Transport Committee on Sept. 22nd, 2016

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

Thank you.

Do I have a minute left, Mr. Chair?

So I would like to pass the floor to Mr. Al-Katib so that he can answer my colleague’s question. The question interests me as well.

[Murad Al-Katib]

Which question?

[David Emerson]

The interswitching issue. Give him your 30-second elevator talk.

[Murad Al-Katib]

Yes, sure, I will.

On interswitching, I think a very important consideration is that during the deliberations, we had a very limited ability to poll examples of actual utilization of the interswitching provisions that were extended out to 160 kilometres. That said, when we do look at it in a kind of post-report reflection, we see that shippers don't agree that the infrequent use of that provision makes the feature of their regulatory regime have limited effectiveness or impact. The measure of success of interswitching, in the eyes of many shippers, is how it actually creates that competitive force.

One of the things that we have to be very clear on is that industry took that recommendation to mean that we thought interswitching was not important. What we recommended was sunsetting the 160 kilometres and putting it back into the hands of the agency to allow them to determine the appropriate distances in the appropriate cases. I think this is what Mr. Emerson is referring to: the need for a cohesive mandate and strategy around utilization of interswitching as a competitive measure provision. I think that's important. We do recognize the importance of it; it was much more the methodology, the arbitrary nature of the 160 kilometres that we were really commenting on.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Al-Katib.

The floor now goes to Mr. Iacono.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Good morning, Mr. Emerson and Mr. Al-Katib. Mr. Chair, I will be sharing my time with my colleague Sean Fraser.

Mr. Emerson, I have some questions about your report.

In terms of grain transportation, it is suggested that the system for storing and transporting grain not be too regulated. Roles and responsibilities should be clear. Who has those roles and responsibilities? Do they belong to the rail companies and to farmers? How can we define clear roles without having some kind of regulation?

[David Emerson]

In the report, we were quite emphatic that the transportation system, first off, is a system. It's a very complex system with many moving parts, many different companies and players involved. The grain system is no different.

On the grain side, we argue in the report that we need to have a forum or a mechanism through which all of the different interests in the agricultural or grain community—the railways, the grain company, the ports, the shipping companies, the farmers—can come together. You need them all around the table, thinking long term, and basically equipped with much better and more reliable information than they now have, to ensure that there is an ongoing tracking of priorities and anticipation of potential bottlenecks.

For example, the 2013-14 grain crisis could have largely been avoided if everybody in the system had all of the information that somebody else had and if it had been pooled together and used for anticipatory decision-making at that time. However, the system is fragmented, and decision-making is fragmented, and we got the crisis that we had in 2013-14.

Murad, you're the expert.

[Murad Al-Katib]

The key foundational elements of the recommendation related to roles and responsibilities of a commercial system are adequate information and powers of the agency to be able to investigate and act on its accord to examine systemic issues within the transportation system.

Today the CTA is entirely reactive to a complaint. We think a legislative regulatory body should be able to investigate, and then dispute resolution mechanisms are really the key element. If we put in place dispute resolution mechanisms that function appropriately, then we encourage commercial solutions. Service level agreements between railways and shippers are a means by which regulation can encourage the commercial outcome. They include things like reciprocal financial consequences. If a railway has a right to charge demurrage, a shipper should have the right to charge for their failure.

The term “reciprocity” is used in our report, and that has to be interpreted very clearly as reciprocal rights to solve the imbalance in power through commercial contracts. I think that's the point of not over-regulating. I've used the term very clearly in our consultations. Be careful: over-regulation can, in fact, cripple the system and make us very inefficient.

[The Vice-Chair, Conservative, Luc Berthold]

Mr. Fraser, you have two minutes.

[Sean Fraser, Liberal, Central Nova, NS]

I'll start with Mr. Al-Katib. On the interswitching issue, some of the comments that I heard from Mr. Emerson earlier were that potentially leaving it as it is in the short term wouldn't be that big a deal as long as we have a plan to deal with the issue in the long term. We did hear from producers during our last meeting that there essentially would be some short-term pain, not because they're using it so much now, but because it's created commercial conditions that more or less create competition in the marketplace. Do you think if we prematurely let this sunset that the producers' fears would be realized and we'd be doing ourselves a disservice?

[Murad Al-Katib]

Just remember, even sunsetting doesn't take it out of the hands of the agency. The agency still has the right to set the interswitching distances. Sunsetting doesn't mean you're getting rid of interswitching provisions at all.

That being said, 160 kilometres, 30 kilometres, which is more the norm in the act implementation previously, really, again, we want to make it very clear that it's an arbitrary number. You could have taken 160 or you could have made it 250 or 150. The leaving of 160, I think, is not the big issue. I think the issue needs to be studied.

I think one thing we have to give is the balancing view. There was a strong view by the railways that interswitching provisions do expose them to undue competition from U.S. railways coming into Canada without a reciprocal right on the other end for them to go into the United States and have the ability to compete. There was that balancing provision where I think we do have to always consider the regulations on both sides. It does open it up to processors, but it certainly does put our railways into an undue competition scenario with our U.S. counterparts.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you.

Mr. Chair, is there any remaining time?

[The Vice-Chair, Conservative, Luc Berthold]

I am sorry, Mr. Fraser.

The floor now goes to Mr. Sikand, for six minutes.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Thank you for being here.

The panel heard that 94% of the grain is transported using rail. Does that sound accurate?

[David Emerson]

Yes.

[Murad Al-Katib]

In the current regime, it would be by rail today, yes, but that is changing, and containers are becoming much more prevalent.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Okay. Bearing in mind that you mentioned the interplay between trade and transportation, would you say there's a viable mode of transportation out there that we could utilize other than rail?

[David Emerson]

No. I think what is clear, and it's articulated in the report, is that Canadian agriculture in particular, but I would also argue that Canadian bulk cargo, travels a longer distance to get to tidewater than in most other competing jurisdictions like Australia, the U.S., or elsewhere. Rail is going to continue for the foreseeable future to be a critical catalyst for and support of the Canadian economy going forward, particularly on the bulk side, but also for intermodal container traffic.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Keeping that in mind as well, would it be conceivable or even possible to consider laying down an entire new rail system or structure?

[David Emerson]

It's always possible. The question is money and having the corridor or the land to do it. We actually gave some radical thought to really dramatically different models of building and operating railways, and we looked around the world at different countries and the way they do it. We came away with the view that the Canadian class I rail system is really one of the best in the world. We all complain about Hunter Harrison getting his operating ratios down, sweating the assets, not having enough resilience in the system, and so on, but the truth of the matter is that the Canadian class I rail system is an extremely efficient system. For us to kind of undo the efficiencies that have been gained would be bad for the Canadian economy.

What we believe needs to be focused on is not so much government helping the class Is, but government creating an environment in which the feeder systems are much more fluid and much more competitive and efficient. In a world with high-speed, high-volume corridors, whether they're on the rails or in the air, they're really the backbone of the transportation system, and you get a world where it's that first and last mile. Small communities need to be better connected to the high-speed, high-volume corridors. Short-line rail and trucking really need to be supported strongly so that the feeder systems from remote areas that are not right on the main line have access to it.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

How much time do I have left?

[The Vice-Chair, Conservative, Luc Berthold]

You have two and a half minutes.

[Murad Al-Katib]

[Inaudible—Editor] tonnes of additional capacity to use intermodal containers. Also the hopper car fleet is aging dramatically. To replace the hopper car fleet with high cube cars, we can create five million to eight million tonnes of additional capacity just on the existing rail system by utilizing the current corridors. We have tens of millions of tonnes of additional capacity just by better utilizing what we have.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Thank you for that.

I'm going to switch gears here, now that we have you here.

In regard to aerospace, seeing as a lot of Asian countries are now becoming more innovative, how do we continue to be a dominant player in the aerospace sector? I know it's a broad question.

[David Emerson]

Well, aerospace is a whole separate report that I was involved in a couple of years ago. I guess I'll just make a couple of comments.

One is that we need to continue to make it a national industrial priority. Regarding space in particular, Canada has been a leader in space for decades. I think we have dropped the ball a bit and we have lost our sense of a long-term strategy. We've lost the commitment to substantive long-term funding, and without that, an important enabler of the economy and an important enabler of northern development and development in isolated areas, security, and so on.... That is really to be found in the space sector. Space is critical. Government procurement is critical. We have made recommendations in the past for better programming in terms of support for aerospace.