Transport Committee on Nov. 29th, 2007

[Robert Ballantyne]

I'm not aware that anybody has done any studies to show what the extra costs are.

[Don Bell, Liberal, North Vancouver, BC]

The forest products industry did.

[Don Bell, Liberal, North Vancouver, BC]

Yes, aside from forest products.

[Marta Morgan]

I think it's difficult to make an exact extrapolation, because what it really depends on is where are your mills, and which railway is servicing your mills, and what amount of competition do you have? So different industries will have a different balance there and a different balance of issues.

But certainly, for our industry, $280 million a year is a lot of money—and that's not even counting the additional costs from the service disruptions that we face on an ongoing basis. If we translated this, for example, into what it would cost to build a brand-new mill, the money we would be saving from competitive freight rates would allow us to build a brand-new, world-class paper mill once every three years in Canada. So from an industrial competitiveness perspective, it's a significant cost component for our industry.

[Don Bell, Liberal, North Vancouver, BC]

And then in addition to that, you're paying 10% to 15% more annually for your demurrage and storage charges. As I understand it, that seems to be a fairly constant theme through most of your presentations.

Are the charges more or less universal? I'm thinking in terms of the FOA approach, the group final offer arbitration approach, challenging these. Are the charges more or less universal, or do they vary from area to area? I'm talking of demurrage and storage now.

[Robert Ballantyne]

They would definitely vary from industry to industry.

[Don Bell, Liberal, North Vancouver, BC]

What about the nature of the stock involved? Is it the rolling stock?

[Robert Ballantyne]

If a group FOA were done, it would likely be done by either shippers in the grain industry or shippers in the forest products industry. So I guess the easiest lines to draw would be based on the industry. They would be sectoral lines.

[Don Bell, Liberal, North Vancouver, BC]

I guess the support for the FOA is based on the pretext of strength in numbers.

My concern was with some of the provisions in the requests that it be common to all carriers. From my experience, having been in industry and having represented a varied industry, in this case the retail food industry, the complaints I can see that might apply wouldn't necessarily apply equally, but the remedies would apply equally. Your group is aware of that.

I would personally resist any effort in this or interpretation. My concern with the interpretation is whether the hardship has to apply equally, or just that there are varying degrees of the same complaint within a group FOA.

[Wade Sobkowich]

You would never have a situation where the result would apply to each shipper equally. It's impossible. Shippers are different; they have different operations, they have different sizes, they're in different places. It's impossible to have an equal application.

[Don Bell, Liberal, North Vancouver, BC]

But there would be equal application, in that whatever is determined—for a rate, for example—would apply equally. The effect may be different, depending on the distance from the source or the other applications.

I guess the other question I had was that we heard comments about car supply and the issue of demurrage and storage charges being a source of frustration, given that they've escalated. Of course, one of the compensation questions was about there being demurrage and storage charges if the cars are late and or aren't provided on time, yet one has to have a crew come in, who then have to wait for a couple of days, and there's no compensation for that. The railways said, well, you have options; you can have a guaranteed service. In other words, you can pay more and you get a....

I'm just wondering how much more costly it is. Is that an option that's really offered to you, so you can have a guaranteed service and compare the cost of having your extra crew standing there for two or three days against the extra cost of having their premium service?

[Wade Sobkowich]

If I can speak for the grain industry, there are very limited options, if any at all, for premium service. Certain of our members have tried to get into commercial contracts with the railways, which have been resistant. By default, we look at their tariffs and are subject to the terms of their tariffs. Those apply to everybody in the grain industry.

So if I could just run through what happens on demurrage—

[Don Bell, Liberal, North Vancouver, BC]

Just one comment.

The reason for my question is that the railways told us those premium services are available, and people get what they pay for.

[Robert Ballantyne]

I was here when the railways said that. I'll comment after the meeting.

[Wade Sobkowich]

Go ahead, Bob, by all means.

[Robert Ballantyne]

Following from Wade's comment, as the railways mentioned when they responded to that, confidential contracts are in place between individual railway companies and individual shippers. Because the contracts are confidential, nobody knows the terms and conditions.

I think, generally, it's known that in some instances there are some performance guarantees by the railways, and these might be things like a unit coal train undertaking to deliver so many tonnes per week or whatever.

But my members in the Canadian Industrial Transportation Association tell me--and our membership is varied, as we have retailers, coal companies, manufacturers, a very wide range of members--the railways are going away from confidential contracts and going back to tariff pricing. So I suspect that in almost every case there are no real performance guarantees that would put the railways in a position where they would have to pay a financial penalty for service failures, which of course is not the case when the shoe's on the other foot. If the shipper keeps a car longer, they pay demurrage.

If I can take just a minute, Mr. Chairman, I would go back to a question Mr. Laframboise asked about some of these charges.

CN's tariff 9000 is a chargeable service tariff, and I suspect that's probably where demurrage is and that sort of thing, but they have others: terminal switching services, automotive services, dimensional services, unit train services, fuel surcharge tariff on bulk and carload services, fuel surcharge tariff on intermodal traffic, currency exchange surcharge tariff, movement of private cars in Canada and in the U.S., bill of lading charges. So even to submit a bill of lading, if you do it electronically, you don't pay. If you do it by paper, you have to pay something extra for it. Miscellaneous service charges, toxic inhalation hazard charges, and dray and trucking charges--those are all from CN.

Here's the CP list. Tariff 6666 is supplemental carload services tariffs comparable to the first in demurrage and so on: fuel surcharge tariff, U.S. switching tariff, currency exchange tariff, rules and regulations on international import-export traffic, and rules and regulations on domestic and intermodal traffic.

Those are some of the tariffs CN and CP have on various charges they impose on shippers over and above the quite legitimate freight rate for movement of traffic.

[The Chair, Conservative, Merv Tweed]

Thank you.

Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chairman.

Good morning to our guests.

The Railway Association of Canada, that we met with on Tuesday, showed us using a diagram that freight rates in Canada are among the lowest in the world. So it is a very good situation for them.

I would like to hear your reaction to that, get an explanation or hear your position on that statement.

[Robert Ballantyne]

Yes, the bare freight rates are among the lowest in the world. It depends how you do the measurement. Some work was done, and I think it was by a transportation institute in Australia some years ago, that compared the freight rates in a whole lot of countries. Of course, they were all put into the same currency in that study, into U.S. dollars, and at the time--and that was in the mid-1990s--given the exchange rate on Canadian dollars, the Canadian bare freight rates were, I think, the lowest in the world; the U.S. was second.

But that isn't the whole story. You would expect in a country of large geography like ours that the freight rates would tend to be low. There are more charges associated with the terminal activities--they tend to be expensive--and less with the line haul, so the longer the line haul in terms of average freight rates, they would be fairly low. But it means the total freight bill can be relatively high, because we have such big geography in this country. Then there is the issue of all the ancillary charges we talked about that are also charges the shipper has to pay.

I've never seen a study that has included all those issues, but to some extent the lowest freight rates are a bit of a smokescreen.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

In your view, proportionally speaking, are you calling into question the base freight rates or the incidental tariffs that you are charged and that you mentioned earlier? How much of the problem do they cause? Is the problem primarily due to the base freight rates or to incidental tariffs?

[Marta Morgan]

In the legislation as it currently stands, there is one option that works very well for shippers when they have a problem with base freight rates and that is final offer arbitration. Under the current act, that is the only method that has proven effective for us, but it is very costly. It can cost a million dollars per case. So there must be a major problem with base freight rates for us to turn to final offer arbitration.

What we are seeking through Bill C-8 is to cover other aspects that have arisen, incidental tariffs and service, because for these two services and the related tariffs, shippers have no recourse when a problem arises. That is the fundamental problem. The companies have the option of offering these services, setting the prices they want, but the shippers, on their side, have no power, because they must absolutely use CN or CP. So the power always remains in the hands of the railway companies. So there is an imbalance. There is a slight imbalance in the base freight rates, because at least we have final offer arbitration, but as regards the other aspects, there is no balance in the legislation as it currently stands.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

There is a point in your presentation that, compared to the one presented by the Railway Association of Canada, struck me: you agree on the need for a review of the entire railway system within 30 days of the passage of the bill. The Railway Association of Canada says that there are no documents clearly outlining the position or the facts, so it is rather anecdotal. On your side, you invoke a number of arguments; it invokes others. So the association has confidence in the study, in the same way that you too believe it will be a good thing.

Do you think that ultimately, the solution or the conclusion of the study will perhaps come about through government involvement in rail transportation, or do you think that one side or the other should pick up the tab?

[Wade Sobkowich]

We think that we need to have balance in any solution, and usually when we're dealing with dual monopolies, as Bob explained, which is different from duopolies, we need to have some discipline. Usually, in order for that discipline to be maintained, it needs to be legislated.

I'll just read a couple of points from the terms of reference that we're proposing in our level-of-service review. We are suggesting that the review

...recommend measures including amendments to the CTA or other legislation that...will constitute a financial disincentive which is significant enough in magnitude to induce a railway company to change any practices which result in inadequate service [and] will enable a shipper to be expeditiously compensated for loss or damage incurred as a result of inadequate service [and] then to implement the measures recommended by the railway service review as soon as possible after the completion of the level of service review and enshrine those measures in legislation, regulations, or policy directions.

So we're suggesting that the solution have a tie to government.

[The Chair, Conservative, Merv Tweed]

Thank you.

Just before I go to Mr. Fast, you listed all the charges. Is that done arbitrarily, or is that done in discussion with the shippers?

[Robert Ballantyne]

It is, I think, pretty much done arbitrarily. The railways have, under the Canada Transportation Act, the right to issue tariffs, which they do.

There may in some instances be some negotiation and discussion with the railways, to some extent possibly on the level but also on the application. There may be instances when, for example on demurrage, on the surface it may look like demurrage should have covered, say, two days for cars, but there may be some other circumstance that the railway might be willing to recognize was such that there shouldn't be two days of demurrage. It would depend on a case-by-case basis.