Transport Committee on March 7th, 2013

[Andrew Mayer]

No. What I meant was we're not buying a product from the railway. The railway is not providing rail service to us.

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

Right, but you are providing a service.

[Andrew Mayer]

We're a participant and we're a stakeholder in that service, so the railways have voluntarily entered into a level-of-service agreement with the terminal operator and the port.

To be frank, I think the rail service review process was probably a motivator and encouraged railways to enter into those types of agreements with our stakeholders, with the terminal operator and with the port.

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

But clearly they're claiming that any performance effects you have at the port level affect the entire network. For example, if you don't unload their grain at the rate you have agreed to in your agreement and the carriages cannot be shipped to wherever they're supposed to be, they have no consequence to that, which directly affects the shippers.

[Andrew Mayer]

That's true. I suppose, to use a crass phrase, the meat in the sandwich is the railway, and the remedy for the shipper in that case is the railway. The railway, in turn, would then exert commercial pressure on the terminal operators to make their system more efficient so that they are not having to deal with a penalty at the other end of the supply chain.

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

So this bill makes sense?

[Andrew Mayer]

In that sense it makes sense because it involves other parties, so long as the terminals, and the ports as well, have similar pressure that they can exert upon the railways.

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

Are there any comments from any of the others?

[The Chair, Conservative, Larry Miller]

You're way over time. Maybe we'll get back to it, Joe.

Mr. Stewart, could you respond now to Mr. Toet's question?

[Greg Stewart]

I just want to confirm that I heard correctly. The question that's on the table for me is, how do I reconcile the legislation with the preferred arrangement of commercial agreements, and do I see any challenges with that arrangement? Is that correct?

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

That's fairly accurate, yes.

[Greg Stewart]

In terms of the reconciliation of the legislation versus the commercial agreements, obviously my preference is that we would stick with the commercial agreements. I do recognize, though, that the past history of some of the railways' performance would dictate that we need another backstop, which is a word that seems to be tossed around this committee, but at least a minimum expectation set from the Canadian businesses around how that relationship will be conducted. I think that's what the legislation does.

I think beyond that it provides the flexibility for companies to then sit down and really work through what the issues are for each of the operations they are providing rail service to.

Where I think the challenge comes is that today, our experience with CN under the current leadership of Mr. Mongeau, the CEO of CN, is that he and his management staff have done a fantastic job of trying to understand our business, what our needs are, and developing programs or solutions that can help address what our needs are. The challenge is that with every company strategic directions change, leadership changes. I think the legislation works and is effective for making sure that we don't suddenly lose the progress we've made, and that we can continue to have commercial discussions in a forum that allows both companies to partner together and to show what we need to achieve for success.

The challenge will come if one or both parties don't actually want to make that commitment, and it's going to come back to the individuals to make that commitment. Arbitration to me, again, is a little bit heavy-handed. I think mediation would work, and the idea of mediation to me would be to make sure that everyone understands the complexities of the system and how each party plays a role within that system.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Stewart.

We'll now move to Mr. Aubin for five minutes.

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

Thank you, Mr. Chair.

My thanks to all the guests who are here with us this afternoon.

Since I only have five short minutes, I will direct my questions to the port authority representatives.

When I read the Dinning report, among others, I felt that you had used some rather harsh words. Here's a quote from the report to give us a little background:

Port authorities reported that poor cooperation between railways and other stakeholders limits system efficiencies. All groups indicate there are no effective means to hold the railways to account...

What I have been hearing from the beginning of the hearings is that, since the bill was introduced, a number of improvements have apparently been made. I am not sure if they happened miraculously, but there have apparently been some.

My first question for you is a preamble to my second question. Do you think those improvements are temporary or do you really feel that there has been a lasting change in your relationships, even though Bill C-52 has not become law yet? If possible, could you give me a specific example?

You can answer in the same order as you gave your presentations, starting with Mr. Mayer.

[Andrew Mayer]

Honourable member, I think we have to expect that the problems are not going to go away. Our goal is to increase the flow of Canadian goods and to expand Canadian trade. As a result, I think everyone will be pressed—port authorities, shippers, and rail operators—to continue to provide appropriate levels of service. It's going to require investments in infrastructure at the head end, along the rail lines, and at the ports. That's happening; the railways are doing that. Certainly CN has made significant investments in the Prince Rupert corridor and the port authority, with significant contributions from the federal and provincial governments, and industry has done the same at our end. I think shippers are going to have to make efforts to improve the efficiency of their loading operations as well, so as not to affect the whole system.

The long answer to your question is that I don't think the problem is going to go away in the near future, because trade volumes are going to increase.

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

Thank you.

What about you, Mr. Xotta? Do you have a specific example of a situation that may have been addressed even before the bill became law?

[Peter Xotta]

At the risk of restating our previous comments, the result of the initiation of the rail service review and then subsequently the introduction of the legislation is that over that period of time we've seen a number of things occur. Most notable is a very keen desire on the part of both class 1 railways to work more collaboratively with the port authority. That has resulted, as I said previously, in a 30% reduction in the dwell time, which is a key competitive factor for us in our container business. So there's a very direct outcome.

What precipitated that is a good question, I think, and how we can sustain that level of focus is, of course, what we're trying to construct through our discussions today.

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

Thank you.

Mr. Malec, do you have something to add along the same lines...

[George Malec]

Yes, thank you.

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

... as your two colleagues?

[George Malec]

Yes, in addition to the fact that the service-level agreement between the terminals, CN, and us has resulted in demonstrable improvements, particularly in factors like calculating the import dwell time on the terminal, as Mr. Xotta referred to in Vancouver. The same holds true in Halifax—a significant demonstrable increase in productivity.

We've also seen CN engage much more directly with us over the last two years, moving off what were likely predetermined positions taken before with respect to the ability to gain more traffic share back, particularly Canadian traffic that was transiting through U.S. ports to find world market access.

We've had a recent example here last year, in which the impetus started with CN about an opportunity with a particular shipper based in eastern Canada that was using an American outlet port. CN brought its game to the table to use its inventory and aggressive pricing, along with one stevedoring company and the port authority. The three entities together made a combined pitch on a supply chain solution to that shipper. I'm very pleased to see that that has resulted in measurable traffic increase over Halifax, particularly in the break bulk sector, which is responsible for employing so much labour on a local basis.

[The Chair, Conservative, Larry Miller]

Thank you very much.

I just want to note this. I understand that Port Metro has to sign off at 5 o'clock, Mr. Xotta.

[Peter Xotta]

Yes. My apologies to the committee.

[The Chair, Conservative, Larry Miller]

We understand. You're busy, as all of you are.

We now go to Mr. Watson for five minutes.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing before the committee, dealing, of course, with Bill C-52. Five minutes won't be a lot of time to ask questions and obtain answers. I'll try to be brief, and I hope you can be brief in your responses.

Everyone has noted that there's success in service-level agreements since the rail freight service review was initiated. Can you very succinctly characterize what the relationship was like before? Was there any difficulty in negotiating or fulfilling service-level agreements prior to the rail freight service review?

We'll start with you, Mr. Mayer, and then maybe go to Mr. Xotta after that, and we'll kind of work our way through.