Evidence of meeting #61 for Transport, Infrastructure and Communities in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was shippers.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Richard Paton  President and Chief Executive Officer, Chemistry Industry Association of Canada
Fiona Cook  Director, Business and Economics, Chemistry Industry Association of Canada
Pierre Gratton  President and Chief Executive Officer, Mining Association of Canada
Roger Larson  President, Canadian Fertilizer Institute
Jim Facette  President and Chief Executive Officer, Canadian Propane Association
Claude Mongeau  President and Chief Executive Officer, Canadian National
François Tougas  Representative, Lawyer, McMillan LLP, Mining Association of Canada

3:35 p.m.

Conservative

The Chair Conservative Larry Miller

We'll call our meeting to order.

I'd like to welcome and thank all of our witnesses for being here today.

I know we have a busy afternoon, so I want to get right to it. Without further ado, I'd like to....

Mr. Harris.

3:35 p.m.

NDP

Jack Harris NDP St. John's East, NL

I'm here replacing Mike Sullivan today.

There is a motion that was tabled the last time. Will there be time on the agenda to deal with that? I know you want to get down to business, but it's very important—

3:35 p.m.

Conservative

The Chair Conservative Larry Miller

It's not on the agenda today.

Just for the information of the committee, it's to deal with the minister. The minister will be coming, but he'll be appearing on March 19. That's the earliest his schedule would allow.

Without further ado, I'd like to call on either Mr. Paton or Ms. Cook from the Chemistry Industry Association of Canada.

You have 10 minutes or less, please.

3:35 p.m.

Richard Paton President and Chief Executive Officer, Chemistry Industry Association of Canada

Thank you very much, Mr. Chairman and members of the committee.

I'm going to give about half of this presentation, and then Fiona Cook will continue. She is our director of business and economics and has been involved in this issue for too many years.

We represent 45 chemical-producing companies across the country. It's a $47 billion industry. The reason we're here today and the reason this issue is so important to us is that 80% of our products are shipped by our very fine railways, CP and CN. So we have a very huge interest in this bill. We're also a member of the Coalition of Rail Shippers, and have been for the last seven years.

Why is rail so important to our industry? In a recent meeting with members of Parliament like yourselves, one of our members, a large petrochemical producer, was talking about investment and growth and job creation in this country. He said basically there are only two major issues that affect a big investment: you have to have feedstock, which in our case is natural gas liquids, and you have to have rail service—rail service that's not only available, but is price-competitive, because most of our product goes to the U.S. on very long-haul rail shipping. If we can't ship it efficiently and at a good price through Canada and to the United States, we can't build and we can't even maintain our plants. This is really important to our industry.

Our members do appreciate that we have two large and very good North American railways in this country. We do appreciate the efforts that have been made to improve the service of our railways. It's something that is very important to us, and it's the reason we support this bill.

We do believe, however, that the fundamental requirements for a good partnership between railways and our sector and shippers is to have service agreements that are clear and reciprocal, where both parties work together to achieve the best possible performance. We don't really want a system that is heavily regulated, nor do we want a system that requires a steady stream of appeals.

Our associations and members really appreciate the fact that this bill is a significant step forward in providing for those service agreements, something we've been looking for, for a long time, and we believe this will be a better foundation for our companies to work with railways, which do have market power that is not always equivalent to a fully competitive economy.

We also believe that a well-crafted act will benefit the railways in their working relationship with customers, such as our industry. Our association supports this bill, but we also believe that in order to make a difference and to achieve the objective of providing service agreements that are workable, the legislation needs to be improved. In fact, we believe there is a substantial risk that without a clearer definition of service agreements in the draft act, both our companies and the railways will be mired in some confusion as to what a service agreement is, and we'll end up with an endless number of appeals that will not be in the interest of our companies or of the railways.

To conclude, we will support this act, but we believe it could be made more workable with modest amendments that will define service agreements better and that will in turn help the government and Parliament achieve the aims of this act.

Fiona Cook will provide you with an example of the amendments we would like to see.

3:35 p.m.

Fiona Cook Director, Business and Economics, Chemistry Industry Association of Canada

Thank you, Richard.

As you noted, the key objective here is greater partnership between the railways and its customers. Close working relationships between our member companies and Canada's railways are not only key to our present-day competitiveness in international markets, but they are also crucial to future investment, jobs, and growth in our sector here in Canada.

We need more conversations and planning around demand and supply of rail. CIAC believes that with some key amendments the legislation we're contemplating here today will enable the building of those relationships.

I was here on Tuesday, and I believe members of the committee have received copies of the list of amendments that the CRS has put forward and that we stand behind.

Ultimately, the success of this legislation will be if arbitration is used only as a last resort. That's something we fundamentally believe in. There are two amendments that we believe are critical to setting the stage for that, and I will focus my comments on these.

Amendment 1, which sets out the basic elements that need to be discussed in a negotiation, is fundamental to the spirit of this bill. As members here today know, in its report the panel identified this type of framework as a key prerequisite to better commercial relationships, and frankly, we are a little surprised to see that the core elements of what a service-level agreement should contain are not set out in the bill.

This absolutely needs to be done to achieve the intent of the bill and to ensure that it works as an effective backstop. Without this definition and clarity, both parties will not be able to identify problems and workable solutions. Agreeing on the elements means more commercial settlements and less time before the agency, and I think we all want that. Again, setting out the framework for discussion and partnership is fundamental if successful agreements are to be achieved commercially—and that is the desired result.

Next, and in the same spirit of setting the table for greater collaboration and commercial agreements, we believe that removing the word “operational”, as specified in amendment 2, is critical; otherwise, you limit the conversation and end up with half measures and ineffective agreements that do not include standard clauses, such as dispute resolution—very key—and force majeure, which are found in most commercial agreements.

Removing the word “operational” will broaden the scope of discussion between railway and customers, and it will increase the workability of agreements. It will reduce the need to bring issues to an arbitrator or the courts that could be dealt with through standard and prearranged dispute resolution mechanisms—again, more commercial settlements and fewer occasions before the agency.

To summarize, as Richard stated in his earlier comments, we are pleased to see this bill. It represents many years of hard work, but it needs to be amended to be effective.

Even with the amendments, will it solve all the problems that shippers and railways currently face? No. Does it address all the issues that we identified as key in the service review process? No. Specifically, for our sector, it does not address cross-border service requirements and commitments. This is an important issue for our industry, as 80% of our shipments are destined for the U.S.

However, that being said, we are hopeful that with the amendments that have been tabled, this bill will provide the balance that is needed to work with our railway partners and develop service-level agreements that incorporate the entirety of what a railway offers to its customers, regardless of borders, such as we see in the marine, air, and trucking modes.

Bill C-52 is a necessary first step to greater understanding and partnership between Canada's railways and the multitude of industries that provide food, products, and jobs, and that support communities across Canada. The amendments that we propose will ensure that it delivers on that promise. At the end of the day, this is all about working together.

Thank you.

3:40 p.m.

Conservative

The Chair Conservative Larry Miller

Thank you very much.

We'll now move to the Mining Association of Canada.

Mr. Gratton.

3:40 p.m.

Pierre Gratton President and Chief Executive Officer, Mining Association of Canada

Thank you, Mr. Chair, members of the committee, and fellow attendees.

I am Pierre Gratton, president and CEO of the Mining Association of Canada. MAC is the national voice of Canada's mining and mineral processing industry. We represent both large shippers, such as Teck, CP's largest customer by far, and smaller shippers as well.

Accompanying me is François Tougas, our counsel in this matter. Thank you for the opportunity to appear today and to share our perspective on this important piece of legislation.

In 2011 the mining industry contributed $35.6 billion to Canada's GDP, employed 320,000 workers, paid $9 billion in taxes and royalties to federal and provincial governments, and accounted for 23% of Canada's overall export value. I would add, too, that our exports actually reached a record level in 2011, the most recent year for which we have statistics.

Operating from coast to coast to coast, the industry is very important to remote communities and generates prosperity in our major cities, notably, Toronto, Vancouver, Montreal, Edmonton, Calgary, and Saskatoon, each of which serves as a centre for global mining excellence for various types of mining.

Looking forward, proposed, planned, and in-place mining projects in Canada amount to upwards of $140 billion of investment over the next 5 to 10 years. Across the country, major projects are seen in mined oil sands, coal, copper, gold, iron ore, and diamonds, among other sectors, with large investments also occurring in environmental and processing areas.

To enable the industry to become an even stronger contributor to Canadian prosperity, industry needs government policy support to meet anticipated long-term demand for Canadian minerals. The efficiency of the logistical supply chain is a major determinant of industry's contribution to the economy, and rail freight service is a major determinant of the effectiveness of the logistics supply chain.

Although MAC appreciates the government's initiative through Bill C-52, it is our view that the bill, unless amended, will not deliver on the government's promise “...to enhance the effectiveness, efficiency and reliability of the entire rail freight supply chain.”

The Canadian mining industry is the single largest industrial customer group of Canada's railways by far. We consistently account for over half of total rail freight revenue in Canada and the majority of total volume carried by Canadian railways annually. In 2011 the mining industry accounted for 54% of rail freight revenue and 48% of volume. As such, transportation legislation is, obviously, very important to us.

I'll give you another, more specific example. Consider one miner's economic input and the impact that the quality of rail freight service has on the success of the business model. This miner ships 24 million tonnes of coal to ports each year. At about 105 tonnes per rail car, that amounts to 225,000 rail cars annually. At 152 cars per unit train, that equates to 1,500 unit trains per year, or five unit trains per day. At, say, $150 per tonne, that translates to $15,750 per car, or $2.4 million per unit train, for a total of $12 million in coal shipped daily. When placed in context, it becomes clear how much rail freight service failures can cost miners, and, in turn, the Canadian economy as a whole. It becomes very difficult to ship other products if the mining industry is not able to ship theirs.

The biggest issue rail customers have is that they do not know what they are getting for the rail rates they pay. The remote locations of many mining operations often leave miners captive to one of the two railways and frequently stranded without alternative modes of transportation. Their captivity, coupled with railways' power to unilaterally impose rates, enables the railways to influence prices and reduce service quality without the risk of losing customers.

Shippers had anticipated that Bill C-52 would follow on the recommendations of the final report of the rail freight service review panel so that when contracting or otherwise dealing with railway companies for rail freight service, the playing field would become balanced. Although a number of the review's final recommendations are found in Bill C-52, it is the recommendations absent from the bill that present shippers with the greatest challenge.

Currently a railway is not required by the Canada Transportation Act to provide any particular elements of service to a shipper unless the railway so chooses. Furthermore, in instances where a carrier does choose to offer service elements to a shipper, the railway is not required to provide any particular level of service.

Despite the recommendation of the review to include elements of service in service agreements, and the broader shipping community's request for the same to be included in Bill C-52, the legislation before us today remains silent on this crucial issue.

Giving shippers a statutory right to a service-level agreement, as Bill C-52 has done, only goes halfway: it gives shippers a right to service without defining that service. Without including the specific elements of service a shipper needs, the bill, at best, subjects the quality of a shipper's rail service to the discretion of an arbitrator in a process that, unless amended, weighs heavily in the railway's favour.

The provisions on service in the act are sufficiently weak and vague that they have been unable to address the service failures that gave rise to the review in the first place. Given that these provisions remain unaddressed in the bill, it is our view that shippers will remain disproportionately and unreasonably subject to railway market power, and the service failures will continue into the future.

In the legislative consultation, shippers sought amendments that would establish, first, a base level of service by requiring the railways to provide specific elements of service; and second, a way to guide the Canadian Transportation Agency or an appointed arbitrator in its interpretation of the adequacy and suitability of the level of service provided by a railway company.

Bill C-52 falls short because these critical components of service remain absent. Consequently, neither the agency nor an arbitrator has guidance regarding the adequacy and suitability of a particular level of service, or even of whether an element of service must be provided by a rail carrier.

The government still has an opportunity to get this right and to achieve Bill C-52's stated objectives of economic growth, job creation, and expanded trade opportunities. The amendments we seek correspond to those of the broader shipping community as determined in consultation with the Coalition of Rail Shippers. Specifically, MAC endorses the six amendments detailed in the document tabled before the committee today, with a specific focus on recommendations one, two, and six, as described in our brief.

There is an opportunity to fix this problem. By implementing these recommendations, the government can allow for commercial negotiations, maintain Canada's export success, and deliver revenues and jobs across the country without incurring any cost. Miners want to be able to work in partnership with the railways in the movement of their products. To do so, however, requires a level playing field.

Thank you very much.

3:50 p.m.

Conservative

The Chair Conservative Larry Miller

Thank you very much, Mr. Gratton.

We now move to the Canadian Fertilizer Institute.

Mr. Larson.

3:50 p.m.

Roger Larson President, Canadian Fertilizer Institute

Thank you, Mr. Miller and members of the committee.

I'm the president of the Canadian Fertilizer Institute. With me today is Ian MacKay, our transportation legal counsel.

CFI represents the basic manufacturers of nitrogen, phosphate, potash, and sulphur fertilizers in Canada. Our members produce over 25 million metric tonnes of fertilizer annually. We export over 75% of this production to the United States and offshore to over 60 countries.

We are a resource-based industry heavily dependent on the railways to move our goods to domestic and offshore markets. Our ultimate customers are farmers. Delivering fertilizer products to them in a timely and effective manner is critical to the world's food supply.

I am pleased to see my colleagues from the railways here today. We have a partnership, one that is critical to the success of fertilizer companies and to the success of the railways.

Our growth in exports offshore and to the U.S. depends on our members' competitiveness. Our companies are investing in Canada's economic growth, with some $15 billion in potash expansions and about $3 billion to date in nitrogen fertilizer expansion. These investments will require the railways to invest in new rail infrastructure and stronger commitments to their customers.

Our member companies have invested in their transportation partnerships with the railways. One of our member companies has 5,500 railcars. It's the second largest railcar fleet in North America. Our other members have invested in tens of thousands of railcar long-term leases to move their potash and nitrogen fertilizers to the United States.

We are participating in research to build a new and safer rail tank car for the transportation of anhydrous ammonia. Our companies are spending hundreds of millions of dollars to build new port facilities in Vancouver and on proposals for Prince Rupert. At our manufacturing plants and mines, CFI members have built sophisticated load-out facilities with the capacity to load 80 to 140 railcars at a time. That's a train two and a half miles long.

The railways have not always met their service commitments, and it's not always just due to bad weather. While there have been significant improvements in service since the problems we experienced in 2007 and 2008, we need to recognize that recent capacity constraints have not been there due to the economic slowdown. What happens when the economy recovers to full level?

Our industry is investing in dramatic growth. Another 10 million to 15 million tonnes of potash and nitrogen fertilizer will need to be moved to our customers, and virtually 100% of this new product will need to be exported by rail.

Today, our members require sophisticated commercial service terms and agreements to meet their individual business needs. Specifically, they need to negotiate new railway commitments on the service obligations, over what I would categorize as the “generic”: a one-size-fits-all provision of adequate and suitable service as currently set out in the Canada Transportation Act. Today, generic, simply stated, will not work.

CFI is encouraged by Bill C-52, the Fair Rail Freight Service Act. We commend the government for bringing forward this important piece of legislation. We at CFI view this as a crucial step towards a better commercial balance between the railways and their freight customers.

That said, CFI has found areas in the bill that give us some cause for concern. The backstop requiring railways to commercially negotiate and deliver on service commitments with their customers, and enabling arbitrators to establish those agreements if negotiations fail to do so, is provided to some extent in Bill C-52, but it is incomplete. We can strengthen the backstop by ensuring that rail customers can ask for service agreements backstopped by commercial dispute resolution provisions.

Our members believe that railway service problems should be resolved by commercial processes. CFI has been a leading advocate of commercial dispute resolution since the beginning, since the federal debate regarding railway service started around 2006.

We were the first to develop and present a timely, effective, low-cost mediation and arbitration process to the rail freight service review panel. CFI supports commercial negotiations backstopped by mediation and arbitration. This panel cited CFI's efforts in their final report. We are pleased that the arbitration process contained in the bill mirrors many aspects of CFI's proposals.

The CFI supports all of the recommendations for changes made by the CRS earlier this week. However, today I want to emphasize two of the six recommendations that are of particular concern to the fertilizer industry.

We start with operational terms in the CRS document. This is known as recommended amendment number two. The scope of the service agreements should be extended beyond operational terms to cover all aspects of the commercial relationship between a railway and a customer. Limiting service agreements to operational terms excludes from consideration by the arbitrator a number of important terms and conditions that one routinely sees in commercial agreements. This makes little sense in practical terms and will result in shippers only being able to arbitrate some of the issues they might otherwise choose to negotiate on. The separation of operational terms from non-operational terms does not exist in commercial agreements, so we propose to the committee that the legislation be amended to strike the word “operational” from operational terms. This will allow the arbitrator to include clauses such as force majeure, dispute resolution, and other standard contractual terms found in commercial agreements.

Secondly, the bill needs to make it clear that service agreements may include dispute resolution terms to deal with service failures. This is CRS's recommended amendment number three. Shippers do not wish to undertake costly litigation to deal with a service failure or to wait for the CTA to conduct hearings. In our view, the most effective way to deal with service problems that arise after an agreement is established between a railway and their customer is under dispute resolution terms proposed by the parties themselves and settled by the arbitrator if need be. As presently drafted, the bill would not allow the arbitrator to include dispute resolution terms, meaning the bill is only treating half of the ailment.

In conclusion, the CFI notes that in Minister Lebel's testimony before this committee on February 12, service disputes relating to the Canadian portion of cross-border shipments will be subjected to arbitration under Bill C-52. Almost 50% of the fertilizer manufactured by our members is shipped to the United States. The transportation service challenges and the service issues that our members face on our exports on cross-border rail movements are the same as those faced on traffic movements within Canada domestically or to ports of export in Vancouver. Our policy and regulatory authorities need to work closely with their U.S. counterparts in an effort to establish and harmonize a commercial dispute resolution model that addresses the total shipment on cross-border moves.

It is imperative that this legislation support the new investment our industry is making in the growth, jobs, and future prosperity of our country.

Thank you for your attention, and I look forward to your questions.

3:55 p.m.

Conservative

The Chair Conservative Larry Miller

Thank you very much, Mr. Larson.

Now we'll move to Canadian Propane Association, Mr. Facette.

I hope I pronounced that right.

3:55 p.m.

Jim Facette President and Chief Executive Officer, Canadian Propane Association

It sounds fine to me.

3:55 p.m.

Conservative

The Chair Conservative Larry Miller

Okay.

We're going to have a PowerPoint here today.

3:55 p.m.

President and Chief Executive Officer, Canadian Propane Association

Jim Facette

Mr. Chairman and committee members, thank you very much for the opportunity today to present in front of you.

We've been involved in this issue for quite a long time, and it's finally come to a head with this piece of legislation, so congratulations to all of you for getting us here.

I know there are an awful lot of people here and an awful lot of questions, so we're not going to take up the full 10 minutes.

Here's a bit about us and who we are.

4 p.m.

NDP

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

Is the documentation in English only?

4 p.m.

President and Chief Executive Officer, Canadian Propane Association

4 p.m.

NDP

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

Since the documents are supposed to be provided in both languages, I would ask that you not go ahead with your PowerPoint presentation.

4 p.m.

President and Chief Executive Officer, Canadian Propane Association

Jim Facette

We provided it ahead of time. You didn't get a copy?

4 p.m.

NDP

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

No.

4 p.m.

Conservative

The Chair Conservative Larry Miller

I guess we had it in both official languages and....

We've got it in hard copy, but I guess not on here. Is that...?

There are supposed to be both.

Ms. Morin, would you go along with...or not?

4 p.m.

NDP

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

I don't agree with having an English-only PowerPoint presentation.

4 p.m.

NDP

Robert Aubin NDP Trois-Rivières, QC

We could all follow along on the paper copy.

4 p.m.

Conservative

The Chair Conservative Larry Miller

I'm sorry, Mr. Facette, we'll have to use the paper copies.

4 p.m.

President and Chief Executive Officer, Canadian Propane Association

Jim Facette

That's fine. I have paper in front of me. No problem.

They should be distributed.

4 p.m.

Conservative

The Chair Conservative Larry Miller

Oh, okay; they're coming.

4 p.m.

President and Chief Executive Officer, Canadian Propane Association

Jim Facette

Sorry, Mr. Chair. We had given a copy to the clerk in advance. No problem.