Thank you.
Good morning, everyone.
Thank you for allowing the Canadian National Railway Company, CN, to contribute to the committee and provide information on what has impacted the 2022 supply chains in Canada, as well as some potential next steps that would benefit all participants who move goods in and out of Canada.
CN is a major contributor to the import and export of goods for Canada. In 2021, CN moved over 5.7 million shipments of freight across its network, with over 30% of that being import or export business. Primary commodities moved for export are grain, coal, potash, propane, pulp, ore concentrates and many more. Imports are more concentrated around containers filled with retail merchandise.
These supply chains are normally in balance and follow a low-inventory model whereby products are moved close to a just-in-time model. With the beginning of COVID, these supply chains experienced significant disruptions in demand that caused many peaks and valleys for supply. The supply chain challenges really accelerated in late spring of 2022. Consumer demand was going strong and retail stores ordered substantial inventory to avoid the stockouts that had occurred the prior winter. This led to a dramatic increase in imported containers, which flooded the west coast ports. These containers then moved inland to intermodal terminals for final delivery by truck. These imports quickly filled warehouse space in Montreal and Toronto while waiting for the peak sales season in the fall. The imports soon backed up when storage filled, so retail stores left the containers in terminals, which then backed up the containers at the ports, followed by ships waiting to unload at full terminals.
With the fragmented supply chain, there was no one source of information that was occurring so that participants in the supply chain could plan and react in a timely manner.
What did CN do? First of all, I would like to highlight the role that Transport Canada played in bringing all the participants together to find solutions. CN led the charge in finding solutions where none were offered. We quickly implemented additional capacity expansions at key terminals in Montreal and Toronto. CN opened additional third party container yard storage at multiple sites in Toronto. CN also quickly leased the shuttered Valleyfield intermodal terminal and reopened it to take in trains bound directly for Montreal.
These solutions released the pressure on port terminals, allowing volumes to move from the ports to inland terminals so that the end customers could pick them up and ports continued to receive shipments. All these solutions came at a cost: CN ran extra trains, added significant overtime to terminal employees and added resources in drivers and chassis where available.
The result of these actions had the container backlog in Montreal cleared by the end of August. We just closed the Valleyfield terminal, as the current volumes are at a level that CN's Montreal terminal can handle. For Toronto containers, CN was able to clean up almost the entire backlog prior to the end of September. To be clear, this is a CN-led solution to a non-rail supply chain issue.
There continue to be delays in the last-mile delivery of containers. Warehouses continue to be full. Customers continue to use containers as interim storage with the current warehouse situation. CN is continuing to work with customers to balance terminal and rail capacity, resulting in the timely pickup of containers so that there is space for new containers to come in, as well as taking in empties to go back to ports or to other loading points for exports.
As the saying goes, the supply chain is only as strong as the weakest link. Attention must be paid to the performance of all participants for the supply chain to function optimally. I will now highlight some areas for improvement on all supply chain participants.
The first step is better data coordination and integration for all members of the supply chain. For container imports, the supply chain needs to know details as soon as the container leaves the origin port on its way to a Canadian port. This information is currently transmitted to the CBSA for customs approval. This information would provide the ports with an ETA, the container's destination so that they can place it in the port facility for either rail or truck furtherance, a description of the contents and weight for proper positioning in the train, and any preparation needed for final pickup and delivery from the inland terminal. Currently, none of this data is made available to supply chain partners.
CBSA also has older IT systems and processes that prohibit flexibility in the supply chain. While CBSA acknowledges the need and value, we are not aware of any progress on that front.
Additional infrastructure is also required. In order to handle more volume in the existing supply chains, capacity expansions must be undertaken. This includes port infrastructure, rail capacity and inland terminal capacity. If Canada wants to have spare capacity available on short-term notification, then the government will need to focus on funding this type of infrastructure. The NTCF program is a good solution for this. It needs to be fully funded and used for this infrastructure.
Canada also has one of the longest timelines to approve infrastructure investment, making it impossible to quickly adapt to a changing supply chain. In order for Canada to expand in trade, the government needs to streamline the process for infrastructure investment in Canada. By way of example, it took CN over seven years to get its Milton intermodal terminal approved. These delays threaten the agility of the supply chain to respond to emerging issues or crises.
Regulation in Canada continues to slow down or stifle investment decisions as well. Canada's national transportation policy provides that regulation and strategic public intervention are used to achieve economic, safety, security, environmental or social outcomes that cannot be achieved satisfactorily by competition and market forces. I submit that regulation has departed from that guidance and needlessly interfered with market forces that would deliver better results for the market participants and the global economy. If the need to regulate exists, it must be based on hard evidence and tailored to address real issues, rather than issues presented through a perspective of certain market participants. Uncertainties and lack of evidence-based regulation create uncertainties that deter investments in Canada versus other countries with a consistent policy agenda.
Last, the government needs to promote further automation of the supply chain while considering the ESG impacts of those changes. All supply chain participants will continue to automate while reducing the impact on the environment. The government can help in these areas by funding innovations that provide the largest impact for all Canadians. This would all need to be done with a solid implementation plan with safety embedded in every area.
Thank you.