Transport Committee on Feb. 28th, 2013

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Toet, for five minutes.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

Thank you, Mr. Chair, and thank you to all our guests today.

Mr. Mongeau, I want to start with a question for you. It's in regard to the desire, under the arbitrated settlements the shippers are looking for, to give shippers.... If I go through the list of the things they want under the service obligations, and if there's absolutely.... What I also understand is being asked for is that the arbitrator is not to consider the effects on the complete network of each one of those individual requests and asks. Is it possible that the accumulation of all those different contracts, without the assessment of the network effect, could overwhelm the rail freight system?

[Claude Mongeau]

I think it's a very real risk. I was surprised. I think it's FPAC or the coalition yesterday that made this suggestion.

The railroad industry is like a bus service. You cannot pick up everybody first, and you cannot leave, get someone, and drop them off first. You have to have a run. If a customer decides he would like his switching at eight o'clock in the morning because that's after he comes back from Tim Hortons and he likes it at eight o'clock in the morning, and he goes to an arbitrator and makes the case, he has a fifty-fifty chance that the arbitrator will say, “You know what? That big, bad railroad. I'll go with you.” If every other shipper would like to have their service at eight o'clock...we just can't service everybody at once.

The network impact of railroad services is just the nature of our business. More than 60% of what we move either originates or terminates on another railroad. When we move grain—it's unfortunate Mr. Goodale has left—we cannot load in the countryside a car that has not been unloaded at the port. If there are problems with rain in the port, or if there's clogging in Vancouver and we don't have a flow of cars coming back, there is nothing any railroad CEO can do. Understanding the network nature of our service, understanding all of those details and how they come together, is the devil we have to deal with commercially.

I don't know that any arbitrator or antitrust lawyer can solve that. That's why there's a problem with the regulation you're considering.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

Quite often I've heard from the rest of our guests that the economic slowdown basically seems to be, in their mind, the only reason that CN's and CP's performance rates are up, or CN's specifically. You talked in your brief about how you hit record lows of shipping every month in 2012. I look at that and say that actually your shipping rates are up. You're shipping more product than you ever have before. How does the economic slowdown jive with your having better service levels over that period of time when actually you're shipping more product than ever? Maybe you can help me try to understand that.

[Claude Mongeau]

Actually, we have gained about $900 million of market share over the last three years while we're debating service, so we're doing something right. We have hit the export record in mining. We've hit the export record in grain. We're gaining market share against every mode, including pipeline. Last year CN, in every month consecutively, hit a record level of traffic. We've never in our history moved more traffic in basically all of our commodities, except forest products, steel, and a few construction areas, but we've made it up with crude oil and intermodal and potash and grain. Year to date, even with the difficult service we have had this winter, we have moved more of the crop since August 1 than we ever did in our history.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

I'd appreciate just a quick answer on this one.

Is CN in the business to deliver a service and to make a profit for your shareholders? Is that how you would characterize the bottom line of CN?

[Claude Mongeau]

Yes, that's our mantra, that we are the most efficient railroad. There is no way we can cut costs the way we did over the last 15 years. The only way we can satisfy our shareholders is if we grow faster than the economy. The only way we can do that, and I say it in every forum—in front of government, in front of shareholders, in front of customers—is by helping our customer win and growing faster than the economy. Service is absolutely central to our business agenda.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

I asked that question in light of the fact, obviously, and I think you sort of answered it already.... Would your shareholders be happy with you if you were essentially not moving the maximum capacity that CN is able to move at any given time with the infrastructure and investments that have been made by your shareholders in CN?

[Claude Mongeau]

If I don't provide good service for an extended period that's not excused by weather or network issues, I would lose my job, sir.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

That's pretty tough.

[The Chair, Conservative, Larry Miller]

You might have a few seconds if you want to close it out, but we're out of time.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

I was hoping to ask Mr. Larson something really quickly.

In response to Mr. Harris's question about the commercial contract and their obligations, you basically said they would only have to live up to the commercial contract and their obligations under it only, even if it was a third party's problem. You never really answered his question about what happens when there's a third party, another party, that really is the reason.... It doesn't change the fact that CN has signed an obligation to you. It kind of, to me, seemed like a roundabout way of not really addressing Mr. Harris's question about what happens when a third party is responsible and CN or CP, the rail company, really is not the one that caused the delay.

[Roger Larson]

I thought I did answer that. I thought I said the arbitrator would obviously consider the facts when they were dealing with any complaint from a customer regarding whether or not the terms of the contract had been met.

But I want to say that service has definitely improved since Mr. Mongeau has taken over as the CEO of CN. What his customers are asking for is that we can ensure that we have sustainable improvements of service that will survive whoever his successor might be at some point in time, and who may not have such a positive attitude towards his customers.

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

Mr. Mongeau, you are not allowed to retire.

[Voices]

Oh, oh!

[The Chair, Conservative, Larry Miller]

We're almost out of time.

Mr. Poilievre.

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

You are customers of CN. All of you have your own customers, right?

[Witnesses]

Yes.

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

And you sign agreements with them.

[A witness]

Yes.

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

When there is a breach of those agreements, what do you do?

[Roger Larson]

You find a way to meet it.

I'll go back to a number of years ago. Kerry Hawkins, who was the CEO of Cargill at the time, said, “We have a contract with McDonald's, and every day we have to deliver x thousand pounds of beef to every restaurant across the country, and if we don't meet the terms of that contract, we lose that contract.”

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

Right. Okay. If there's a further breach, you can go to court for a remedy, right?

[Roger Larson]

We can't be going to court on a service failure. If Cargill doesn't deliver to McDonald's their hamburger, they can go to another meat company. We can't go and get service from another mode of transportation.

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

But you can go to court, right?