Transport Committee on March 7th, 2013

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Coderre.

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

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

Thank you, Mr. Chair.

Thank you to all of our guests here today. It has been very enlightening to hear a perspective that is maybe somewhat different from what we've heard before. I want to touch on that a bit.

One of the things we heard from shippers, and I heard very contrary today, is that they shouldn't be talking about the complex network. It should be focused on their needs and their needs only and what they need to get their goods to the market.

I've heard all five witnesses today speaking very much about the need to talk about the complex network. It was very interesting to also see that all the ports see themselves as part of that complex network. You're not saying you're standing outside of it but that you are part of it; you actually expand even further the railways' complexity that they're already dealing with within the confines of their own network.

Mr. Xotta, because you mentioned in your comments that it's essential for a full understanding of the supply chain network, maybe you can start with expanding on why it's so important, and what you'd respond to these shippers as to why it is so important, to be looking at the whole complex network of the shipping system.

Mr. Xotta.

[Peter Xotta]

I appreciate the question.

By way of a bit of context, our experience and focus would be on improving first- and last-mile performance, particularly the things we can do in and around the port complex to ensure that's not a constraint to the free and efficient movement of goods. I believe most of the other ports and their terminals, over the course of the last couple of years, would have that as well. As we undertake that analysis, whether it's improving a road or rail access or adding a marine terminal, as our friend from Global talked about, we're doing that in the context of global demand, the opportunity for Canada, and how the supply chain works across the country. We believe it's important to understand and bring that contextual detail to an analysis on that level, that shippers and railways might be having their negotiations if the CTA, for example, were wading into that.

So as I said in my recommendations, I believe the window of context needs to be fairly broad to avoid unintended consequences, and those who are tasked with that very difficult assignment need to be able to bring that expertise to the table.

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

Of all the witnesses we have here today, would anybody disagree with having to look at the full network? As we've heard from some of the shippers, that to remove that aspect of it.... Would anybody say that really doesn't need to be in there?

I'm getting silence, so I take it that all of you would agree it is vital, as we go forward on this, to have that as part of it.

I want to touch a little on the commercial negotiations being the preferred method. I also heard that coming out here very clearly, and I think we've been quite clear: this legislation is meant to be a backstop. The desired outcome of this is that commercial negotiations become the standard and the status quo, and that we don't have a lot of arbitration happening out of this.

One of the things you spoke about, Mr. Mayer, was this interim step of negotiating. One of the other things we heard from some of the shippers was that they feel the timeframe from when they can enter into this arbitration and have a settlement to move their goods is already too long. What would you say to that? I'm intrigued by your idea of this widening of the negotiated process, but how do we respond to them?

[Andrew Mayer]

Of course, any additional step is going to lengthen the process, but by not doing that you're really risking creating inefficiency in the system, which will represent a greater loss to the entire supply chain.

With respect to shippers' concerns, one thing that puzzles me a little is that they are also impacted by inefficiencies in the supply chain that result in an inequitable or inefficient distribution of rail resources to particular areas, because there's a system-wide effect: it's harder for railways to get their cars to the terminals; it's harder for the terminals to discharge those cars, unload the car to the vessel. But with respect to the interim step, I think we need to have some prescribed timelines to ensure that neither of the parties—the railways or the shippers—have the ability to unfairly extend the mediation period. It needs to be a little more prescriptive in that respect to avoid an overly long process.

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

Mr. Stewart, I have a question for you. You talked quite extensively about relationship building and the need to build relationships in business, and I would agree with you wholeheartedly on that. You talked quite a bit about your relationship with CN, and that both parties are committed to understanding and communication in that relationship. Yet you also said that we really need to have legislation that backstops that. In some ways, you also have the sense that we need to have a legislative process, and yet we really want to see a situation where relationships are growing.

Do you see any setbacks in having those two things working against each other, that these relationships may not develop the way they should if there's this situation where the shipper can go to an arbitrator in a fairly quick fashion?

[Greg Stewart]

I think that the....

[Technical difficulty—Editor]

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

Mr. Chair, how much time do I have?

[The Chair, Conservative, Larry Miller]

Basically, when he's done answering, you'll be done.

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

But he's done.

[The Chair, Conservative, Larry Miller]

Well, we're hoping it's just temporary. You had a little more than half a minute left, so when he comes back on, or if he comes back on, we'll allow him to answer that question.

In the meantime, we'll go to Mr. Daniel for seven minutes.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you, Chair.

Thank you, folks, for being here.

My comment is very much along the lines that my colleague has been talking about. The network is a big network, and we've heard from both the rail companies that they have certain things that they don't control. One of the things they mentioned was the weather, which we don't control either, so we can leave that part out.

The other part was the connection with the port authorities, the loading and unloading process, etc. I was actually quite interested to see that you have SLAs, or service-level agreements, with these things.

Can you tell me a little bit more about what's included in terms of performance measures? Maybe you can expand on any penalties that are included for non-performance or any consequential damages that you have in these agreements. Which are the concerns of some of these shippers?

[The Chair, Conservative, Larry Miller]

Before we go on, we have Mr. Stewart back.

Mr. Stewart, we will come back to you and give you a chance to answer Mr. Toet's question when Mr. Daniel's seven minutes are done.

Go ahead, Mr. Mayer.

[Andrew Mayer]

Mr. Daniel, with respect to the service-level agreements that we have in place at this time, the agreement that I would point to is between the port, CN Rail, and Maher Terminals, our container terminal operator.

Now, the port doesn't have a contract with the railway. We don't receive rail service, per se, and neither does the terminal operator. The contract is between the shippers and the rail lines, but we have an interest in ensuring efficiency of the system. The railways I think have done the right thing by entering into service-level agreements with us.

If there is a breach of a service-level covenant in the agreement, then the remedy is as between the terminal operator and the railway in terms of damages. I'm a bit reluctant to get into specifics of what those are. I think that's something that—

[Joe Daniel, Conservative, Don Valley East, ON]

But you do have performance measures in—

[Andrew Mayer]

There are performance.... I'm sorry to interrupt you; yes, there are. There have been established thresholds for railcar cycle time and dwell time and such other things that really affect the efficiency of the system.

I think our principal goal, from a port authority standpoint, has been to determine exactly where the pinch points are and what the inefficiencies are in discharging cars and loading vessels quickly, so that in our capacity as a port authority we can do what we can do to try to reduce or eliminate those pinch points. It could be infrastructure investments or it could be regulatory changes to provide for more efficiency in the system.

That's one of our principal objects—being able to measure how efficiently the system is operating as opposed to penalizing the railways.

[Joe Daniel, Conservative, Don Valley East, ON]

Okay.

Can I get some of the other authorities to also speak to that?

[Peter Xotta]

In terms of Port Metro Vancouver, our structure is slightly different, although it has the same principles as were described by our friends up north.

Our arrangement is that we've entered into memorandums of agreement with both railways that seek from them a commitment to enter into service-level agreement with individual terminals. We aren't directly party to those service-level agreements.

The memorandum of agreement also outlines responsibilities in terms of collaboration around performance monitoring. That's the primary role the port undertakes to assure ourselves that the intent behind the language is followed through. There's an escalation provision in there that suggests that if we do not see performance in response to critical issues, the various representatives of the firms—terminal, railway, and port—at the most senior level will meet and discuss those issues.

That's the basic structure in Vancouver.

[George Malec]

Sir, in terms of the Halifax connection, we are a party to the agreement that was made between our two container terminal operators and CN Rail. That is a balanced agreement that recognizes there has to be reciprocal obligations on the parties involved. For example, when railcars are provided to the terminal, in order to strip off the export boxes and make those available for import, there has to be a reasonable and prescribed cycle to return those cars back to CN. There are all sorts of nuances and ways this can be slowed down or delayed, which then affects the railways' performance in terms of being able to supply that car inventory for its customers.

The other aspect we're very deeply involved in is the correct monitoring of the metrics. One of the biggest problems leading up to the federal rail review is different parties pointing their fingers at each other because they weren't necessarily using an agreed-upon set of metrics; they weren't arguing apples to apples.

One of the most important things we can do, and have done, is to make sure we agree exactly what we're measuring and that all the parties to the agreement concur with that. Then we have to set up an IT process where that data is collected, verified, and distributed to the parties that are signatories to the agreement to verify that these are in fact the correct metrics. There's no blame game or finger pointing: “Well, you're not measuring the correct thing”, or “You're not measuring the way we measure it.” That's as simple as agreeing, for example, on questions such as when the ship actually stops working, when you start the clock on the terminal time, when you start the clock on spotting the cars on the terminal, when the terminal releases the cars back to the railway, and when that clock starts for your metric.

That's a small example of the complexity and sophistication and agreements required, just on that rail terminal interface alone.

Thank you.

[The Chair, Conservative, Larry Miller]

Does anyone else care to comment?

[Joe Daniel, Conservative, Don Valley East, ON]

Before I ask my next question, have I got more time?

[The Chair, Conservative, Larry Miller]

Yes. You have almost two minutes.

[Joe Daniel, Conservative, Don Valley East, ON]

You've obviously successfully been able to negotiate all these criteria for quality and performance. Is there any reason some of these other port authorities couldn't do the same?

Mr. Mayer.

[Andrew Mayer]

Mr. Daniel, I think there are performance metrics that are built into the service-level agreement that's in place between the port and Maher and CN. I would mirror Mr. Malec's comments that the key is to ensure that you have a consistent and fair way of evaluating performance. I think we have accomplished that in this agreement.

This is something we need to expand, and there would be merit in expanding into other sectors of our business.

[Joe Daniel, Conservative, Don Valley East, ON]

Let me just clarify that. Initially you said you have no agreement with the railways and you're not responsible for some of these things.

Did I get it right?