricing, of course, is to adjust and change behaviour. I know and appreciate that there's probably some work being done on the railroads with regard to efficiency and fuel efficiency on cars. However, if the entire price is being passed down through the supply chain, you can see how it truncates the goal of what we're trying to do, which is that some of the true cost is borne by the railroads.

Is that actually happening? Is 100% of the carbon price being passed down to shippers?

[Eric Harvey]

It's clear that a carbon tax is a cost for us; it increases our cost of operation. Yes, we have a regime in place that essentially has, as a purpose, allocating the cost of the carbon tax to the shippers that are triggering its payment. If you don't do that and say you're going to lump it into your overall costs, what happens is that much of your customer base will, for example, assume a cost that is not triggered by their shipments.

A simple example is the B.C. carbon tax. We don't charge the B.C. carbon tax to customers in the Prairies or eastern Canada who are not triggering the carbon tax in B.C. Similarly, we're not charging our U.S. customers for something triggered in Canada, and conversely, we don't charge Canadian shippers for—

[The Chair, Liberal, Kody Blois]

What I'm hearing is that the entirety of the cost paid is being passed off to shippers.

There's an argument being made here. The concept is that the cost is borne to drive innovation. If the entirety of that cost is being passed off to the supply chain, it runs contrary.... We're talking about a situation where we have just two railroads, so it does beg the question at one point of whether parliamentarians say that the entirety of the cost shouldn't be passed on; it should be a true cost borne by the railroads that does not get around the price signal, thereby reducing emissions.

[Nathan Cato]

I have a couple of points with regard to that.

First of all, we believe that rail is part of the climate change solution. Our emissions are about 75% less than moving freight by truck. One train is the equivalent of getting roughly 300 trucks off the road. We'd like to see policies that incentivize moving more freight by rail because that's part of the climate change solution.

Specifically on carbon taxes, if we're talking about grain, grain products are regulated. Our total revenue is capped in Canada for the movement of just those commodities. Part of the calculation that the agency does every year to determine the overall cap for CPKC and CN looks at changes in fuel costs.

The MRE is a cap, but part of the formula used to determine it is what they call the VRCPI, the volume-related composite price index. It's essentially an inflation calculation. One of the inputs that the agency looks at in determining that calculation each year is changes in fuel cost, including all taxes.

[The Chair, Liberal, Kody Blois]

The answer is, then, that the entirety is being passed on. I understand—

[Nathan Cato]

In the case of grain, I would say that it's recovered to the extent that we're permitted by the MRE.

[The Chair, Liberal, Kody Blois]

However, the MRE does not preclude you from passing 100% of those costs on. We can table that. I only have a bit of time, and I don't want to test any more of the patience of my colleagues.

The last piece is about interswitching. If you're Minister Anand and you're sitting with agricultural groups—and we've had them before this committee—that swear by interswitching as being an important tool, even if it's not facilitated, you know that having it there is important for engaging with both CN and CPKC. It's an important tool to make sure they try to keep costs competitive, which you guys have highlighted.

Mr. Cannings talked about whether the maximum MRE keeps costs down for the U.S. piece, but if you're Minister Anand, would you simply be saying...? I'm sympathetic as the chair of the agriculture committee about the fact that there's not reciprocity, that you as railroads don't have access. Would the argument not be—maybe through an extended pilot beyond 2025 to allow for more data—to make the simple change that the American railroad does not have the same 160-kilometre radius into Canada and that you guys in the agricultural community continue to have the 160-kilometre, short-term interswitching benefit, competing among yourselves as Canadian railroads?

[Nathan Cato]

There's significant data to make public policy decisions about this policy. It's been two and a half years since the previous time it was in place. We're now more than a year into this second pilot project. We report all the data to Transport Canada, so they have all the data about how it's being used. It's the same pattern we're seeing with this second pilot.

We would encourage the committee to look back at David Emerson's analysis on this in his 2015 statutory review report.

[The Chair, Liberal, Kody Blois]

How often has it been used? Do you have the number for how often it has statutorily been used under the pilot right now? If not, could you table it with the committee?

[Nathan Cato]

The specific number for a specific carrier can be commercially sensitive. What I can say is that it is being used, but it is only being used to transfer traffic to the BNSF, in our case, at Coutts, Alberta.

[The Chair, Liberal, Kody Blois]

I can appreciate that it's commercially sensitive, but is there any sense of that? “Very limited” is what we've heard.

[Eric Harvey]

No. I can only echo my colleague at CPKC.

[The Chair, Liberal, Kody Blois]

Thank you, colleagues.

To our witnesses, thank you so much for your work on the railroads. Obviously, it's a very important sector. Thank you for taking the time today to engage in this study.

Colleagues, we're going to break for about a minute. We're going to have our Transport Canada officials come up and we'll start the second round, which will be truncated.

The meeting is suspended.