Transport Committee on Nov. 27th, 2007

[Jeff Watson, Conservative, Essex, ON]

The Commissioner of Competition has suggested, as far back as 2001, that it was necessary to remove something like that. It is something that doesn't exist in any other economic legislation, so perhaps we view that as an unnecessary hurdle. The agency would still have to be convinced that the relief is necessary in order for it to be granted.

I want to move on to group FOA. You've suggested somehow that group FOA is adversarial, to use your term. I actually think group FOA presumes the exact opposite. If you're going to be adversarial in a group FOA, or an individual FOA, and take extreme positions opposite from each other, you stand to lose more when the arbitrator picks one solution over another. I think actually what FOA does is to force you to more common ground in the middle, so that each side is roughly pretty close. I don't see how that becomes adversarial.

You've suggested that you prefer mediation. It's still in Bill C-8. Does that mean we can expect that resolutions will happen in the mediation stage, as opposed to having to get to group FOA?

[Cliff Mackay]

I'll let my colleagues comment because they've had direct experience with this process.

[Jean Patenaude]

We wanted compulsory mediation. We wanted to force the parties into a room to talk about the issues, clarify what the issues are, understand, because sometimes with the FOA, after you've put your offer on the table, that's it, you can't change it and you're stuck with that. And if you've done that without having had the benefit of having a frank discussion with your customer, or with the customer having a frank discussion with you to see what are the limitations around what that customer is asking.... I have found mediation to be extremely useful in understanding the other side and educating each other about their concerns and our concerns.

As I said, and maybe I should touch wood, in all the mediations that I've been involved in we ended up with a good resolution and both parties left happy. But in FOA there's only one winner; the winner takes all, and to us, it's not conducive to the proper resolution of the disputes as they've been framed.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

[The Chair, Conservative, Merv Tweed]

Thank you.

[Paul Zed, Liberal, Saint John, NB]

Thank you, Mr. Chair. Colleagues, welcome.

First of all, Mr. Mackay, or “Mackaye”, as you would be called in New Brunswick--

[The Chair, Conservative, Merv Tweed]

Maybe we should get clarification.

[Paul Zed, Liberal, Saint John, NB]

It's not Mackie.

[Cliff Mackay]

I know and I come from Inverness. Somebody changed it about 200 years ago. I blame my ancestors for that.

[The Chair, Conservative, Merv Tweed]

Okay, what is it? Mackay. Thank you.

[Paul Zed, Liberal, Saint John, NB]

Well, in the Maritimes it's “Mackaye”, and it's really about the Maritimes and Atlantic Canada that I want to talk. I thought I would remind you that perhaps 200 years ago your family changed your name, but the roots of CN and CP are in our region.

One of the concerns I have, to be blunt, is that there is a focus, if you will, on the west and on central Canada, and the capacity issues of the region in Atlantic Canada are very much being driven by the perceived lack of competition and the lack of reinvestment, real or perceived, of both of the major railways in our region. The previous Liberal government started, as my colleague Mr. Bell mentioned, on these gateway initiatives and the current government has accepted that principle, and I think it's the right principle. The Atlantic gateway is something that is now on the horizon, and I want to give you the opportunity to assure me and the public and this committee that in all of this fervour to look at changes that are occurring, Atlantic Canada is not going to be forgotten.

No one is arguing against deregulation, but what I think I would like to hear from you, sir, and from the two companies you have as member groups, is a commitment that there will be a renewed focus on an Atlantic strategy for competition. I'm hearing from a lot of shippers that are very concerned. They too are afraid to speak out. It's like the banks. We're now at four or five banks. If one shipper doesn't go with CP, then CN is his only option, and CP is his only option to CN.

On the terminal operators in ports, I represent the city of Saint John, which is the deepest seawater port in the world, a very large port in Atlantic Canada. The national government here in Ottawa is looking at a gateway strategy that's going to reinvest. I'd like to hear from you about CN and CP's plans. I'd like to hear--not today--that you're going to look at an Atlantic strategy, a maritime strategy, and I'd also like to hear that you're interested in reinvesting in the region. Thank you.

[Cliff Mackay]

Let me start, and then I will ask my colleague from CN to speak, but I'm also going to ask Mr. Allen to say a few words.

One of the things we haven't talked about today is the role that short lines play in all of this, and frankly, it's a very important role, particularly in the context that you just raised, sir.

First, let me say bluntly that we are participating in the Atlantic gateway strategy. We will participate in the Atlantic gateway strategy. It is important to us, not only from the point of view of the class 1 railways, but also from the point of view of a number of short-line railways that are frankly critical in that area of the country. So I think I can say pretty emphatically, sir, that my members, the members of the RAC, do see the Maritimes and that transportation corridor as an important strategic corridor in the future.

Mr. Bell mentioned the transit times coming out of China. If you switch that and you talk about India, then you're talking about a different competitive factor going in to the east coast. There are significant time advantages to moving stuff out of India into the east coast, and I think that dynamic is going to start to play in the next few years, and it's going to be pretty important. So I think I can say broadly, absolutely, sir, that the railway industry sees Atlantic Canada as a strategic place to stay in play.

Let me turn to Jean Patenaude, and I will ask James to speak a little bit on the short-line side.

[Jean Patenaude]

For sure, we're there. We're in St. John's and we're in Halifax, and we have capacity there. Capacity is not an issue on the east coast. What we want is more business,and we are working with the ports. We are working with shippers internationally through our CN WorldWide. We have established bases around the world, and we're trying to get more capacity to be brought in through the ships to Halifax and St. John's and Montreal. We have the capacity, so we're trying to drum up the business.

[The Chair, Conservative, Merv Tweed]

Mr. Allen.

[James Allen, General Manager, Ottawa Central Railway]

Thank you, Mr. Chair.

In representing the short-line industry in this great country of ours, certainly everybody in this room knows--and I've heard all your comments about Canadian National and Canadian Pacific--there are 45 short-line operators out there who, for the most part, are mom-and-pop operators--15 employees.

In my own case, I have 33 employees, and we operate 20 minutes south of Parliament Hill.

We are dependent on the health of our shippers. We are dependent on CN and CP because we can only move traffic x number of miles. Some short lines are 20 miles. In our case, we operate on approximately 225 miles.

In Atlantic Canada there certainly is economic activity going on. That port of Belledune could be a real winner for all of us if it ever gets developed. But in terms of the rest of the country, short lines play an integral part in moving traffic. Somewhere between 25% and 30% of all traffic handled by the class 1 railways--traffic that originates or is destined--is on a short-line railway.

But we are small. People don't think we're railways. We have the same big locomotives. We have the same tracks to maintain as the class 1 railways do, but we're mom-and-pop; we're cornerstore operators.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Shipley.

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

Thank you, Mr. Chairman.

Thank you to the witnesses for coming out.

Actually, Mr. Allen, I'd like to just follow up on that, if you wouldn't mind. It's interesting that in one of the areas of my constituency right now there is a line that had been shut down. Now a short-line railway is interested in coming in and being a part of it, supported by the local county municipality because they see this as an opportunity to start to remove goods. It will likely take some trucks off the road, but obviously they want to make sure they can get their products from point A to point B so they can get on the main lines and away they go.

How does Bill C-8 specifically affect you?

[James Allen]

At the end of the day I guess the short answer is that whatever impacts the class 1 railways is going to have a huge impact on the short-line industry. We just don't have the resources, quite frankly, as I said, being mom-and-pop operators, to be able to do some of these kinds of things we've been talking about today. So we are very concerned about our ability to survive.

All short-line operators have lost business with companies that have closed down. Quite frankly, when that happens it becomes very difficult. If a short-line operator loses 1,500 carloads from one of his major accounts, you just don't make that up overnight. It may take you three or four years to get back to that level.

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

I think that's the important part because of where you take your products to hook onto. And reliability is the thing we're hearing about, the consistency of being able to have a product picked up on time when they say it is going to happen. Yet I think it was you, Mr. Mackay, who said there is actually little factual information on service, etc.

When you've known for a number of years the issues around what CN and CP have been facing, why would you not be developing a database of information along with the shippers?

[Cliff Mackay]

We have tried to do that, and we are doing that, but frankly, it wouldn't hurt to have a bit of a push from third parties. It's difficult sometimes to get shippers to cooperate in some of these things.

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

If I was in the business you're in, or any business, and I was seeing those sorts of issues there, I would be building a database so that you would have the information to come with us to substantiate your claims. I don't think you've done that.

I'd like to explore the following just a little more then. You said earlier that there is absolutely no capacity left. You also talked about the rail, that it's the system that takes it. What component of a no capacity...in terms of your having to invest $15 billion since deregulation? If you invested the $15 billion, yet you have no capacity...could you help me with that, please?

[Cliff Mackay]

The investments actually allowed us to keep up, and in some cases stay a little ahead of the curve in terms of the growth. What's gone on is that at the same time as we've been investing, the volumes have grown very substantially.

I'll give you just a couple of indications of that. Mr. Bell mentioned earlier the container traffic going through the west coast. We expect that to continue to grow at double digits for the foreseeable future—huge growth. The other one has been what's been going on particularly in the Canada-U.S. border. Our volumes continue to go up. As I said recently, we're now moving over 100 miles of trains a day.

Just to give you some sense of market share, back in the late nineties we were moving about 46%, 47% of the freight across the border, relative to trucks; we're now moving 55%, 56%. So, again, there have been shifts as a result of a whole bunch of things changing in the marketplace.

Most of what we've been doing is trying to invest to stay ahead of that curve. We need, frankly, to continue to do that. There's a lot of stuff in the pipeline that needs to be done yet.

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

I've heard that you aren't supportive of it particularly, and yet, on the other side, I'm feeling the sense that you know the bill will go, whether there will be...and in that 30 days I think you're looking forward to the option of having that review done.

I haven't seen, actually, anywhere where you've talked about the financial impact of Bill C-8 on you and what that actually would be, or if you've done any work on it to help us with what that impact would be.

[Cliff Mackay]

I can't give you any hard numbers. My colleagues may have a view specifically from a particular company's point of view, but I must tell you, we haven't tried to do a financial impact analysis of Bill C-8.

Our largest concern, as I said earlier, sir, is not so much with the specifics, although we do believe some change is necessary to the current act in front of you; it's more with the perception that may be created that we're shifting back towards regulation of prices, and that perception is something quite—

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

I think, too, what I—