While quotas are an ineffective means to increase capacity, extended interswitching is far more problematic, undermining Canada's export agenda and exacerbating the looming issue with respect to railcar capacity for grain.
For those of you who travel by air to Ottawa, I imagine that given the option, you prefer a direct flight. Having to connect reduces your efficiency in trying to get from point A to point B. Like a connecting flight, extended interswitching introduces delays, sometimes significant, and uses up precious railcar capacity, reducing the overall throughput of the supply chain.
For every day that extended interswitching adds to the entire grain fleet, 785 additional railcars are required to move the same amount of grain. That translates into an additional supply chain expense of more than $100 million, directly impacting the competitiveness of Canada's grain exports.
Extended interswitching, over time, will also stifle investment. In April, fire destroyed a bridge on CN's rail network in Mayerthorpe, Alberta. Forty per cent of carloads originating or terminating west of that bridge fall within extended interswitching. If the only compensation CN received were the regulated interswitching rate for that traffic, we would not have been able to justify the $10 million required to rebuild the bridge. The same fundamental concern applies to all kinds of capital requirements across Canadian rail networks. When regulations discourage investment, we are putting the sustainability of Canada's supply chains at risk.
Another very serious concern with extended interswitching, which also discourages investment, is the opening up of Canadian traffic to U.S. railways. Extended interswitching enables U.S. rails to draw Canadian traffic onto their network while paying extremely low regulated rates to the Canadian railway performing the interswitching, thereby improving the density of the U.S. rail network and improving the U.S. railway's reinvestment capabilities.
As Canadian traffic is diverted to the U.S., the investment to maintain a safe and fluid domestic railway will by definition need to be spread over a smaller traffic base. Two things are likely to result from that: one, the need to charge higher rates on the remaining Canadian traffic; and two, the likelihood that some reinvestment simply does not take place, ultimately reducing Canada's competitiveness, particularly with respect to export supply chains.
In the U.S., switching rates are commercially negotiated, and there is no forced access provision equivalent to Canadian interswitching. The poaching of Canadian traffic by U.S. railroads without reciprocity will negatively impact reinvestment in our nation's transportation system. Rest assured, we are not suggesting that Canadian rails are not prepared to deliver or receive traffic from U.S. rail carriers. We are simply saying that the terms to do so should be based on commercial negotiations, thereby ensuring a level playing field in how Canadian and U.S. rails interact on both sides of the border.
The notion that extended interswitching is an important customer lever in price and service negotiations overlooks how much regulation and competition already exist. With respect to price for grain shipments, railways are already regulated under the maximum revenue entitlement. With respect to service, it is important to remember that all grain starts in a truck. Eighty per cent of western elevator capacity is either dual-served by rail, within the 30-kilometre interswitching regulation, or within 50 truck miles of CN or CP. Those existing competitive options operate far more efficiently than extended interswitching.
Shippers also already have the benefit of other regulatory measures that address price and service issues, including final offer arbitration, common carrier obligations, level of service complaints, and service level arbitration provisions. It is also very important to note that close to 75% of CN's grain is now moving under commercial terms that include reciprocal penalties for car supply and car usage.
We are already dealing with the unintended consequences of regulation in the country's Vancouver trade corridor, where significant investments cannot be justified by rail companies because the regulated returns are simply insufficient.
Canada needs a transportation policy that supports our export-oriented economy with innovation and investment. Market-driven forces have enabled Canada to create a world-class rail network, in which Canadian shippers benefit from rates that are among the lowest in the world. We would like to keep it that way. If we collectively hope to do so, Bill C-30 must be allowed to sunset.
Thank you.