Transport Committee on Nov. 29th, 2007

[Marta Morgan]

We have had two problems in recent years. First of all, incidental tariffs have increased randomly. The act as such provides no options for shippers who want to challenge these tariffs, because one shipper cannot bear the costs resulting from final offer arbitration. That would not be worthwhile, from a financial point of view.

In addition, as Wade said, sometimes the tariffs themselves are not the problem, but the way that they are applied. For example, the issue of demurrage has posed a problem in terms of service in recent years.

I will continue in English.

The shipper will order a certain number of cars that the shipper will be prepared to unload at a certain time and will have crew there and shift on. They won't receive the cars that they ordered. They'll receive the cars on a different day, perhaps all bunched up, perhaps what they ordered, perhaps more. And there are charges associated with the cars, once they arrive, if you don't unload them in a certain amount of time.

It is the combination of the tariffs and the way that they are applied. On these issues, shippers have had no recourse under the existing legislation.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you for appearing today.

As you may be aware, the Railway Association of Canada appeared before the committee on Tuesday. I understand the reasons for your tactics in terms of wanting to get something done here, especially with the short window of potential Parliament that we have, and this could be lower hanging fruit, so to speak, of revitalizing our rail industry and relationships. But they actually identified three sections that they wished to have changed in this bill if it were to go forward. Maybe I can get your comments on that.

The first was clause 1, the repealing of subsection 27(2). They're asking for that to be retained in the current act. In clause 3, they're identifying that it's too vague and would like to have more definition about that. Then, clause 7, which is FOA--final offer arbitration--they're saying is unnecessary. Second to that, if it does exist, there should be a certification process.

Perhaps I can get your comments on those three elements and whether you're still continuing with your position of having the bill adopted in its current state without amendment.

[Robert Ballantyne]

Yes, that is our position, that's our preferred position, that the bill be passed as written. I do understand there are, for example, several administrative issues that related to the timing of this bill and Bill C-11, which has become law. That will mean there will be some technical changes, and that's of course understandable. In terms of the issues of substance, yes, we think that clause 1 of the bill, which deals with subsections 27(2) and 27(3) of the act, should be repealed. This is something that, as I recall, was recommended by the statutory review committee back in 2001. We think this is a hurdle that is particularly difficult because “substantial commercial harm” isn't particularly well defined, and our understanding is that the Competition Bureau doesn't look favourably on these kinds of provisions. So we think the repeal of that is fundamental and very important.

With regard to clause 3, we think the wording is fine the way it is. It's clearly meant to deal with charges other than what would commonly be called the freight rate or the charge for the movement of traffic. So we think this covers it off all right, but I would assume that when the Transport Canada people come for the clause-by-clause next week they'll do whatever they feel is appropriate there. We've had some discussions with them about the kind of change they want to make, and while we would prefer to see it left the way it is, they'll play it however they think is appropriate.

I'm sorry, on your other point...?

[Brian Masse, NDP, Windsor West, ON]

The final offer arbitration they are claiming is unnecessary, and then if it does exist, what they would prefer is a certification process that should apply equally to all. That's what they say.

[Robert Ballantyne]

As I was responding to Mr. Volpe, first of all, we think it is necessary, fundamentally necessary. If somebody had to say to me which is the most important provision in the bill, I would say probably this one. They're all important, but if you pushed me, that's probably what I would say.

For reasons that Marta has mentioned, the issue of group FOA is useful, or it would be useful to shippers just from the sheer cost of mounting an FOA. Sharing the costs is an important issue especially for smaller shippers, and also there's some obvious strength in numbers in making the case that it applies to more than just one company.

As far as a formal registration process is concerned, as mentioned to Mr. Volpe, we think the administration of the provision by the agency is really simple enough and straightforward enough that once a complaint is filed on behalf of a group who will all have to be identified, and the nature of the complaint, how it applies to the group will be evident within the complaint itself. Therefore we think the agency can make a judgment as to whether the group is a legitimate group or not, without a formal registration process.

[Brian Masse, NDP, Windsor West, ON]

On another note, while you're here, I do want to ask, with regard to the study, what are the things you primarily want to get out of the study in terms of objectives right now? Maybe you can highlight those things you'd like to see come forth from the study.

[Wade Sobkowich]

Sure I can.

This study is extremely important to us. We view the changes in the bill as a very good move to balancing out the power of the railways and giving the shippers more of an ability to challenge a problem after it's happened. We view the railway service review as trying to get in front of problems before they occur, and the main objectives we have in a review of railway service would be.... I'm just going to read them here. It says:

To end inadequate service provided by railways to freight shippers, as defined by shippers, by correcting: inadequate car supply; for example unreasonable shortfalls between cars requested by a shipper and cars supplied by the railway company serving that shipper; unsatisfactory performance in the transit, spotting and switching of loaded or empty cars; and unsatisfactory and/or unreasonable provision and application of railway ancillary services in spotting, pick-up, carriage, storage and delivery of loaded and empty rail cars.

Those are the three objectives supported by our coalition in that review.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Jean.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

Thank you very much for coming here today and providing evidence.

Seventeen industry associations, 80% of CP and CN revenue.... What I'd like to talk about today is just a little bit of information about how you got here, the process that brought you here.

I heard the list of shippers, and I can imagine your memberships are very extensive. Did you just bring this forward in the last couple of months, or is this something you've been working on for a period of time? How many people were involved, and how much debate was done by your organizations?

[Robert Ballantyne]

No, we've been working on this together for quite a long time. I'm just trying to remember whether it started with Bill C-26 or Bill C-44.

There have been a number of coalitions that have tried to come together, and as Wade mentioned, there were a number of people who had specific concerns that were not really shared by others in the group.

Anyway, in April 2006, the group really gelled. It really came together. Transport Canada had been saying to the shippers for a long time, “You have to sing from the same hymn book, otherwise we don't know what you want.” So we took that message to heart. The group came together. We exchanged some written information back and forth with the surface policy people at Transport Canada, and we ended up in a big meeting on May 5, 2006. I may be wrong, but it may even have been in this room.

[A voice]

It was in this room.

[Robert Ballantyne]

I can't remember how many people there were. There must have been about 80 or 90 people in this meeting, from both the government side and the shippers.

We came to a consensus in the dialogue with Transport Canada and a representative from the minister's staff as well. As a result of that, the government brought forth a proposal that was largely something that the shippers liked.

They did their consultation in series, I guess, rather than in parallel, with the railways. After they talked to the shippers, they discussed it with the railways, who were very unhappy with what they saw.

The CEOs of the two big railways organized a meeting with the minister, and they attempted to stall any further legislative action by offering a commercial dispute resolution process. That was kind of interesting, because the only time they'd ever done that, as far as I know, was when they were faced with legislation they didn't like. So that delayed the whole process through the summer of 2006.

Their first offer on CDR was only if the shippers decided that they would forgo any change in the legislation. The shippers basically said “No, that's not a condition we'll live with, but we're certainly prepared to talk to you about CDR.”

We spent the better part of the year talking to them about that, and as the minister said to you last week, I guess it was, those negotiations weren't successful.

CN and CP have subsequently put up their own versions of their commercial dispute resolution on their websites. To the best of my knowledge, no shipper has taken that up. I noticed that, in the discussion with the railways on Tuesday, they were very careful not to indicate whether any shipper had or hadn't taken them up on that.

Anyway, that went on. There was dialogue, and so on, with the minister's office and with Transport Canada. It finally led to Bill C-58, which, as I said earlier, didn't give the shipper community everything they wanted, but it's a good start, and we support the bill as written.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Indeed, you feel that the shippers have made a compromise.

[Wade Sobkowich]

Definitely.

If I could just jump in and make a few comments, I can't stress enough how much water we've put in our wine already to get to this point. We were around this table, and the Western Grain Elevator Association, as did the rest of the shipper associations, came with much more. We recognized that if we were going to get anywhere, we needed to agree with each other and we needed to agree with Transport Canada, and that's what we did. We left a lot of stuff behind in order to get there.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

As a litigator in northern Alberta for years, I always discovered that usually the best result is when both parties leave unhappy, unfortunately, with litigation. It sounds like the compromises have been made.

Now, my understanding, quite frankly, living in western Canada, is that these complaints have been around for years. Since the 1980s even, I've heard of complaints from shippers of grain and from manufacturers of products. Is that correct? So this has been going on for some 30 years.

[Marta Morgan]

Yes. These are long-standing issues that shippers have had with the railways. We have a system of having a dual monopoly railway, and until there are ways to either introduce effective competition, or as in the case of this bill, to provide pro-competitive remedies, I think shippers will continue to have issues with the railways.

We believe that this is a modest, sensible, and practical solution to the situation we find ourselves in that will give shippers some additional pro-competitive remedies to address some of the more recent issues that have arisen. These include ancillary charges, for example, which have been increasing, and the dramatic increase we've been experiencing in the last few years in service problems.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

I think this will be my last question, or fairly close to it. Overall, if this works out well, as the shippers seem to think it will--thousands of shippers across Canada, probably tens of thousands of shippers across Canada, who you represent are saying that this is a good bill--what are the ultimate results for Canadians?

[Robert Ballantyne]

I think, first of all, that over time it will facilitate a better relationship between shippers and railways. At the start it won't; somebody is going to go away unhappy. But once the bill becomes law, everybody will learn how to live with it.

I think these changes to the act really will facilitate a better relationship between shippers and railways, generally. I think what it will do for Canada, generally, is that it will be one factor in keeping Canadian industry competitive, especially in export markets, in that there will be a device for shippers to negotiate freight rates that, one would hope, will be reasonable for the railways and also reasonable for the shippers, and in a way that they can stay competitive, whether that's in domestic or export markets.

I think this is probably one of the big gains for the economy, generally.

[Wade Sobkowich]

If I might, I'll just read from my notes the things we've been saying. Without this bill, what's going to happen is that this will continue to result in—and I'm talking about the grain industry—lost grain sales domestically and internationally; lost revenue, because grain will continue to be sold outside peak price periods; a large potential for significant vessel demurrage bills; lost confidence in Canada as a reliable supplier; and higher costs to farmers.

[The Chair, Conservative, Merv Tweed]

We'll go to Mr. Bell.

[Don Bell, Liberal, North Vancouver, BC]

Thank you for appearing.

I have some questions. I noted, Ms. Morgan, that in your presentation you say that the Forest Products Association Of Canada had a study done by Travacon Research that concluded that the forest products industry is paying almost $280 million per year more in freight rates than it would. And that doesn't include demurrage and storage, I presume. Or does it? Is that all-encompassing?

[Marta Morgan]

It is just freight rates.

[Don Bell, Liberal, North Vancouver, BC]

It is just freight rates. If I understand it, you represent roughly 25% of CN's total revenues, shall we say. If, therefore, the other 75% comes from grain and mining products and the other products that are represented by your bigger coalition here, is it fair to say that we could be talking about $1 billion? Have the other industries done any comparable studies to show what you feel are the extra costs to you?