Transport Committee on March 24th, 2015

[The Chair, Conservative, Larry Miller]

Okay, we'll call our meeting back to order.

With us we have officials from CN. Mr. Finn, Mr. Vena, and Mr. Farkouh, thank you very much for being here today.

I understand, Mr. Vena, you're going to lead the presentation. The floor is yours.

[Jim Vena, Executive Vice-President and Chief Operating Officer, Canadian National Railway Company]

Thank you very much. I appreciate the invitation. Most of you I've seen in the recent past, so it's nice to be here.

To my left is Michael Farkouh, VP of safety and sustainability, and to my right is Sean Finn. He has a long title, but we'll shorten it to CLO and corporate services. I'm sure some of you have met Sean before.

I'll start with the first slide. I'm sure you guys all have the presentation. What I wanted to make sure today is to go a little longer than I normally would, maybe three or four minutes. If you can have me take the time to go through, and then answer any questions that you have after, I'll go as quick as I can because there's a number of slides here.

We appreciate the opportunity to be here and update on CN's safety initiatives and the efforts we have undertaken to further strengthen our safety management system. We acknowledge that the past year has been difficult for a number of reasons, which we will review. This has only increased our resolve to strengthen our safety programs because we are committed to the journey.

Safety is a domain in which we continue to work relentlessly. We take every opportunity and lessons learned as a means to strengthen our SMS in the areas of people, process, technology, and investment.

Safety is of the utmost importance at CN for a number of reasons. First of all, it's the right thing to do because we owe it to our employees, the communities, and customers. The second point is that, as a business, we recognize that safety is an enabler that strengthens service, cost control, asset utilization, and safety culture. It is the foundation for success. This is why we work so hard to strengthen our safety management system and this is why we exceed regulations in many areas.

The first principle of our safety management system is that we view safety from a human and organizational perspective, rather than only a people-centred approach. This means that we view causation broadly. We work hard to understand most root causes and contributing factors, and we address those causes comprehensively using the initiatives in the area of people, process, technology, and investment. We also work hard to introduce as many lines of defence as we can to protect safety because we understand that more lines of defence are better than one.

As an example, we mitigate risk related to rail by performing visual inspections, ultrasound inspections, test cars, runs, and visual inspections, as well as rail grinding, maintenance, and I could go on. People are the strength of our company and we have invested in a big way to train effectively and strengthen culture. If any of you have had the chance to go to Winnipeg, we built two facilities, one in Winnipeg and one in Homewood, Illinois. We've done that on purpose because of the number of people. We are 25,000 strong right now and in the last five years over 50% of the employees that we have are brand new. We wanted to make sure we had the best facility possible and that was built in Winnipeg. If you ever get a chance to go out there and see the facility, I welcome you, and we'd love to tour you around.

We continue to invest and have increased our investments to $2.6 billion this year. CN invests proportionally more than the class I railroads. For those reasons we have gone beyond regulations. This has allowed us to reduce our accidents by about 40% over the last 10 years.

If you turn to the next page you can see the questions that we asked ourselves after the incidents that we most recently had. Before I try and answer the questions let me take you through a few more points.

In spite of our best efforts to improve safety we saw an increase in accidents in 2014. There were many reasons for that, but one of the key reasons was the harshest winter in generations. There are some people that say it's an easier winter this year in western Canada, but I think it would be hard to say that it was an easy winter in Atlantic Canada and it was a very tough winter in northern Ontario. In fact we had colder weather in February this year in northern Ontario than we did in 2014.

The year 2014 was one of hard work and safety because we implemented a number of initiatives to strengthen our performance in the second half of the year. We implemented peer-to-peer engagement programs. We opened two new training facilities, which I've mentioned. We performed corridor risk assessments and invested in leading-edge technology. These technologies helped us to turn our safety performance in the second half of last year. Recently we faced three accidents in the Ruel subdivision, north of Capreol, in Ontario, which made us question and assess our safety initiatives.

This led us to review every aspect of our safety program and we asked questions such as is the CN safety performance in line with that of the rest of the North American rail industry, are our Canadian operations also in line given recent trends, and what specific factors should be. I won't read the other two, but I think it's something that you might want to look at just to give you a sense. These are not all the questions we have, but when you have incidents occur, even if it's one, we start to ask questions of ourselves and internally say, “Are we missing something? Is there something that we're doing wrong?”

Given the complex nature of the safety issues faced by railways, there are no simple answers and no silver bullet solutions. But CN has been determined to identify root causes and address any systemic problems it identifies fully and promptly as part of its corporate commitment to deliver responsibly.

If you turn to page 4, it provides a comparison of the North American industry. The first point is that the railways are capital intensive and take a long-term view of their assets, operations, and safety trends. It is important to view CN safety performance over a span of time to assess meaningful trend lines and not just on the basis of a single or two-year perspective. This does not mean that we do not look at each individual accident or injury we have to see if there's something that we're missing. But you do as an industry and as a railroad have to understand that you have the right trend line.

In addition to an intense focus on each accident, CN monitors its safety performance looking at three-year averages within a 10-year cycle. Against that framework, CN's accident rate has generally trended in the right direction and compares favourably with the rest of the North American rail industry.

CN recorded one of the lowest number of main track accidents in 2013, and that's all of the performance. Of course, when you're comparing year over year it makes it challenging. Harsh weather was a challenge in 2014. There were record colds and deep cold stresses the rails and wheels, which can produce cracks and other consequences. It affects the infrastructure that we have. We know that and that's why we increase testing in the winter. We have more people out there and we do more ultrasound testing.

We also saw an increase in freight volumes, particularly in western Canada with record volumes of grain, general freight traffic, and energy-related commodities. Full year 2014 volumes reached record levels with car loads up 8% from the year before. The rise in volumes originating in CN's branch line in the network resulted in some increases in accidents owing to joint failures and rail fracturing in western Canada.

Some of you are sitting there going, he's actually telling us what it is. Those are the questions we have and we're trying to answer those questions ourselves.

Here are two key points. Our analysis shows that, first, the CN Canadian ratio is in line with the CN system. It's not different for the U.S., the east or the west of the Canadian versus the rest of our system. Second, the CN three-year ratio is in line with the other railroads in North America.

Turning to the next page, as mentioned earlier we acknowledge that 2014 was a difficult year and you can see the specific causes of the main track accidents in Canada on that page going back to 2005. However, this chart shows that the 10-year trend is positive in all cases.

As an example, rail and track causes dropped from 43 to 29, and wheels and rolling stock decreased from 39 to 18. This is evidence that the investments that we're making in our people, our leading-edge technologies, and our rail and track are bringing results. In fact, CN has worked hard to strengthen its wayside detection network over this timeframe and CN has nearly 900 wayside detectors monitoring bearings and wheels, dragging equipment detectors, as well as 40 wheel impact load detectors that measure wheel impacts and rolling stock imbalance.

We continue to implement leading-edge technologies by engaging research facilities and suppliers. We implemented those detectors using a risk-based approach to our corridor risk assessments. This has further strengthened CN's industry-leading wayside detector network. The other point is that volumes grew significantly during this time period. When we use the absolute numbers and normalize them for volume, we note a reduction of more than 50% in terms of main track accidents.

The next question was on causation for us and the other railroads. Are we missing something? Are we not doing the right things for the main components that cause accidents? In spite of our best efforts to strengthen our safety management system accidents do occur. This is because railways face unique challenges.

The first point is that railways need to maintain their plant, which includes tens of thousands of miles of rail. The second point is that the rolling stock, our mobile assets that can travel all over North American railways, must accept cars and interchange from other railways and car owners. The third point is that cold temperatures do have an impact on steel wheels and rails, as I mentioned before. As well, snow can degrade wheels. Instead of going into that too much I think you can get the general picture of what weather does.

CN and the North American rails have been very successful in using technologies to identify defects, and they use the data proactively. As an example, CN's network of wayside detectors scan three billion bearings and 1.8 billion wheels annually and reduce the impact to just a handful of incidents. Therefore, main track failure modes relate mostly to track and rolling stock, and this applies to CN and all the other railways.

This slide clearly shows CN's main track accident causation pie compared to the U.S. railroads. You can see from slide 6 that causation is almost identical, meaning that CN's accidents are caused by the same factors in the same proportions as the other railroads.

It was important to understand whether we had an outlier. Were we missing something on rolling stock or rail? If you turn to the next page, we dug into that and gave you some history on northern Ontario. The chart shows a 10-year trend for this territory. You can see that the trend is showing improvement, and this is consistent with the 10-year improvement we saw earlier for all of CN's main track accidents. As well, we can see the causation is very similar to CN's system main track causation and to that of other class I railroads, so the facts demonstrate that the recent issues we faced in the NOD, the northern Ontario district, are not inconsistent with the long-term trend.

On top of that though, we wanted to make sure we understood exactly what happened, because when you have three accidents in a close period of time in one area, you need to step back, even if the trend line is right. We needed to do something so we put a speed restriction on northern Ontario until we get a clear understanding of exactly what happened.

At CMAs, census metropolitan areas, we've included that in the key train restrictions we put in, in the rest of Canada, which are going to decrease the speed of what we do in census metropolitan areas. We increased inspections of tracks and trains. We tightened up our standards even further. We've taken an outside-in view, so we brought officers from other parts of the railway to take a look, and we've dealt with external experts who are going to be reviewing the issue of unit trains and how we operate unit trains.

One of the questions we get on unit trains is whether we run the crude trains in any different size from the rest of the unit trains. Are they bigger? We have a long history. We have been operating the normal unit trains.... We're handling crude with around 100 cars, and we handle normally, on a daily basis, trains that are 150, 180, up to 200 cars. We've been doing that for a number of years. This is not something new and their weight is substantially more than what a train carrying crude would be.

I thought it was important to spend a couple of minutes on investment in track infrastructure. The slide on page 8 demonstrates that CN investments have been increasing for the past decade. As an example, we are investing $2.6 billion in 2015, and CN's capital investment represents about 19% of our revenue. When we review investments in track and infrastructure, we can see from the graph on slide 8 also that there has been a consistent increase in our track and infrastructure investment. In 2015 this part of the capital investment will amount to $1.3 billion. This is 70% more than what we did in 2005.

Quickly, I just thought I'd take you through investment in technology. I've been railroading for 37 years. I started in Jasper, Alberta, and I mention that every time I come here, just to tell you that I'm from Alberta. More than anything, this is not a new game for me. I've been doing this for a long time.

One of the challenges the railways face, even talking to my own family, is the perception that we use old technology, large railcars, locomotives on steel wheels with employees still performing manual interventions to operations and inspections of trains and tracks. Employees are very important. They inspect trains and cars as they go by, but nothing is further from the truth because railways have left no stone unturned to leverage technology to enhance safety. Let me take you through a couple.

In line with this, railways use ultrasonics to inspect rail for defects that the eye cannot see, lasers to measure track geometry and identify defects at the edge of visual detection, infrared technology to measure bearing temperatures, acoustic measurement technology to identify potential hidden defects in bearings, force accelerometers, GPS to pinpoint—it goes on and on—sophisticated cameras that can look at the track and tell you what the ties and rail are like and the environment we are operating in.

When it comes to CN's track, the lines of defence have continued to increase over the years from visual inspection, rail flaw track geometry and just this year we are adding the new track geometry test car that we started about a year ago. On this geometry boxcar are advanced optical imaging systems that identify track issues as well as leading-edge tie assessment technologies.

Another aspect is the evolution of data management. It's very important for understanding what the data is trying to tell you and it is used actively for preventative purposes to identify track and equipment issues that can evolve into a defect over time.

I'm just about done. I'll be really quick.

We turn to investing in CN safety culture—page 10—because this is also a key component of what we're doing. Safety culture is the domain where railways have been active with their employees, unions, regulators, and academics. This is critically important for so many reasons, but for two key reasons. First, safety culture is a catalyst and motivator that translates company policy and procedures into action. This is so important for railways because most of our workforce works in a decentralized and mostly unsupervised work environment. They don't see their boss on a daily basis. Second, railways, like many industries, face demographics. As I mentioned before, we're going through a large change in the age and the experience of the people we have.

With respect to safety culture, railways have worked with their unions, regulators, and academics to define it and develop processes to measure. This is an effort that CN has led for several years, and which continues today, to refine a process that measures safety culture along its five dimensions of leadership, two-way communications, employee engagement, learning culture, and just culture.

We also modernized our training program by investing over $60 million in the two facilities, as I mentioned, and we developed a solid process for field training. This was done with the help of senior labour leaders and Saint Mary's University, where CN established the CN Centre for Safety and Occupational Health, and works with CN professor of safety culture, Dr. Fleming, to strengthen culture.

CN also organized the first international safety culture symposium with Saint Mary's University, bringing together broad industry, regulators, and association academics with the objective to share, learn, and strengthen culture. The people portion is very important to us and we continue to invest to make sure we give our employees the best.

[The Chair, Conservative, Larry Miller]

Could we wrap up, Mr. Vena, please?

[Jim Vena]

Thank you very much.

It will be one more minute, Mr. Chairman.

[The Chair, Conservative, Larry Miller]

Yes, no problem.

[Jim Vena]

One of the comments so far is that CN has been ahead of regulations in many areas, and this journey continues. Recent examples include our securement changes, implementation of key train policies and key crude policies, corridor risk assessments, implementation of leading-edge technologies and data management, and structured community engagement.

CN continues to engage stakeholders to strengthen tank cars because this is an important line of defence. CN supports government efforts to strengthen tank cars. CN already has a robust emergency response plan, but we took concrete steps to further strengthen it by acquiring new equipment such as foam trailers, through agreements with other railways to share equipment and resources, and by working together with the petrochemical industry to make sure we respond.

Our community outreach program was very important and we have met with a number of communities. If you want some more detail, maybe later on I can have Sean fill you in because he spent a lot of time working with the different communities.

These slides provide only a brief overview, demonstrating our commitment to safety, where we have taken action, and this journey to which we are committed for the long haul. The bottom line is that we asked ourselves the same questions as I'm sure some of you have asked. Hopefully, there are no questions and then I can move on, but I don't think I'm going to be that lucky today. At the end of it, I'm open for questions.

Thank you very much.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Vena.

Mr. Mai, you have seven minutes.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

Gentlemen, thank you for being here with us today.

Just like me, I am sure you know that the population was traumatized by the tragedy in Lac-Mégantic. There were also CN train derailments in Gogama and in northern Ontario.

Following the events in Lac-Mégantic, the Transportation Safety Board of Canada asked the railway companies to carry out risk assessments. We are asking to see these risk assessments. We want to know what the issues are. As you know, the population is worried, and we have nothing upon which to base a statement that everything that is being done is being done in the safest way possible.

Would you be ready to make the risk assessments public?

[Jim Vena]

I apologize. I might have missed the first piece of the question, but you asked about risk assessments and whether we'd be willing to make them public. We do perform risk assessments any time there's a change in our operation. We make sure, because of our SMS system, that we review what impact it would have on the railroad. When we do the risk assessments we give them to the government, specifically to Transport Canada, so they are available and that's how we provide them.

On top of that, we go out and deal with the individual communities. If they have questions about what we've done in the local area and how we operate, we're more than willing to answer those questions at the local level.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Let me come back to the derailments that happened in northern Ontario. The TSB said there were track infrastructure failures and that these played a role in each of the derailments.

There are concerns about inspections. We've heard the government say that they are doing enough, but we don't feel that they are. Can you tell us who is actually responsible for inspections? Is it the rail companies or is it the government?

[Jim Vena]

We are responsible for track inspections. We perform track inspections.

Maybe I went really quickly through the presentation. Track inspections are performed first of all by highly skilled, trained people who are mandated, but we also do it at a higher level. They're mandated to go over the track at least twice a week and they inspect the track on a visual basis. We also do it by running an ultrasound. We're mandated to do it four times a year, but we do it 14 to 18 times, depending on weather and on the quality of the rail. We do it by geometry test car. There are many different ways for us to do it.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

My point was that we're talking about self-inspections, railway companies are inspecting their own rails. After that, with the 117 inspectors it has, then maybe Transport Canada will take a quick look at what is happening. That's an issue.

You also mentioned that you're going beyond regulations, that you're even safer than regulations. We're now again talking about self-regulation. Can you give me an example in which, for instance, for track, CN is going beyond the standards that Transport Canada—the government—has set forth?

[Jim Vena]

It's in the number of inspections per week. With visual inspections, we do that. I know we go over in the number of ultrasound tests we do, and the geometry tests. We have the new autonomous railcar that will run up and down the track, which is above and beyond our normal, regulated amount.

The way we train our people is not regulated. We make sure that they pass the regulated tests or what we have put in as a regulation. If you look at most of the things we do, we do more because it's driven from the analysis we do on the accidents and what is happening on the railroad. We try to understand what is happening, what the trend line is, what we can do. In every accident, we look.

You mentioned that the TSB said—

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you.

[Jim Vena]

I'm sorry about that.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

It's just that I don't have much time. I'll let Claude Gravelle ask questions.

[Jim Vena]

I've been told I'm a little wordy. I apologize; I'm sorry about that.

[The Chair, Conservative, Larry Miller]

Mr. Gravelle, you have two minutes and a half.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you, Mr. Chair.

Thank you for being here.

You mentioned Capreol, and Gogama has been mentioned. Both of those communities are in my riding. We were very fortunate in Gogama that the accident didn't happen two and a half kilometres to the west, because then we would have had a great human disaster. But we have an environmental disaster in Gogama. The train derailment happened right in the river in a fish habitat. Can you tell us what CN is going to do to make sure that the crude oil, which is heavier than water and has sunk to the bottom of the river, is cleaned up? How long is it going to take? How can you assure us that it's going to be 100% environmentally friendly after the cleanup?

[Jim Vena]

Let me back up just a little bit. The accident did happen and we responded with everything we could, with multiple lines of defence to keep the crude or the product contained close to the derailment site. We have cleaned up the site and we're operating trains again, but we are not leaving there until we return the site to as good a state as we can, with everything possible done to put the site back as close to normal as possible.

We have environmental engineers up there. I flew up there myself and spent time looking at the site. I'll tell you, I really appreciate all the help we got from everybody in Gogama. I think the whole community helped us, and the people from that area. It was great being up there and being received in a difficult situation. But we will not leave the site until we have done everything we can to return the site to the way it was before.

[Claude Gravelle, NDP, Nickel Belt, ON]

I was up there also, and the people there are very concerned about what happened. Your crew did great work; I can attest to that. But you just said you're going to bring it back to as good a state as you can. Can you define “as good as you can” for me?

[Jim Vena]

Any time you have an incident, you do everything that is physically possible. It's not a question about money; it's not a question about bringing in the right people to do it. We're going to do everything we can to return it as close as possible.

The worst thing I could say here is, “Don't worry about it; it's going to look exactly the same as it did at 100%.” If we can return it to 99.9%, that's what I am shooting for. If I can get to 100%, that's what we'll do.

[The Chair, Conservative, Larry Miller]

Thank you. Your time is up.

Mr. McGuinty, you have seven minutes.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Chair.

Gentlemen, thanks for being here.

I want to begin with a couple of quick fact checks. When the minister came to committee here some time ago, she suggested not once but twice that she wanted CN here to testify. In fact, today in the House of Commons she reiterated it for a third time.

I just want to get this on the record. I wanted to have the regulator here side by side with you—not just CN but the regulator—because I don't really appreciate the minister's trying to deflect blame. This is a partnership between the regulated sector and the regulator through Transport Canada.

I want to get that on the record, Mr. Chair, very clearly.

My first question is this. Are your gross revenues still “just north of $10 billion”, Mr. Vena?

[Jim Vena]

The figure is $12 billion.