Thank you, Madam Chair.
My name is Michael Bourque. I am the president and chief executive officer of the Railway Association of Canada. With me today is Gérald Gauthier, our vice-president.
I'm here to speak on behalf of our federally regulated railways and to discuss our concerns with the Fair Rail for Grain Farmers Act, and in particular, the effect that interswitching provisions have on the railway sector and the customers it serves.
The Railway Association of Canada represents more than 50 freight and passenger railway companies. Our membership includes the class I freight operations of CN and CP and more than 40 short-line railways across Canada. It also includes Canada's principal passenger, commuter, and tourist railways. Since you will be hearing from CN and CP shortly, I will focus on the impact on short-line railways, but the detrimental effects of these provisions apply to class I railways as well.
Short-line railways are a vital part of Canada's transportation system. They own approximately 20% of the national rail network. One in five carloads originates on a short-line railway. These railways transport everything from bulk commodities such as metals, lumber, and grain to manufactured goods, accessing the high-density continental network operated by CN and CP.
Short-line railways provide an essential feeder service for businesses situated in rural and remote areas across the country. This service provides shippers with a cost-effective and energy-efficient option for moving their products to North American and global marketplaces.
Short-lines compete with trucking, but they are significantly different. They run on private track, not on public roads. They have lower emissions, lower greenhouse gases, and they don't congest our roads or wear them out.
Under the existing interswitching rules, a shipper serviced by one federal railway can ask the railway to move its traffic to the point where its line connects with another federally regulated railway, or the interchange point, at a prescribed rate. These rates are cost based. Subsection 128(3) of the Canada Transportation Act states that:
In determining an interswitching rate, the Agency shall consider the average variable costs of all movements of traffic that are subject to the rate and the rate must not be less than the variable costs of moving the traffic, as determined by the Agency.
As the vast majority of traffic interchanged in this country is between CN and CP, it is their costs, not the costs of short-line railways, that are considered by the agency in its rate determination. This is a fundamental flaw in the methodology as it does not align with short-line railway's unique cost structure. The RAC, our organization, has voiced its concerns to the Canadian Transportation Agency many times, including during the very brief consultation process that supported Bill C-30. Rates under the interswitching provisions are not compensatory for short-line railways.
It is important to note that short-lines have access to a limited revenue stream and are unable to make systemic improvements or expand and build their infrastructure at a rate comparable to class Is. Short-line revenues are sufficient for the purposes of maintaining existing infrastructure in accordance with regulatory requirements, but they just do not have as much investment to put in as class Is.
Over the last three years, the costs of operating a railway in Canada have increased for short-line railways. The new rail regulatory requirements for rail crossings, minimum insurance requirements for dangerous goods, and increased fuel costs have put their long-term sustainability at risk. You will recall that as part of your review of Bill C-52, short-line railways testified that the proposed minimum insurance requirements would create a substantial cost for them, and they have.
By the way, we're not arguing against these safety regulations, on the contrary. I'm simply noting that they, especially crossing regulations, have been very costly for short-line railways.
If maintained, the existing interswitching zone of 160 kilometres can have a detrimental effect on the short-line sector by further eroding their access to the revenues they require to maintain, upgrade, and expand their infrastructure. Over time, the resulting effect will be a slow and steady decline of short-line railways in Canada. For shippers in rural and remote areas, their rail link to a low-cost, safe, and highly efficient class I rail network will be lost.
In closing, the reality is that interswitching provisions, in their current format, are harmful for the rail sector in Canada. In no way can this regulation stimulate or incent the investments that are required to improve the movement of goods by rail in the Prairies. In fact, there is a demonstrable need to create a dedicated funding program for the short-line railway sector, and I would be glad to come to talk to the committee about that at another time.
Short-line railways in the U.S. have a different support structure, which includes a variety of dedicated federal and state-level funding programs. To date, there are no similar programs available to short-line railways in Canada.
The interswitching provisions brought forward under the Fair Rail for Grain Farmers Act were introduced as a temporary measure, hoping to facilitate a more efficient movement of grain in the Prairies. With the 2013-14 grain crisis behind us, we believe that the provisions should be allowed to sunset and that the public policy discussion should focus on how Canada can stimulate the investments required to remain competitive and move goods to the marketplace more efficiently and safely.
Thank you.