International Trade Committee on Oct. 23rd, 2012

[The Chair, Conservative, Rob Merrifield]

I thought that's what you said. It's just for the record.

I want to thank the committee for their questioning. I want to thank our witnesses for coming forward. We certainly appreciate your testimony as we continue our study.

With that, we will suspend the committee and bring forward our next panel.

Thank you.

[The Chair, Conservative, Rob Merrifield]

I want to call the meeting back to order.

We are in our second round. Our time is right. We have three presenters with us. From the Railway Association of Canada, we have Michael Bourque, Bruce Burrows, and Robert Taylor. We want to thank them for being here. Also, from the Canadian Association of Importers and Exporters, we have Joy Nott, who is the president. Thank you for being here. By video conference, from the British Columbia Trucking Association, we have Louise Yako.

Louise, can you hear us?

[Louise Yako, President and Chief Executive Officer, British Columbia Trucking Association]

I can, thank you.

[The Chair, Conservative, Rob Merrifield]

You are coming through loud and clear, so we are all set to go.

With that, we will turn the floor over to the Railway Association of Canada. I imagine Michael will be doing the presentation.

[Michael Bourque, President and Chief Executive Officer, Railway Association of Canada]

Yes, thanks very much.

I am Michael Bourque. I am with the Railway Association of Canada. We are the voice of the Canadian rail industry. We like to say we are moving people, goods, and the economy. The reason we say that is that our large class I carriers—CN, CP, and BNSF—operate on more than 45,000 kilometres of track, which is larger than our national highway system. We represent over 40 short-line private railroads that contribute a quarter of the traffic carried by class I carriers. We also represent passenger railways, including commuter, tourist, and inner-city railways. We keep business moving. We improve productivity while reducing congestion, and we enable people from around the world to witness our beautiful country and drink our excellent wine.

I have five slides here, so I will move through them very quickly, given the short amount of time there is. I will go to the second slide.

Rail business in this country is handling 75% of all surface traffic. I should add that we do so while emitting 3% of the greenhouse gas emissions in the transportation sector. That's a pretty good deal. We move about 60% of the volume of GDP.

In 2012, railways are expected to invest more than $3 billion in infrastructure, rolling stock, and technologies. That's about 20% of revenues. Even through the recession, we have continued to invest in this country. I would challenge you to find another industry that is investing so much in infrastructure.

The graph is very interesting. You will see that intermodal is a significant piece of the pie. Let me explain that. Intermodal means we are using more than one mode to move products. The reason for the growth is container shipments. For example, the port of Prince Rupert has grown from moving one container in 2007 to an expected 550,000 containers in 2012. This is not just import business. This is significant export business for Canada. Some $5 billion in exports from the port of Prince Rupert is expected this year.

[The Chair, Conservative, Rob Merrifield]

Was that $5 billion?

[Michael Bourque]

Yes, it's $5 billion.

In terms of broader transportation trends, the number one global trend in transportation is supply chain integration. What this means is the interoperability of hard assets, which is infrastructure; connectedness, which is making sure that everything works together; funding of joint projects, such as we've seen at ports; cross-border harmonization, which is also something we're active on here in Canada; information technology and systems that can talk to one another to get information; and work practices and safety. We also have, related to that, things like P3s, various policies, regulations, red tape, and so on.

Part of this supply chain infrastructure issue is capacity. I always like to point to the Keystone pipeline lesson. If you don't invest in that infrastructure, at some point you will have more product than capacity to deliver it. It's important to have adequate infrastructure for planning in advance.

This leads me to my bottom line, which is that railway supply chain enhancements are going to be critical for enabling the $650 billion in new resource development planned over the next 10 years in Canada. That's a really important number to keep in mind—$650 billion. That's a big number.

Turning for a moment to the economic partnership with Japan, I can start by telling you that our top exports to Japan are coal, seeds and grain, minerals, livestock, and forest products. The top imports, not surprisingly, are automobiles, auto parts, construction machinery, computers and information technology, and various machinery and manufacturing.

You can see on this chart from Canadian Pacific Railway that 39% of its revenues are from global shipments. This is significant growth for that company. It's more or less the average for the industry, which shows that we're really moving from a north-south trade pattern to very much an east-west trade pattern. That is consistent with a focus on the supply chain overall and on supply chain partnerships.

The bottom line is that rail can facilitate growth in Canada and can support the agreement's objectives.

I'll end by asking a question. Will Canada be ready for its success?

In 1972, Walmart had $44 million in sales. Because they had ambitious plans, as do we, by 1992 they had $44 billion in sales. Today they are the number one importer into North America.

We have to be ready for an order of magnitude of success in this country. To do that, we're going to have to keep in mind that you have to deliver your product. To do that, you have to have the infrastructure in place. That's a very complicated thing, as I mentioned, with supply chain integration. There are a lot of aspects to it. What really underlies it all is supply chain collaboration.

That's my presentation and I'd be happy to take any questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

That kind of optimism is contagious and exciting, and we're going to hear a little more of that from the Canadian Association of Importers and Exporters.

Joy, the floor is yours.

[Joy Nott, President, Canadian Association of Importers and Exporters]

Thank you, Mr. Chair, and members of the committee, for giving us the opportunity to present today.

My name is Joy Nott. I am the president and CEO of I.E.Canada, otherwise known as the Canadian Association of Importers and Exporters. We've been around for about 80 years. Our members include importers, exporters, Canadian manufacturers, retailers, and supply chain service providers. Our members in total employ over a million Canadians and in 2010 generated $270 billion for the Canadian economy.

In brief, I.E.Canada very strongly supports an EPA with Japan. That said, there are strategic considerations that must be taken into account when Canada considers signing either an EPA or a free trade agreement, an FTA, with any country. It becomes even more critical when we look at doing it with an economy such as Japan, which is so well developed.

In the world of business, supply chains are integrated. Business people don't really differentiate between an import and an export. It's one continuous flow of materials, components, and finished goods until it actually hits the end consumer. Unfortunately, traditional government structure and policy doesn't match that business reality all that well.

In government, import and exports are generally viewed as two discrete operations where imports are generally considered bad for the economy and exports are generally considered good for the economy. In today's global environment with the supply chains integrated the way they are, that's not really the case any more for business. In fact, I think it actually hurts Canadian companies when the philosophy is that imports are less than favourable for the Canadian economy, because no Canadian exporter can successfully export without importing at least something for the manufacturing process.

To illustrate even further, imports and exports are also governed by two separate ministries of the Canadian government: exports by the Department of Foreign Affairs and International Trade, and imports by the Department of Public Safety under the Canada Border Services Agency.

Canadians would be well served if there was a single body that was tasked with overseeing both imports and exports. If you're wondering what this has to do with Japan, I'm getting there.

Japan and the Japanese are very sophisticated traders. They are well versed in the world of global trade. They are very successful business people. If we are going to enter into agreements with countries such as Japan, once again I need to clearly state that the Canadian Importers and Exporters Association and our members have made it very clear to me that they are fully in support of this agreement with Japan and other agreements that are currently being negotiated and discussed.

That being said, as a colleague of mine said when testifying to a Senate committee in late September on Bill S-11, the devil is in the details. I have two very quick examples here, one where under Bill S-11 there are going to be requirements that products manufactured for export comply with Canadian regulations and if they don't comply there's going to be potentially a prohibition to export. What that accidentally does is it prohibits Canadian-made goods from entering foreign markets.

The second example I have is an issue that has been recently resolved, but I think it's a really good example of what we're talking about. Both Canada and the United States, along with other developed countries, are signatories to something called the Wassenaar Arrangement. It's a treaty that ensures sensitive goods are controlled for export so that they don't end up in the wrong hands.

On October 3, 2008, the U.S. allowed, and I'm going to call it an exception to this agreement, companies to transfer information intra-company among each other between countries without having to go through a formal process of applying for paperwork. It took Canada three years, nine months and 28 days to catch up, and we're both signatories to Wassenaar.

What does that have to do with Japan? Japan is a very sophisticated global trader and the message that I'm here to deliver today is that while we are fully in support of this sort of thing, we think there is definitely the opportunity to start looking at importing and exporting in Canada strategically, as opposed to two discrete operations. Business doesn't look at it that way and to ride the wave of optimism of my colleague at the other end of the table, I do think we need to be prepared for success.

If we're going to be successful and if we're going to actually enter into the trade agreements that we're currently negotiating, we have to get ourselves in a more strategic mindset so that we look at imports and exports, the general flow and what's good for business overall, as opposed to two discrete processes. Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we will hear from the British Columbia Trucking Association. Louise, the floor is yours.

[Louise Yako]

Good afternoon. I would like to thank the committee for the invitation to appear today.

As you know, I am Louise Yako. I am the president and chief executive officer of the British Columbia Trucking Association. Our association represents about 1,200 fleets offering a variety of freight transportation services.

The Trucking Association does not have any particular expertise to provide on trade with Japan; however, our association can comment on the ability of the trucking companies transporting containers, also known as drayage carriers, to accommodate increased container volume through the Asia-Pacific gateway.

About 50% of container movement in the Vancouver region is by truck. Our association represents about 25% of the drayage carriers that operate about 50% of the trucks licensed by Port Metro Vancouver. This licence allows drayage carriers to operate to and from the four marine container terminals located in the Vancouver area.

Today's system faces a number of challenges. First, three of the four marine container terminals are at, or near, maximum capacity for daytime truck reservations. When maximum capacity is approached, the amount of time a truck spends at a terminal is less predictable and often longer. This is a problem because many truck operators are paid on a per-trip basis. Longer waits for service means fewer trips, which translates into lower compensation. Poor compensation has historically led to service disruptions in the Vancouver region.

To address increasing demand for service, some marine container terminals are now providing intermittent nighttime service for trucks. However, night gates are not well utilized because there is no coordination among the marine container terminals or with off-dock facilities. Off-dock facilities load export containers, de-stuff and distribute imported goods, and store empty containers. If these other facilities aren't open, trucks can't maximize their productivity, so are less likely to work at night.

There's no direct business relationship between marine container terminal operators and drayage carriers. Terminals contract with shipping lines, while cargo owners or their agents generally contract with drayage carriers. Where drayage and terminal interest converge is their mutual desire to move containers on and off the terminal as quickly as possible, but when terminal resources or space is limited, trucks will always come last. From a terminal perspective, that's a rational decision. From a supply chain perspective, it may not be.

Drayage trucks are not as efficient as they can or should be because current terminal reservation systems inhibit the scheduling of what we call double-ended moves. This means that many trucks either arrive or leave terminals empty. This is an entirely fixable inefficiency that will help the supply chain handle increasing container volumes.

Unnecessary truck movements are upsetting to communities and result in other unintended negative consequences, such as increased emissions. Community support and understanding is fundamental to growing the gateway. Improving truck efficiency will help to address community concerns.

We've ended up with today's system because historically, each participant in the gateway has made independent decisions without considering the impact of these decisions on the entire supply chain.

The good news is there is recognition that the current practices are no longer adequate as we approach maximum capacity. Our system will only be as efficient as its weakest link. The Container Drayage Leadership Team grew out of this recognition. The team is composed of senior executives from the three terminal operators, the Chamber of Shipping of British Columbia, the Western Canadian Shippers' Coalition, Port Metro Vancouver, and the Trucking Association.

Our mandate is to identify, communicate, and implement system-wide efficiencies as they affect trucks, while consulting with affected constituents. If this voluntary process is successful, servicing the additional volume created by an economic partnership with Japan is entirely achievable and would be welcomed. If it is not, we may need to consider other measures to achieve a more efficient Asia-Pacific gateway to accommodate increasing trade volumes.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now go to questions and answers. We'll start with Mr. Sandhu.

The floor is yours.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you to all the witnesses for being here today. I'll direct my first questions to Ms. Yako.

I'm from the Lower Mainland myself and we've had discussions around the issues that pertain to the trucking industry. With a free trade agreement with Japan, we've heard from the railway industry that there's a chance there will be a growth in the container trade that will benefit Canadians overall.

You mentioned some of the significant challenges facing the trucking industry and also the movement of goods out of the ports that the trucking industry is feeling. We know there are delays. These delays haven't only been happening in the last five or ten years, delays at the ports have been an ongoing issue. We've had a number of disruptions at the ports.

What can the federal government do to help resolve this ongoing issue of delays and inefficiencies in the system?

[Louise Yako]

At this point there are no performance standards that are applicable to marine container terminals, and there doesn't appear to be a way for Port Metro Vancouver, the landlord of those marine container terminals, to require performance standards.

If we're able to improve truck productivity, one way to do that would be to require terminals to provide service within given timeframes, and if those timeframes aren't met there would be penalties associated with that. That's a normal way of doing business. That's certainly something the federal government could help incent.

[Jasbir Sandhu, NDP, Surrey North, BC]

Performance indicators are certainly something I want to ask the witnesses about from the railway unit.

There is another issue you brought up and it is also mentioned on your website. It is the issue around traffic congestion in the Lower Mainland and how the movement of goods is restricted and adds time and cost to moving those goods.

What do you think needs to be done in the Lower Mainland to alleviate some of that pressure of congestion?

[Louise Yako]

If we're able to spread truck movement, particularly to non-peak hours—afternoons, evenings, nights—that will certainly help with congestion. At the same time—and I know you know this, Mr. Sandhu—we are in discussions with TransLink and with other government agencies to help incent individuals to use public transit, and to encourage the use of HOV lanes.

I think there are other policy incentives that could be put into place that would reduce the use of private passenger vehicles, that form the greatest part of traffic movement today.

[Jasbir Sandhu, NDP, Surrey North, BC]

Beyond the expansion of transit, that would certainly go a long way to reducing that congestion. Canada is the only country in the G-8 that does not have a national transit strategy.

Do you think that providing a national transit strategy is something the federal government should look at so that we can move single vehicle occupancy off the highways and into a more robust transportation system that would move people throughout the Lower Mainland?

[Louise Yako]

I think that's part of the solution. I've been trying to figure out how to increase double-ended moves for container trucks, how to improve efficiency through long combination vehicles. There is a whole series of things that can be done that would improve traffic movement in the Lower Mainland.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you.

I only have a little bit of time so I'm going to put a short question to the railway people.

Right now we have a big problem in that farmers are having great difficulty transporting their products on our rail system. We've heard that in our committee. The number I have is that more than 80% of all service commitments for agriculture rail customers are not met by all the rail companies.

With an expansion of trade with Japan, you mentioned there will be an increase in the container traffic and in the goods going out of the Prairies as well as from eastern Canada. Can you describe the problem that farmers have indicated they have? What is the issue?

[Michael Bourque]

First of all, the number doesn't sound right to me. If you would like an accurate picture of service from the railways, I'd refer you to the Canadian Industrial Transportation Association, which is the association of shippers.

[Jasbir Sandhu, NDP, Surrey North, BC]

Let's not worry about the number. We've heard testimony from farmers and agriculture associations, and they clearly pointed out they had some difficulty in getting their product on time. What seems to be the problem?

[Michael Bourque]

I'm not sure we have a problem. I was about to say that we don't have a perfect record in service, but our service improvement has been drastic as measured by the shippers themselves. It has improved by 46% since 2009, and it's now at about 73% satisfaction. It's difficult for me to break it down by commodity group, but I'll use canola as an example. We're moving tremendous volumes of canola. Those products are reaching ports and reaching markets. We're not hearing any dissatisfaction from those customer groups directly.

[The Chair, Conservative, Rob Merrifield]

As a prairie farmer from the west, I can tell you that the movement of product has never been better than this year. The removal of the Wheat Board certainly helped. I know Wayne Easter will be encouraged to hear that.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, witnesses.

On moving people and goods, will Canada be ready for the success? Will the rail association be ready for the success? I agree with you. I think with the route that Canada is on, with our development of economic agreements and trade agreements in strategic locations around the world, that will develop beyond those hubs, and it is going to lead to a significant amount of success. The challenge is that Canada is a large country with few people and a transportation system that has to run from one coast to the other.

I recognize from your chart the amount of money you put in. I look back in terms of developing infrastructure. A few years ago, CP was tearing up tracks. In Ontario, it had become an issue. It took up double tracks, left one, and then put sidings on it.

I'm wondering what your plans are to improve that type of transportation. What are your goals? Is one of them to rebuild those again, to increase the flow from the United States, and to get more manufactured goods out of our ports?

[Michael Bourque]

What you've seen over the last 10 years is a significant transformation in the rail business. It wasn't that long ago that CN was a crown corporation. What we've seen is there have been investments. Yes, some of those rail lines that are no longer used unfortunately end up being decommissioned, but at the same time there are new rail lines starting.

There are rail lines in Saskatchewan that have just started up. They're moving shale oil. That's the nature of the market. Where there are goods that need to be brought to market, people find a way. As a country, we need to give some serious thought to how we hold onto those rail lands so that when they are needed for future use, whether it's for mining in northern Ontario or other reasons, we can use them.

I think we are very much ready for growth. This more or less addresses some of the issues brought forward by Ms. Yako. The truckers are currently experiencing problems related to capacity. We are operating 24/7. We have collaboration agreements with ports and terminals, and others in the supply chain. We are sharing information on dwell times and how to reduce them.

If you were to talk to a CEO of one of the major rail companies, he'd tell you that he's getting that information on his BlackBerry every day. That's the level of collaboration that allows that growth.