Transport Committee on March 7th, 2013

[George Malec]

Good afternoon, Mr. Chairman and members of the panel. Thank you for the opportunity to make a commentary and presentation before the panel this afternoon.

Halifax represents something more for Canada in terms of the strategic outreach in global trade that we're engaged in today. The Port of Halifax is Canada's only deepwater, east coast, and fully Panamax/post-Panamax vessel-capable marine outlet that facilitates and supports Canada's overall trade objectives, particularly in using the Suez Canal through Southeast Asia.

To that end, what we talk about, and what we bring to the table, is bigger than just the parochial concerns of a port: we understand our relationship as a part of an overall supply chain that is important to Canada's economic development. Going forward on that concept, Mr. Chairman, right now 65% of our intramodal traffic is actually carried by rail, by CN, into the key inland markets that some of my good colleagues like Peter Xotta have already described, which benefit all Canadians.

We have of course seen a very similar evolution over the last two years. Subsequent to the evolution of the federal panel rail review process, which was a very constructive undertaking by the government, we have witnessed a very significant outreach and a very significant commitment on behalf of CN in working with our stakeholders and ourselves towards transparency and greater service levels of accountability and aggressive pricing structures to facilitate the use of the infrastructure provided in the Port of Halifax.

We were in fact the model and the first port to enter into a port authority terminal operator and rail combined key performance indicator metric, which, similar to the experiences you've heard about from Global, from Mr. Xotta, and from the Port of Prince Rupert, etc., has produced demonstrable and tangible benefits. It is our hope and intention to work with CN and our other stakeholders, because, as you have heard in commentary before, it is a complex, integrated supply chain. The efficiency of the railroad has to be equally and fairly balanced by the expectations and the commitments of shippers and, most importantly, of the terminal operators that are the main partners in the rail transfer.

We see it as a very balanced, very complicated supply chain. We favour the commercial solutions that have been proven to be very successful so far. We do reinforce and echo the comments made by some of the panellists from Prince Rupert and the Metro Vancouver Port Authority: that due to the complexity and the supply chain, it has to be treated in a very cautious manner before any regulatory process is in place. We appreciate the complexity around the supply chain. That's why we encourage a good deal of caution with respect to forced, compulsory measures under Bill C-52.

In summary, Mr. Chairman, Halifax recognizes and agrees with the comments made by our competitive and in fact complementary port partners in Prince Rupert and Vancouver. We do concur with the submissions and recommendations they've brought forward. Rather than restating all of that, we'll submit to you that it is the correct way to go forward from the perspective of the Halifax Port Authority as well.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Malec, for keeping your comments brief, as all of you did.

With that, we're going to go right to questioning.

Ms. Chow, you have seven minutes.

[Olivia Chow, NDP, Trinity—Spadina, ON]

I have a question for the Port Metro Vancouver team. In one of your recommendations—recommendation 2 in your previous recommendations—you talked about performance monitoring.

Are there guidelines right now from the port authority that say x percentage of trains arrived on time, therefore y number of containers were able to depart the port with their shipments, and/or if they didn't arrive on time, this is the dollar amount lost as a result, and some of the shippers end up booking three or four containers just in case their grains, for example, don't arrive on time? Are there performance measurements that are standard amounts for all port authorities that receive quite a lot of shipments from rail?

I'll start with Vancouver.

[Peter Xotta]

As I mentioned in my comments, Ms. Chow, bulk supply chains are very diverse throughout the country at each port that handles bulk commodities. It's inherently more difficult to standardize performance metrics within those supply chains.

Having said that, you may be aware of the work that certain parties undertake on behalf of the Government of Canada to monitor the grain supply chain, for example. There are methodologies in place to do that.

A lot of our comments, both ours and those of our competitor and partner ports, will be on the intermodal supply chain that handles containers. The ability for the port to monitor that activity, which is very competitive, is much higher, so we have had tremendous success working with the railways and other service partners to establish performance targets and then to measure against those.

For example, in Vancouver, going back to 2010, we established a target among the various supply chain partners to measure our performance against a three-day dwell target. In other words, containers that were received in Vancouver and moving inland by rail should exit the terminals in three days or less. I'm pleased to say that in the two years since we initiated that activity, our performance generally is down around two days, which is very competitive with other ports up and down the west coast.

We have a very strong commitment to transparency and visibility of the performance of the supply chain among those partners. In fact, just prior to this session I was with Transport Canada and with the railways and the terminals discussing this very issue.

So the standard, as we've defined it, is less than three days. As I said, our performance is much better than that consistently, over the last 24 months particularly.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Thank you.

In terms of CN and CP delivering grains, let's say, on time to the port, have you noticed increased efficiency, or have there been more problems? Have you noticed a trend?

I would imagine that because of all this discussion concerning this bill...and prior to that there was the Dinning report, and before that the stakeholder review. During all this discussion I would imagine the performance would have improved. Or is that not the case? Have you observed any trend?

[Peter Xotta]

I would observe that, generally speaking, the performance of both primary rail providers in our gateway has improved considerably. The agricultural supply chain on the west coast is undergoing significant change by virtue of changes to grain transportation and the change in the Canadian Wheat Board's role in that.

We have also focused on one of the other unique challenges on the west coast, and that is dealing with agricultural loading in the rain. The weather in the fall here creates some other operating challenges that back up into the supply chain.

So there are activities under way to address or to work on those things collaboratively, but I would say our observation is that, generally speaking, the improved supply chain performance that we have been able to measure in the container side of things is mirrored, to greater or lesser degrees, in other supply chains as well.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Do you think the penalties coming out of the arbitration should go to the government or to the parties—perhaps the shippers, for example? If the shippers didn't get the service they wanted, or the service agreements weren't put in place, etc., do you think the penalties should come to the government or should go to the shippers?

[Peter Xotta]

That's a question that I'm not sure the port has taken a strong view on. I think our recommendations around the first priority being commercial agreements between parties would suggest that if there are reciprocal incentives or penalties, it would be amongst those commercial partners.

We could certainly comment on that more fully if the panel and the committee so desired us to put more thought into that, but that would be my initial observation and response.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Right now, the bill is only for parties that don't have a service agreement. Do you think the bill should be expanded, that the arbitration should be available to everyone, whether they are going to get a service agreement or they already have one, or do you think it should only cover the new service agreements?

[Peter Xotta]

I think from the port's perspective, I'd reiterate our caution that developing one template may be a challenge. So appreciating that this places an inordinate challenge before the committee, we're concerned that there could be unintended consequences in our desire to make this as simple and effective as possible.

Our view, though, is that the legislation should encourage those private partners to come together. Absent that, those parties that desire a service-level agreement and can't reach one without the support of the provisions for the legislation in process should be able to avail themselves of that process.

[The Chair, Conservative, Larry Miller]

Okay, thank you.

Now I'll move to Mr. Coderre for seven minutes.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chair.

Thank you, gentlemen.

My question will be for Mr. Stewart and Mr. Edwards. Because that's the reason we have Bill C-52, do you believe the law would give shippers more leverage to negotiate service agreements? You could have the railways saying they don't need that and some of the ports saying, well, they already have the commercial agreements, so why bother? From a shipper's point of view, what would you think?

I'll ask Mr. Edwards first.

[Stephen Edwards]

I'll comment on the intermodal side, which is where I'm qualified to comment. Typically, the customer of the railroad on the container intermodal business, similar to us as a terminal operator, is largely the shipping line offering a through service from Asia to Toronto and Montreal, for example. The consolidation of shipping lines in recent times has led to significant buying power from our customer base. So their contracting capability between railroads is quite significant.

What I fear from this approach is that when arbitration is an available option, it would cause a more hard-line negotiating position to be taken earlier in the process rather than reaching a commercial agreement. This is an industry that is used to long-term contracting. It is an industry that is used to multi-year, multi-port contracting and very significant multi-million dollar contracts as a whole. What I fear, with the ability to have arbitration as a backstop, is that it would create a harder line—

[Denis Coderre, Liberal, Bourassa, QC]

All right.

Go ahead, Mr. Stewart.

[Greg Stewart]

In terms of whether we think it will give some more leverage to the shippers, in short, the answer is yes. In our case, for example, we already have a commercial agreement established with CN, and in there we do have dispute resolution processes that we follow, and we follow them to great success. It's a joint effort of both parties to pursue those dispute resolutions, but I think we approach the situation as equals, and the service-level agreement will allow people to do that.

What I would argue, though, is that I think arbitration is a little heavy-handed. I would really be in favour of pursuing mediation. When we've run into situations in the past, we've sought third parties that can provide some perspective. That would be my comment on that.

[Denis Coderre, Liberal, Bourassa, QC]

Okay.

Mr. Mayer, Mr. Malec, and Mr. Xotta, my understanding is that we shouldn't have the bill at all, because if you want to replace mediation instead of arbitration, you put in a new rule and that's it. Since the Dinning report, railways have got scared and they've improved their agreements, so why bother? Is that a fair comment?

I'll ask Mr. Mayer first.

[Andrew Mayer]

I think we need to accept the fact that in some circumstances it won't be possible for a party to actually, in good faith, negotiate an agreement. In that sense, Bill C-52 does suggest a mechanism for resolving that impasse.

I think what's missing is an interim step to facilitate a mediated resolution of a dispute without recourse to arbitration. Arbitration really should be a last resort. If there is going to be arbitration, it should be as I suggested, something that contemplates the interests of all users of the supply chain.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you.

Mr. Malec.

[George Malec]

I would have to say that's a very concise response from my colleague.

We are conscious of the fact that this bill has been driven, obviously, by a need generated, let's say, eight to ten years ago, from shipper dissatisfaction. At this point we've seen great forward thinking and progress in terms of the commercial arrangements between shippers, port authorities, terminal operators, and the railways.

Having said that, this is an ongoing process, and we do think there is a rationale underlying Bill C-52. We do agree with the fact that we have to be very careful before we move to prescriptive solutions because of the complexity of the supply chain and the fact that these have to be very balanced. It's not just about the railway; there are all sorts of obligations on each party in the supply chain.

[Denis Coderre, Liberal, Bourassa, QC]

Mr. Xotta.

[Peter Xotta]

I would echo the comments of Prince Rupert and Halifax.

We're conscious that the feedback received by government over the last number of years as a result of shipper concerns has led us to this place. Shippers are also concerned that the improvement in performance that we believe they've seen is something that could be reversed over time, and they're anxious to ensure that doesn't occur.

The point in our submission today is to say we think the committee needs to be aware of and conscious of the improvements that have been made and that we don't inadvertently undermine that progress.

[Denis Coderre, Liberal, Bourassa, QC]

Basically, if we don't have that mediation, it would create another imbalance, and therefore this is what we should do.

But who will decide the criteria if everybody is in good faith?

Mr. Mayer?

[Andrew Mayer]

I think that's a role for—

[Denis Coderre, Liberal, Bourassa, QC]

Another group? Another study?

[Andrew Mayer]

No, not another study. Honourable member, I believe the CTA, for example, could take on that responsibility, which is to determine what steps have been followed by both parties to seek to negotiate an agreement and evaluate that.

What I think should be avoided is a situation where one of the parties, and it may well be a shipper, is using the system as a way to exert commercial pressure on the railway to enter into a service-level agreement that creates an inefficiency.

Arbitration is a big hammer. If there's an automatic right to arbitrate, there's a potential that the shippers will be able to create an artificial commercial pressure that will result in an inefficiency in the system.