Transport Committee on Feb. 28th, 2013

[Roger Larson]

There are dispute resolution clauses in confidential contracts, in my understanding, and some shippers have been able to negotiate those.

[Jeff Watson, Conservative, Essex, ON]

Is there anything that wouldn't allow an arbitrator to include it, or do you want him to impose it by condition?

[Roger Larson]

Is there anything in this legislation that would allow the arbitrator to impose a dispute resolution clause in the service agreement?

[Jeff Watson, Conservative, Essex, ON]

I didn't say “to impose”; I said “to include”—

[Roger Larson]

To include it—

[Jeff Watson, Conservative, Essex, ON]

Government lawyers would say yes, I would think.

[Roger Larson]

If the railways were to say “Yes, we will agree to include dispute resolution clauses if the arbitrator asks us to”, that would be something. I'm not sure if the railways would be willing to consent—

[Jeff Watson, Conservative, Essex, ON]

You're asking for the right for the arbitrator to impose it, though.

[Roger Larson]

We're asking that if the shipper requests it, it will be one of the terms and conditions that the arbitrator will have the option of imposing in establishing the service-level agreement, but the arbitrator does not have to pick from one of the party's terms or the other. It is interest-based arbitration, and the arbitrator, who I understand will be someone from the agency, will have the power to include a dispute resolution clause. Right now the act does not include that because the act says “operating terms”, and our understanding of the definition of “operating terms” is that it does not include dispute resolution.

[The Chair, Conservative, Larry Miller]

Thank you. Your time has expired, Mr. Watson.

I'll move to Mr. Aubin for five minutes.

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

Thank you, Mr. Chair.

I want to thank all the witnesses for giving us insight into their daily realities. It helps us get a better sense of the issue.

My first question is for Mr. Mongeau.

I would ask that you keep your answer succinct, as I have only five minutes to speak with each of you.

The mere fact that we're studying Bill C-52 signals to me that it's meant as somewhat of an arbitration mechanism to rectify a situation that the market has not been able to correct on its own for a numbers of years now.

In a minute or less, could you give me your opinion on this inability to reach an agreement with shippers, an agreement that would have prevented the need for a bill like this?

[Claude Mongeau]

It's quite simple. All transportation contracts, in all sectors, are reached without government intervention and without arbitration. The fact that we still have some residual regulation in the railway sector has to do with history. The fact that associations are asking parliamentarians to consider adding legislation and to examine service, as well as the fact that shippers have been asked to voice their complaints about the railways, shows that, in the railway sector—unlike in other sectors—there is a tendency towards regulation.

Our view is that commercial forces are the best way to encourage innovation, improve efficiency and achieve better service quality.

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

Thank you.

I would now like to hear what the shipping groups think of the six proposed amendments.

What I'd like to know is, if none of the amendments are adopted, would you still consider this bill a step in the right direction.

Do you think it has the potential to lead to numerous arbitration cases? Do you think this arbitration formula is fair? It seems to me that, after a few arbitration cases, it would be pretty easy for a company with a virtual monopoly to have all the case law in their favour. The shippers would be on their own in defending themselves.

Is this a David versus Goliath situation, or am I misinterpreting things?

You can take turns responding. You may have the rest of my time.

[Richard Paton]

I can start. This comes back to Mr. Goodale's question as well

In our view, without specifying clearly what a service agreement is, we will end up with endless arbitration, and it won't be in the interests of commercial shippers and it will not be in the interest of the railways. Just to be clear, we don't regard this as regulation. That's not the appropriate word here.

We're looking for a framework within which commercial negotiations can take place successfully with the least amount of government involvement. Whether it's penalties and all the rest of it...my members would be quite happy—they've been very clear with me—to have service agreements and to never, ever have an arbitration, to never have an appeal, to never, ever have the federal agency involved. That is the perfect system for us because we can work with CN and we can work with CP.

This amendment number one, which is the one that we feel is totally essential, would set that playing field, and it would probably be to the benefit of shippers and of railways. It would enable the government to achieve the legislation, the aims they have specified.

[François Tougas]

As the minister said when he introduced his comments before this committee, this is not a normally functioning market. There are many, many parts of this market that do not work, so to suggest that normal commercial relations are going to prevail in the absence of a framework is, frankly, ridiculous.

When you have a bunch of competitors vying for a service—giving an opportunity to the receiver of that service to choose among them—all of the providers of the service try to be the winner. When you don't have that, when you have either a monopoly or a duopoly, you fall to the lowest level of service that is possible and that is still within the advantage of that supplier.

It's not to say that a monopoly will always provide bad service. That is not the case. In fact, they may provide the very best service. The problem is that we have a market structure that does not give direction to the suppliers of the service as to what they are supposed to do and for the receivers of that service to know what they might expect. There's not a normal negotiation going on. It's not a normally functioning market.

That's the problem we're trying to address. It's not the heavy hand of regulation. It's a way to establish a framework that gives parties on both sides of that negotiation an opportunity to know the things they might get, such as if they are allowed to get service five times a week as opposed to three times a week. It's those kinds of things.

All of those, even within the framework that the government has advanced in Bill C-52, are going to be imposed, so we shouldn't get stuck on the word “imposed”. Ultimately, every single provision is going to be imposed if the arbitrator thinks it makes sense. If that arbitrator doesn't think it makes sense, then it won't be imposed.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Holder, you have five minutes.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

I'd like to thank all of our guests for attending today.

It's interesting, because I'm juxtaposing some of the comments made today with the comments made at our last meeting.

If I may, I'd like to ask you a question, Mr. Mongeau. You said in your testimony that if you don't give good service, you lose the business. Who do you lose it to?

[Claude Mongeau]

We lose it to trucks. We lose it to pipelines. We lose it to a combination of trucks and railroads. We lose it to other railroads. We lose it because we compete in every business we deal with.

It only takes a regulatory lawyer like François to tell us that we are in a non-functioning market. The reality is there is no difference between two railroads and two coal terminals, or three grain elevators, or two airline carriers. The only difference between airline carriers, grain elevators, and the waterfront terminals is that the railroad is still regulated, and we have regulatory lawyers trying to convince you that it's a non-functioning market.

[Ed Holder, Conservative, London West, ON]

I suspect that the air industry won't be the competition here.

Perhaps I could ask a question just based on that. To help my understanding, I'm going to ask you all, very briefly if you can, just based on that comment as well, what percentage of your members have competition in their locations to move their freight in whatever way. Let's take air out of it, but let's say there might be legitimate trucking or other options, or CP, for example.

Let me go through it quickly, and I'll give you a chance to think about it.

Ms. Cook, what percentage of your members would have competition to move your freight?

[Fiona Cook]

Two-thirds.

[Ed Holder, Conservative, London West, ON]

About two-thirds.

[Fiona Cook]

But that's not competition in other modes; that's just whether we have CN or CP.

[Ed Holder, Conservative, London West, ON]

Let's just take CN and CP; that's actually a very good—

[Fiona Cook]

But let me just clarify here that the two railways don't necessarily compete. Although we have interswitching regulations, they don't work all the time. So to say that we have the choice and one choice is better than the other, that would be—

[Ed Holder, Conservative, London West, ON]

May I come back to that point with you, if you don't mind?