Thank you very much. I will share some of my time with Wade Sobkowich. We're certainly pleased to have the opportunity to bring the shipper perspective on Bill C-52 to this committee.
The 16 member associations of the CRS account for a substantial portion of the rail freight customer base, and the member companies in those associations are estimated to provide more than 80% of the Canadian revenues of CN and CP.
All 16 CRS member associations support the six proposed adjustments to Bill C-52 that we bring to the committee.
Bill C-52 is the government's response to the longstanding service problems that were identified and quantified by the independent rail freight service review panel and its consultants. The NRG Research Group, in its independent survey, found that only 17% of respondents rated their satisfaction with railway service at a 6 or a 7, based on a scale of 1 to 7 in which 7 meant “very satisfied”. They also reported that 62% of shippers reported that they had suffered financial consequences as a result of poor performance.
The fundamental underlying problem is one of market dominance. The rail freight market is not a normally functioning competitive market; it is dominated by the sellers. The rail freight service review recognized this, with the panel stating the following on page 41 of its final report:
This railway market power results in an imbalance in the commercial relationships between the railways and other stakeholders.
In his testimony before this committee on February 12, Minister Lebel referenced the above conclusion and stated:
It is essential for the committee to understand why this legislation is necessary. We are not dealing with the normal free market. The reality is that many shippers have limited choices when it comes to shipping their products. It is therefore necessary to use the law to give shippers more leverage to negotiate service agreements with the railways.
The behaviour of monopoly businesses has been well understood since the 19th century, and many of the lessons learned were from the behaviour of 19th-century railways. Canadian law has acknowledged this dominance for over a hundred years.
In this connection, the abuse of dominance provisions of the Competition Act—that is, sections 78 and 79 of that act—are certainly of interest.
The Competition Bureau's guidelines—and I stress that they don't govern the railway industry, but they're certainly instructive—or the bureau's general approach in evaluating allegations of abuse of dominance is as follows:
A market share of less than 35 percent will generally not give rise to concerns of market power or dominance.
A market share of 35 percent or more will generally prompt further examination.
In the case of a group of firms alleged to be jointly dominant, a combined market share equal to or exceeding 60 percent will generally prompt further examination.
In the case of the rail freight market, CN and CP together control 97% of the market by revenue. The issue of competition from other modes is a factor often raised. While in some instances there may be truck and marine competitive options, the reality is that moving to other modes in most cases is not practical, in any reasonable scenario.
There has been discussion that "commercial solutions are the preferred solutions", by government and other stakeholders. Throughout the service review and the follow-on initiatives, the shippers have stated a preference for solutions that would be "commercial", but a necessary prerequisite is that there be a normally functioning competitive market in which there is a reasonable balance between the buyers and sellers. Wherever there is no such balance, the only recourse for the disadvantaged parties is to look for a legislative framework that acts as a surrogate for normal competition.
The minister and his staff have outlined to you the structure and provisions of Bill C-52, which are designed to influence the behaviour of railways in a manner that would be comparable to there being effective competition. The CRS has noted that Bill C-52 in its operation will break new ground, with little relevant jurisprudence or experience available to the agency or arbitrators. The CRS believes the bill can be strengthened in a way that will minimize uncertainty, give more explicit guidance to arbitrators, and limit the opportunity for railways to mount legal challenges designed to either frustrate the intent of Parliament, delay decisions, and lead shippers both large and small into expensive legal battles.
The CRS has six recommendations, which I will very briefly introduce. These have been given to the committee and will be discussed by my colleagues in more detail. They are as follows:
The first one is to spell out that the service obligation is intended to meet the needs of the shipper, and then name the specific obligations.
The second one is to allow the arbitrator to rule on the whole contract between parties and not just the operational parts; that is, service is somewhat differentiated from just the operational parts.
The third is to make clear that dispute resolution terms, including damages, may be included in a contract by an arbitrator in order to reduce subsequent costs and delay in dealing with problems.
Number four is to remove a loophole whereby the railway can impose an unspecified charge against a single shipper without recourse.
Number five is to make clear that the shipper can decide which issues will be arbitrated.
Sixth is to remove undue precedence given to the railways' network obligations over and above the service obligations to the shipper.
With that, I would like to turn over the rest of my time to my colleague, Mr. Sobkowich.