Transport Committee on June 12th, 2012

[Gregory Aziz]

Further, if I may add, the United States, which is a great competitor of Canada in world markets, spends billions of dollars in subsidies with their agricultural community in the form of price supports, subsidies to not plant in order to raise prices, and all those sorts of things. We don't do those things here.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

That's right, and that's why we don't have a debt that's 100% the size of our entire economy.

[Gregory Aziz]

Yes, but at the same time we want to continue to be able to export—

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

We don't want to—

[Gregory Aziz]

We want to continue to be able to export efficiently, and that's what we're trying to illustrate here.

[The Chair, Conservative, Merv Tweed]

Thank you.

Before I recognize Mr. Toet, that was my question. Obviously your biggest market right now is the United States. Is that decision made by the U.S. government, or is it made by the independent companies and then they negotiate that...? I'm just asking for clarification.

[Gregory Aziz]

No, we deal with all of the major class 1s and short-line railroads and leasing companies in both the United States and Canada, as well as shippers in the U.S., grain cooperatives and the like.

[The Chair, Conservative, Merv Tweed]

But again, who makes the purchasing decision, the companies themselves, or is it the government that subsidizes it? I'm just trying to get clarification, because right now in Canada we do own shipping cars, no question, but the question is, do we stay in that or do we—

[Gregory Aziz]

It's done privately, Mr. Chairman, in the United States. But there is a whole different tax regimen there that is completely different from Canada's. You write off a railcar. This year, anyone who buys a railcar in the United States can write off 50%.

[The Chair, Conservative, Merv Tweed]

Is that something we should be looking at? As opposed to buying them ourselves, do we change the regulation and the rules to allow that purchase to happen more quickly rather than more slowly?

[Gregory Aziz]

Traditionally the United States has had seven years of straight-line depreciation on railroad equipment. In Canada, six or seven years ago, it was 23 years. We fought like hell to get it down to 15 years. The United States, in this recession, went to 100% write-off in the year the equipment was purchased, for two or three years in a row, and they've just reduced that to 50%, and then seven-year makers on the balance of 50%. We're nowhere near that.

[The Chair, Conservative, Merv Tweed]

Right, but we have moved, as a government, to allow industry that makes major purchases, particularly that create efficiencies and environmental improvements, to write that off within a two-year period, I believe. Maybe that's something we should be looking at, as a recommendation to come forward from this committee, to increase and enhance railcar purchasing, as an option.

[Gregory Aziz]

That's fine.

[The Chair, Conservative, Merv Tweed]

Yes.

Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

I'd like to thank our guests for coming in today. It's rather interesting. When I heard the presentation, it felt pretty much like a sales presentation, and now that we're at the end of it, I'm convinced that it has been. Well done, by the way, because I think what you've done is expose some of the challenges associated with the existing situation, the existing fleet versus the potential for the vehicles that you recommend.

When I look at several of the pages that you showed on the slides, I see the dirty red freight car, which kind of reminds me of Mr. Coderre's tie, versus the very nice new vehicles with the lovely blue on the top. It's very nice. I like that quite a lot.

[Denis Coderre, Liberal, Bourassa, QC]

Your yellow tie doesn't....

[Ed Holder, Conservative, London West, ON]

No, it just doesn't cut it.

The first thing we have to say is congratulations on 100 years. I think that to have survived, grown, and prospered over 100 years makes a great statement about your firm.

I noted in your presentation, Mr. Aziz, that you talked about what I consider the dramatic hiring that you've had over the last short while. That would suggest to me, if I interpret it correctly, that business is growing for you. I hope that to be the case. Would you confirm that or not?

I'm just trying to understand a little bit better the percentage breakdown of customers between, say, Canada and the United States, presuming that the U.S. is your alternative customer.

[Gregory Aziz]

Thank you for the congratulations.

[Ed Holder, Conservative, London West, ON]

You're welcome.

[Michael Hugh Nicholson]

As Mr. Aziz pointed out earlier, as a result of the worldwide recession, we had some very difficult times through 2008, 2009, and 2010. The industry is going through what we hope is the next cycle of railcar replacement. Obviously that came to a quick end in 2008, so we're hopeful we're in an up cycle. We are growing, so that has led to the increase in employment at National Steel Car.

On the percentage breakdown, as far as U.S. business to Canadian business, of our five production lines, 80% right now is going into the U.S., although some of that equipment does make its way back into Canada as it relates to the intermodal cars. The transportation pool does come up here, so it could be greater than 20%. It does vary. Again, the U.S. market is significantly larger than the Canadian market opportunity.

[Ed Holder, Conservative, London West, ON]

From what you've just said, it's obviously a very important part of what you do.

[Michael Hugh Nicholson]

It is.

We also look at export opportunities. Later this year we will be exporting cars to Saudi Arabia, and we've exported to Australia and to Africa.

[Ed Holder, Conservative, London West, ON]

What you do and what one of our local London, Ontario, firms does—General Dynamics Land Systems—is similar, insofar as markets and the like. We took some recent heat in my city because there was a military contract that was awarded through Public Works. It was a very transparent process—and I'll bring relevance to this. The heat we took from some politicals was on why this procurement wasn't Canadian manufactured. Then you realize that most of the business that General Dynamics has is with the United States. If a company like a General Dynamics got all the Canadian procurement, it would stand to reason that they would then not be eligible for the U.S. You can't have it both ways.

Mr. Coderre asked a very interesting question, and I think it relates very specifically to your firm. Whether some form of broad bid, as opposed to one-offs, is initiated at some point through some kind of government mechanism, and I don't know what that would look like, or through the rail companies, or for that matter perhaps even grain producers—I'm just not sure at this stage—it would seem to me that would then be an open bid, as he indicated. Who would be your competitors? Are there any in Canada? I presume they would have to be from the States. Is that fair to assume? Or would they be European?

Could you help me to understand who your market is?

[Gregory Aziz]

They'd all be American. There are four or five competitors that we have in the United States. There are no other Canadian manufactures.

[Ed Holder, Conservative, London West, ON]

All right. Good. Good for you, I suppose, from the standpoint that you've been as successful as you have been.

It would stand to reason, though, that if there were going to be an open bid, in the same way that you benefit from an American business, in turn I'm sure American companies would want to bid on any business should a contract come up. My sense is that you wouldn't be afraid of that competition. Ultimately you're looking more for a bid opportunity than anything else. Is that fair to say?