Transport Committee on Sept. 22nd, 2016

[David Emerson]

I think the answer is yes, and Murad can add to it. I would just make the general comment that the Canadian transportation system, particularly for grain, has less off-farm storage capacity than those of other countries and relies much more heavily on a just-in-time transportation system to ensure a continuous smooth flow of product to market. That's a really important factor.

The evolution of the railways to becoming much more efficient, high-volume, high-speed mainline systems has meant that there is very little in terms of spare capacity in the rail system, so some thought needs to be given—and Murad can maybe shed some more light on it—in terms of how we ensure that there is surge capacity available in the system.

[Murad Al-Katib]

Certainly the desire of producers is to move the crop at harvest time, September, October, November, December, and January. This is the traditional shipping period for the Canadian crop. All that being said, I think for the grain industry we have to do a better job, and I'm a part of that industry. We have to utilize both the west and the east corridors. We have to market to a year-round program. When we have a variability that's unforeseen because of positive weather, where you can end up with 10 to 15 million tonnes of additional production that no one predicts because of Mother Nature, you cannot move all of the crop in four to five months, even though producers want it to be moved.

To your colleague's comment earlier about Trois-Rivières, the utilization of the lakes and the seaway more effectively with icebreaking capacity to make it more year-round, the utilization of Prince Rupert, the utilization of containers.... One of your previous witnesses said it's not a viable option. We move more containers out of Canada than any other grain shipper. I can tell you that that's part of the major solution, the empty containers going back to Asia, coming into the U.S. via Prince Rupert and Vancouver.

From that perspective, I think we have to utilize all the assets, and farmers have to recognize that we have to market a crop in a whole year.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

I think this confirms the comments of my colleague when he speaks to the need for a strategy before we start looking at individual issues within our transportation system.

At our last meeting, we heard from the CTA that they determine the regulated interswitching rate from the ground up by assessing the various input costs that railways face. They stated that they do not consider the commercial rate when determining the regulated rate.

We also heard from producers that they understand that all parts of the chain, when it comes to transportation, need to be profitable, that everybody needs to succeed.

I guess my question would be, how can the rate-setting process be improved to provide the railways with sufficient return to invest in their infrastructure?

Either one of you could answer.

[Murad Al-Katib]

David, do you want to start or do you want me to take a shot at that?

[David Emerson]

I want you to take a shot at it.

[Murad Al-Katib]

Okay.

In general, I think ultimately when you have market-based mechanisms allowing supply and demand to dictate the price, there will be a cost and there will be a return on invested capital calculated in. When we have regulated rates entirely, we have to ensure that those regulated rates are compensatory.

We made our recommendation that, for instance, for interswitching rates, the system in which they're set should be examined to ensure that they are compensatory. One of the things we're not in the business of, I think, is government regulation forcing economic circumstance on a commercial entity that is not actually compensatory. From that perspective, we do want to incent the service providers within the chain to do that.

That being said, there have to be certain checks and balances. We have to remember that even with the maximum revenue entitlement not being there, you still have things like final offer arbitration. You have regulated rates. You have the dispute resolution mechanisms of the agency. All kinds of mechanisms are built in to address the market imbalance that exists. I think the compensatory rate structure setting....

You know, Kelly, the reason they can't consider the commercial rates in their determination is that those are confidential. They don't actually have access to those rates. They're contractually confidential today. But I think that a cost and a reasonable return on investment capital for compensatory interswitching, and not to be excluded from a maximum revenue entitlement.... If we want interswitching, the railways should not be penalized for doing it, and that may be to the benefit of producers.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Al-Katib.

Mr. Fraser now has the floor for six minutes.

[Sean Fraser, Liberal, Central Nova, NS]

Thanks very much.

I'll switch back to general transportation issues, starting with marine transport.

Being on the east coast, an issue that's very important to me is ports and the role they play in getting goods to market. If the minister were to adopt an approach where he's considering, say, share capital structures, what would be the benefits to the port, and how might private investment enhance the ability of the Canadian transportation system to get goods to market?

[David Emerson]

On the east coast there is an issue of fragmentation. You have too many ports, and they're all competing with each other. Nobody has critical mass. I think government needs to focus on and perhaps encourage institutional investors to focus on one or two ports with the associated rail and road linkages into the high-speed corridors that you need to really plug into.

I don't want to presuppose the economics of investment in the port of Halifax or the port of Saint John, for example, but I do think that private sector investment can be made attractive and government doesn't have to put in the billions required to kick-start a port and make it more competitive. I think a big piece of the puzzle has to be making hard decisions about which ports you're actually going to support rather than continue to proliferate a fair share for everybody.

[Sean Fraser, Liberal, Central Nova, NS]

Sure. You mentioned Halifax and Saint John, two of the largest on the east coast. Do you think as we go forward into the future the smaller communities that have significant port infrastructure have a chance to continue to contribute?

[David Emerson]

In terms of a national transportation policy, I wouldn't get too excited about the contribution they would make to the regional economy and the national economy. The transportation system, to be efficient, has to be big. It has to have fluidity and it has to have volume. You're in a just-in-time world where you need a constant flow, not a little bit here and a little bit there, which is just anathema to a good transportation system. There may be specific ports that have specific reasons to exist and thrive, but probably not as part of a national transportation system.

[Sean Fraser, Liberal, Central Nova, NS]

Staying on marine transport, and I thank my colleague Monsieur Aubin for his questions about the Coast Guard, you mentioned icebreaker capacity and maybe some mapping. Are there other areas where you think integrating the Canadian Coast Guard into Transport Canada or pumping more resources into the Coast Guard would actually help expand trade?

[David Emerson]

I think there needs to be close collaboration and co-operation with the American coast guard. Security in the north is a critical area for both the military and potentially the Coast Guard. There is tremendous underinvestment in the information software around navigation in the north. The sea bottom is only partially charted up there. Again, the Coast Guard could play a critically important role there.

We also heard during our consultations that the building of vessels to equip the Coast Guard properly is costing $1 billion or $2 billion, and it's not going to be done for 10 years, and so on. We heard testimony from people who said, “Why don't we lease vessels from the Danes or the Norwegians?” There are very cost-competitive ways of getting the kind of capacity we need for icebreaking and for the performance of functions related to the coast guard without waiting for these long, awkward, expensive procurement programs to bear fruit.

[Sean Fraser, Liberal, Central Nova, NS]

Mr. Chair, do I have a little extra time?

[The Vice-Chair, Conservative, Luc Berthold]

You have one minute left.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you. Hopefully that's all I need.

One of the key priorities of this government is to make sure we're not only promoting a safe, reliable, and efficient transportation system, but in everything that we do, we do it in an environmentally responsible way as well. Where are the biggest opportunities, to your mind, for the government to improve the greening of our national transportation system?

[David Emerson]

Again, any incentives that can be put in place to upgrade technology, whether it's in aircraft or in trains, or to upgrade the fluidity of the system have a very positive environmental impact because the more efficient the system is, the more smoothly it operates; without bottlenecks and a lot of downtime and stop-start activity in the system, the more environmentally friendly it is per unit of GDP. I think investing in a really good, highly efficient system using the latest technology is probably the way to go.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you kindly for your input.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Fraser.

Mr. Aubin now has the floor for six minutes.

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

Thank you, Mr. Chair.

Mr. Emerson, thank you for still being with us so bright eyed and bushy tailed.

I have to confess that reading such an extensive report as yours caused my head to spin. So I am particularly happy to be able to clarify a number of things with you.

The report recommends that “the maximum revenue entitlement program be modernized in anticipation of its elimination…”.

Wanting to modernize something in order to then eliminate it seems a tad contradictory to me. Could you shed some light on that recommendation? The question can go to either of you.

[David Emerson]

Murad.

[Murad Al-Katib]

I'll maybe start with the key thing on modernization. As you know, many of your colleagues have been talking about the need for study and the need for informed action. We felt that through the deliberations, with the importance of the MRE to producers and to the agricultural industry, that it be properly studied, and that we test modernization initiatives on a gradual basis. The foundational element was eliminate container intermodals; allow the railways to have a certain part of their fleets that would be available for auctions, or premium services that would be excluded from that; the extra tariffs would be excluded from the MRE; interswitching would be excluded. It was a gradual process. It allowed government to make those changes, test those changes, and ultimately react by either going back to a more regulated system or eventually to move towards a removal of the MRE.

We did advocate for a gradual approach.

[David Emerson]

We did think recommending immediate removal would be dead on arrival politically.

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

On another matter, in chapter 11 of the report, you observe that the Canadian Transportation Agency is more reactive than proactive. We also find the following passage:

The review also found that Canadian Transportation Agency does not have the relevant transportation data it requires…

You mentioned establishing the new integrated data platform and multimodal data dashboard within the agency. What type of data is the Canadian Transportation Agency currently lacking? If that platform should ever see the light of day, would it be accessible to the public? If so, why? If not, why not?

[David Emerson]

Murad, do you want to take a run at that?