Transport Committee on June 12th, 2012

[Mike Roney]

I'll just add a bit to that.

We have been fairly successful in intermodal business. I know that over the past five years Canadian Pacific's intermodal business has been growing by 6% per year, so there has been some modal shift.

I think that would all change if we lost a big chunk of our traffic, because we're very capital intensive, and that would up our unit cost of everything we do, and it would probably put us out of being competitive on things like intermodal.

[The Chair, Conservative, Merv Tweed]

Thank you.

Monsieur Aubin.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

Because time is of the essence, I will be splitting my time with my colleagues.

I want to start by reassuring our guests. If natural resource extraction in Canada leads to more secondary processing, they are going to have even more clients. They can rest easy.

In your introduction, you talked about rail renewal. Perhaps I was mistaken but I had imagined it could also be a source of development. When you look at the rail map included in your presentation, it gives a pretty clear picture of development in the southern part of the country. However, I would have liked to have seen a dotted line indicating routes to the north, particularly in Quebec. In the context of the development of the proposed Plan Nord, we will be needing your services.

Will private companies be responsible for building their own rail lines to connect to your network or are there development plans in place for the Canadian north?

[Michael Bourque]

Thank you very much. I am pleased that you mentioned the Plan Nord. Canadian National has already announced that it is prepared to build a rail line to support mines in the north. This is indeed a private sector investment, with financial support from the Government of Quebec.

I also want to touch on your question of value-added, because I come from the chemical industry, and the chemical industry feels very strongly that we need to add value to our natural resources. I think if you look at the success of Canada, we have always had a combination of resource extraction, development, and manufacturing, in terms of the supply chain, to the extent that we can invest in an integrated, advanced supply chain infrastructure—that's going to help us move goods, whether they are canned lentils going to a specific market halfway across the world or they're in a very large container in their rawest form.

In fact, there are many stories—I mentioned this at the outset—of our 40-plus short-line members, and each one of them represents.... If you look at this network, you see predominantly my colleagues in CN and CP represented, but in fact there are a number of short-line operators who link to customers in the north, in the prairies, all across this country, who provide valuable service to customers, whether it's manufactured goods or other resources.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

[Fin Donnelly, NDP, New Westminster—Coquitlam, BC]

I just wanted to get back to the discussion about electrification. I'm wondering if any of the companies have done a cost-benefit analysis over a significant period looking forward, say, 30 years plus, with regard to the fuel costs and alternatives and comparing those. Initially, the barrier was the capital costs in terms of electrification, but if you look at the fuel costs going forward—I know it's hard to predict—has there been any kind of cost-benefit analysis or studies done on those?

[Dwight Tays]

I'll speak from the CN side. I'm not aware of any specific cost-benefit analysis using that long a timeframe and focusing on electrification versus the continued use of the diesel fuel alternative. As we mentioned before, we are focusing on alternative fuel technologies, and we are focusing very hard on fuel conservation efforts, recognizing the cost of the fuel. We have not done—that I am aware of—a long-term study that would include a significant portion of our network for electrification.

[Mike Roney]

At Canadian Pacific, I'd say it was probably 10 years ago that we did that sort of a forward look. We projected at that time that the electricity costs would be below the trend line for fossil fuels, so that there would be a benefit, but it would tend to track that trend line. Really the problem we ran into was that it was going to take too long for our shareholders to get the benefit of the investment we were going to ask of them. As you probably know from the news, our shareholders have been very anxious, and we lost our president recently because we are not showing those results fast enough. It's difficult in that sort of environment to make that sort of a big capital investment for a 30-year gain, for example.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you, Mr. Chair.

I appreciate you all being here today.

My first question is for Mr. Roney from CP.

Often, the railways are criticized a lot. It's only because, of course, you are such a huge part of the shipping in this country, and you serve many industries. So to use an example from my riding, when the green cars don't show up on time, the railways are criticized. Given the fact that you are so critical to the economy in terms of the shipping you provide, you are criticized from time to time. Sometimes it's deserved.

But today I would like to focus on our topic here, which is transportation technologies, and I want to give some credit where it's due as well. Certainly, the railways do a lot of important work and do a lot of great things. One of those things is very important in my riding.

I noticed the slide with the mountain scene, and I believe it was one of your trains going through my beautiful riding in Banff National Park. Something people, both residents and tourists alike, are concerned about there is collisions with wildlife, and in particular with bears. I know that CP has done a lot of great work to try to mitigate those collisions. I know, for example, that there are the vacuum cars, and there is also the partnership with Parks Canada, for which I believe millions of dollars have been spent to look at technologies that can be utilized in such ways that we can mitigate those collisions. I just wanted to give you an opportunity to highlight and share with us some of the details of that, because I think it would be useful for the committee to know about those technologies being advanced.

[Mike Roney]

Thank you for that question. We'd be very pleased to talk about it, and yes, we do get it. We can't be doing this. That is why we're putting the money forward now; we started about a year ago. Of course, it started by fact-finding, as every good project does. So we started tracking bears that had transponders on their collars. We instituted a procedure whereby any train crew who mad a bear sighting had to report where that sighting was, because the first thing was to determine why the bears are on our tracks and the second thing was to determine where they are entering the tracks.

So yes, we do have, as you said, a vacuum truck working continuously to clean up any spilled grain, but more recently we determined, based on these studies, that bears find the track is a neat way to get from A to B. It's the path of least resistance, so they use it as transportation, and we have to stop that.

We've now mapped all the locations where bears tend to access the tracks. First, we make sure there's fencing, but also, where they are able to get on the tracks, we are now putting down studded mats around the tracks that are uncomfortable for them to step on to access the tracks at that location. We have also been experimenting with a device on locomotives that gives them an advance warning that something is coming at them. We've had to do quite a bit of research on that because they have to feel it's a scary thing. If it's just a threat, they just get their hackles up, but if they feel something scary is coming at them, there's a chance they will stay away from the tracks.

We're also looking at sending drone aircraft ahead of trains, or possibly our track inspectors having a device that produces a signal that scares the bears.

So lots of things are going on. As I've said, we're one year into a very serious attempt at solving this problem.

[The Chair, Conservative, Merv Tweed]

Thank you.

Ms. Morin, and then I'm going to go to Mr. Watson to finish questioning.

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

Thank you very much, Mr. Chair.

I would like to get back to the issue of level crossings. In my riding, there are a lot of trains, both CP and CN, which is important for employment and transportation. We are quite pleased about that.

A commuter train travels through Montreal West. There is a rather complex level crossing there, and a school nearby. That is why almost every morning and every afternoon, the municipal police are on the scene to ensure there are no problems.

At downtown railway crossings, where there are a lot of vehicles, traffic is stopped for several minutes. At what point could you consider building a tunnel, which would be safer? We know there are costs related to that, but when could you begin to consider that type of project?

[Dwight Tays]

Thank you for the question. I'd like to talk a little about crossing safety.

My previous role at CN was as chief signal engineer. I'm intimately familiar with crossings, and they are one of the areas where we have substantial opportunity to improve safety, so I appreciate the opportunity to talk about it.

Your question is when would we build a grade separation, either a tunnel or an overpass. Certainly there are significant economic considerations there, especially when you try to build infrastructure in an urban environment; the costs become prohibitive very quickly.

On the crossing side, there are a number of alternatives. Eliminating a crossing is always the safest way to prevent crossing accidents. The Railway Research Advisory Board has done a lot of work and has sponsored a lot of research on crossing protection and improving crossing safety, considering whether cheaper crossing technology exists, not for urban areas but for rural areas. Driver behaviour is certainly one of the key considerations, as is pedestrian behaviour. Device conspicuity—how easy is it to see the crossing devices?

In addition, on that same CN line we installed some second train warning signs to see if that would be an effective warning to people that a second train is coming. We've had incidents when the first train goes by and people make the assumption that they're okay to go. It's a multi-track territory and there could be a train coming on the second track.

So I think there are a number of things we can do to improve crossing safety before we take the fundamental step of investing the significant dollars to do a crossing elimination, although speaking as a railway person, the safest crossing is the one that's not there.

[Michael Bourque]

I'll just add a short piece to that, Mr. Chairman.

During the passing of the Railway Safety Act we had asked for a small amendment to the act that would have required municipalities to provide notification to the railways if there was going to be construction within 300 metres of the rail line. We asked for that because we've got a number of case studies from across the country where development is taking place. For example, like the one that you've given where there's a school close to the tracks and a development on the other side of the tracks—a fast-food restaurant or some other attraction for kids—we're seeing a lot of trespassing there, with holes cut in the fence and those kinds of things.

Even if there isn't a crossing, it's a simple case of urban planning, where if we had notification we'd be able to work with municipalities to prevent those instances. What we're instead having to do, at tremendous cost to the railway, is to work with individual provinces and municipalities. It's almost like the reverse of eliminating red tape: it's creating a whole bunch of red tape for us in having to negotiate agreements with specific municipalities and provinces to have that kind of notification in place.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Watson, a final comment and question.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing here.

Mr. Roney, you will probably appreciate a tragic, fatal collision that occurred at a crossing in Lakeshore, in Ontario, in my riding, very recently. Two young girls are dead, three were injured, two critically injured. I know that CP is cooperating with the OPP and TSB in an investigation. Our thoughts and prayers obviously go out to that family.

If I can switch tracks to the study at hand, which is about innovative technologies, there is a good news story out of Essex County. Born in Colchester in the mid-19th century, Elijah McCoy invented the automatic graphite lubricator for steam engines in a home-based machine shop, without a government program. This technology literally transformed the economy because it allowed for the on-time departure and arrival of trains. We get our expression “the real McCoy” from this, because there were many imitators of the graphite lubricator but there was only one real McCoy.

I tell this story because it's not only about rail innovation but it also points to a different time. This was a home-based shop; there was no government program around. It is about an inventor with an idea that transformed an industry.

Moving to the current scenario today, I want to ask how much CN and CP each invests privately in their research and development. What, if any, government programs do they use? If they don't, why? Let's start there, and I'll get a couple of others on the record because I may not have a lot of time.

How many technology patents do you have? You can provide this to the committee later if you don't have it now.

How would you characterize research and development in the rail sector? Is it incremental or transformational?

What drives your innovation, as a percentage? Is it business as usual or the regulatory environment?

I'll leave those questions for the record, but could you first talk about your investment in R and D and the government programs.

[The Chair, Conservative, Merv Tweed]

You have about 30 seconds. The rest we'll ask for in writing, please.

[Mike Roney]

I can speak to that. The biggest investment we make in R and D really is in supporting the R and D done by our suppliers, by buying their new products. For example, when you spend $3 million on a locomotive to get a more fuel-efficient, lower-maintenance, more powerful locomotive, that is our biggest investment in the R and D, because we are of course supporting what our suppliers are doing. I think that's number one.

In terms of internal R and D, I can only speak for Canadian Pacific here. We contribute to a research program with the Association of American Railroads, and we are in that for about $1 million a year. We probably spend around $5 million to $10 million on other types of research projects. For example, Mr. Richards mentioned the $1 million a year on the bear research program. We support the University of Alberta Canadian Rail Research Lab. It's in that range.

It's a smaller bucket that we do collaboratively with the government, and that tends to be when we're aligned with Transport Canada on common goals. So through the Railway Research Advisory Board—that's about a $3 million program, and we're probably in that for $500,000. We support their railway ground hazard research program cooperatively with the government. It's a smaller contribution that is done collaboratively, and we'd like to see that grow. I'll use the example of Australia. They also have a collaborative research program in Australia, with suppliers with government and with industry, and they're spending $100 million over seven years—a seven-year commitment—and we're only paying, cooperatively, about 14% of that.

We have a good framework right now. There's an opportunity to develop that further through the framework of the Railway Research Advisory Board.

One of the things—

[The Chair, Conservative, Merv Tweed]

I'm going to stop it there.

Thank you for being here today. I think we gained some insight into our technology study.

We're going to take a two-minute recess. We'll invite our next guests to the table, and then we'll resume.

[The Chair, Conservative, Merv Tweed]

We're back for the second part of today's committee meeting.

Joining us today, from National Steel Car Limited, is Mr. Greg Aziz, chairman and chief executive officer; Michael Nicholson, executive vice-president of marketing, sales, and quality; and Peter Scott, regional vice-president of marketing and sales.

I know you've been brought up to date as to the presentation. Then we'll move right to questions.

I'm sorry for the delay. We did start a few minutes late, and I knew there were questions for the other group that members wanted to ask.

I'll ask you to please proceed.

[Gregory Aziz, Chairman and Chief Executive Officer, National Steel Car Limited]

Thank you.

Mr. Chairman and members of the committee, good morning. I'm Greg Aziz, chairman and CEO of National Steel Car.

I'll whip through this as quickly as I can.

National Steel Car—I have up here a picture of our factory, located in Hamilton, Ontario—is the last remaining railcar manufacturer in Canada. We're also one of the largest in North America. That factory you're looking at is over two million square feet on 75 acres.

National Steel Car was founded in 1912 in Hamilton. We're celebrating our 100th anniversary this year. We employ 2,000 people. We've hired over 1,200 people in the last 18 months. We are the largest single-site railcar manufacturer in the western hemisphere. We're the only Canadian car builder. We have five production lines at this factory. We've invested over $350 million over the last 15 years in plant automation and advanced manufacturing technologies.

We're here to talk about the renewal of the Canadian grain car fleet. As Canadian farmers sell their grains into a competitive global market, one of the biggest impediments to their success is the inefficiency of our current railcar fleet for carrying grains. We believe the most effective way to enhance Canadian grain farmers' competitive position in world markets is to replace this current Canadian grain car fleet, which is obsolete. It's past its useful life. It is inefficient from a variety of standpoints. The design is outdated. Most of these cars were built in the early 1970s. At the time, the gross rail load allowed on North American rails was 263,000 pounds. That was raised in 1995 to 286,000 pounds. The gross rail load is the combined weight of the empty piece of equipment and what it's carrying. Some 20,000 pounds of additional grain can be carried in new modern equipment.

So the design is outdated. The carrying capacity is much lower than what is currently available in the marketplace. There are loading and unloading inefficiencies in the old fleet compared to what's available today. The dimensional envelope is outdated. There is a high cost of repairs and maintenance due to obsolete replacement parts.

I couldn't help but notice that your previous fellow who was testifying on behalf of CP Rail.... The reason the bears are getting killed is that the grain is leaking out of these old cars. That's how inefficient they are.

What National Steel Car is proposing is the new car that you see up on the screen, which is far more efficient.

One of my colleagues here will go through and talk about the efficiencies of the new equipment we're proposing, which was designed and patented by National Steel Car.

[Michael Hugh Nicholson, Executive Vice-President, Marketing, Sales and Quality, National Steel Car Limited]

Some of the key benefits to the grain producers are the efficiencies—again, a 23% increase in capacity. There is greater efficiency and performance across the entire supply chain. There's a lower carbon footprint for the sector.

As Mr. Aziz mentioned, the gross rail load is the maximum load that can be moved on rail, combining the empty weight of the railcar and the lading weight of the payload. Our next-generation fleet provides for a 9% increase in the gross rail load. The cars can be up to 4,000 pounds lighter than the existing fleet. That translates into a carrying capacity or load limit of the car that adds an additional 27,000 pounds more grain. There's an increase in cubic capacity of 15.5%. On a train-start basis, there will be nine additional cars in every train start.

These are significant improvements.

[Gregory Aziz]

The reason for this is that this car is shorter than the older cars. Thanks to modern design, we have the ability to build a car that is shorter than the older cars and lighter than the older cars. However, as you go through the figures there, you can see that it carries much more and has a shorter envelope, which allows in a normal train an additional nine cars.

You know, we talk about the carbon footprint being lower. Those nine cars basically travel for free once you get a train start.

[Michael Hugh Nicholson]

Again, on a train-start basis, on an 8,000-foot train, we're looking at a 20% increase in capacity. So again, there is more loading efficiency. This is good news for all the stakeholders. As Greg mentioned, there are nine additional cars in that 8,000-foot train.

There are three discharge gates on the next-generation cars, which provides a 25% reduction in the handling of the cars. The current fleet is, on average, more than 35 years old. The newly constructed cars will be designed for a 50-year life, whereas their predecessors had a 40-year life. Again, there's a 25% increase in the design life of a modern and efficient fleet.

As the railroads continue to increase train length, these improvements will only improve. On a tonnage basis, there will be an additional 16,000-plus tonnes of grain per train start. There will be more than 145,000 cubic feet of additional grain, which is, again, a 23% increase. These are significant benefits.

Our summary of the economic assessment, assuming a replacement program over three years, shows that this would result in 2,600 direct jobs. That would translate, conservatively, into more than 10,000 induced jobs.

Steel tonnage would be 285,000 tonnes of steel. The Canadian content would be 75%.

The supply chain for this project reaches right across Canada. I won't read out the details, but these are suppliers who can provide components in the assembly of the rail cars.