Thank you, Mr. Chairman.
On behalf of CP, it's my pleasure to be here today.
As you know, CP transports bulk commodities, merchandise, freight, and intermodal traffic. We are a core enabler of the Canadian economy, and we ship commodities worth about $135 million every day.
Up front, I would like to spend a little time outlining the significant traffic volumes moved by CP and the complexity of the network we optimize. Last year CP and its supply chain partners moved 40 million tonnes of grain, 23 million tonnes of coal, 11 million tonnes of potash, 2 million containers, and 162,000 carloads of finished autos. For 2013, you can add about 70,000 carloads of crude oil to the mix. In total last year, we moved 2.7 million carloads of traffic with an average length of haul of about 1,400 kilometres.
To accomplish this, we run a network that spans 22,000 route kilometres in 6 provinces and 13 U.S. states, which serves about 3,000 customers, originates 10,000 shipments a day, and interfaces with 5 other class 1 railroads and numerous short lines.
At CP, the importance of the supply chain is elevated further by the fact that over 70% of our traffic comes through or exits from a Canadian port or a border gateway. Our 3,000 customers are all served by the same set of expensive resources, including about 40,000 rail cars, 1,450 locomotives, and over 1,000 train crews.
As with any network or supply chain, service issues, vessel delays, labour shortages, port congestion, inclement weather, incidents, as well as other factors affect CP and its connections. Issues in any one area can often spread to negatively affect the network generally.
I would like to state that throughout the rail service review process, we maintained there was no need for additional regulation between railways and customers as it is the company's belief that reciprocal commercial arrangements, coupled with a stable, balanced regulatory regime as outlined by Mr. Dinning, remain the best approach to promote supply chain coordination, investment, and financial sustainability. Obviously, however, the government has decided to move forward on a different path.
Therefore, today I want to speak specifically to two amendments that would go a long way to bringing balance to the bill.
The first amendment would be to paragraph 169.31(1)(e) and would remove the ability for an arbitrator to determine if a railway can charge for a service in an imposed service agreement. We think that this change goes beyond service arbitration and could force us to provide a costly service at no charge.
The second amendment would be amending paragraph 169.31(3)(a) to clarify that movements subject to confidential contracts cannot be subject to arbitration under this new provision. This change in the wording of the bill would ensure that going forward, CP's approach to negotiating confidential contracts is protected. We are concerned that customers will be able to get an imposed service agreement after they have negotiated a confidential contract on commercial terms. This type of arrangement could allow some to abuse the process by not negotiating in good faith the first time and trying to get a premium service for a basic rate.
I would also like to take this opportunity to make it very clear that we think the rail service review panel's commentary in 2010 on railway market power was incorrect as well as unsubstantiated and, as we argued at the time, should have been withdrawn.
The panel's finding of market power was made on the basis of only a cursory discussion and without any research, or indeed reference to research. For example, the panel did not discuss what the relevant markets might be in respect of which railways allegedly enjoy market power. Nor did it discuss what direct or indirect evidence exists to support a finding of the existence of market power in the relevant markets. Nor did it consider constraints on the exercise of market power, including the countervailing market power of purchasers and the impact of the large suite of existing shipper remedies, including the grain revenue cap, interswitching, final offer arbitration, reasonableness of a charge, and running rights, that all of these have in the competitive marketplace. This is unfortunate, and it diminishes the overall utility of the report.
Since 1987, when confidential contracts were introduced, bilateral commercial negotiations have created a highly competitive rail supply chain that has resulted in the lowest transportation rates in the world. For example, system-wide at Canadian Pacific, we move a tonne of freight a mile for 4.1¢. That is truly remarkable. Compared to overall commodity values, the cost of rail transportation in fact compares very favourably.
The incredibly efficient rail supply chain in Canada is in part an enabler for Canadian exporters, who are highly successful in world and North American markets even though they sometimes are thousands of kilometres from tidewater or the marketplace. We must ensure that the regulatory regime is balanced and continues to support commercial undertakings first and foremost and is designed to provide a backstop that does not undercut all of what we have achieved to date, as well as support ongoing innovation that future success will require.
The current regime, with its commercial underpinnings, is also supporting significant levels of capital investment. This year at CP we will invest over $1 billion. In today's highly competitive global economy, customers, railways, and supply chain partners all have greater service expectations. Every car on CP has a plan before it is even loaded. A major input into these plans is a forecast of future traffic movements. The key is that as many movements as possible are forecast and predicted for a long enough period of time. This is because of the need to supply the crews, locomotives, rail cars, yard, and main-line capacity that I spoke of, all of which are expensive and not available on a moment's notice. We spend a lot of time, effort, and money to get assets to the right place at the right time to handle traffic. Getting those assets in the right place takes substantial lead time.
Furthermore, when forecasts are not accurate or customers do not have traffic to be moved, the cost is going to be borne by the railway. Everyone who rides a bus would like it to come at the time that most suits their individual needs, but bus routes are planned to provide the best possible service to the most people, rather than being tailored to reach each rider's specific desire. Service on a rail system is much the same: the system must perform for the benefit of all, not just one.
It terms of the sustainability of improved service, we are a strong supporter of working together with all of our supply chain partners and customers on improving reliability and predictability across all elements of the supply chain. This is why we have agreements in place with over 70% of our customers, by revenue, as well as our major ports and terminals. The only large part of CP's business not covered by agreements is grain, where the revenue is regulated by government.
The agreements we've put in place cover a range of best practices, including performance targets, performance indicators, dispute resolution, communication, and business development. They are delivering results. For example, container dwell at the port of metro Vancouver is consistently running at less than 2 days, and recently we announced a reduction of one full day on our transcontinental container service from Vancouver to Toronto.
The more recent improvements in the rail supply chain have come out of these collaborative efforts to improve reliability and predictability. Therefore we support the Dinning approach to service agreements, as it allows for the development of mutual accountability among customers and railways. That is why it's critical that if a regulator is going to impose service, that service cannot be considered from the perspective of any single customer in isolation; one must look at the overall network.
I have a couple of additional facts, Mr. Chairman, pass on. In fall 2012, the export grain supply chain through Vancouver set an all-time record, with extended periods of close to 5,000 rail car on-loads per week. Improvements of this magnitude are not easy, and we'll be happy to talk about that.
We also introduced a new remedy that allows for imposed service by a regulator. Any of that must be done very, very carefully. At a minimum, it must support commercial undertakings, as I've tried to stress. It should reflect the idea that visibility on the traffic offering is an important consideration, and service must be viewed from a perspective that looks at the entire network
In closing, I simply want to reiterate that throughout the service review we have maintained that there is no need for additional regulation among railways and customers. We're firmly of a view that continued improvement in our supply chain will be achieved through offsetting commercial undertakings—in particular, better traffic forecasting.
Thank you, Mr. Chairman.