Thank you, Madam Chair and members of the committee, for the opportunity to be here this morning.
Pulse Canada is a national industry association that represents over 35,000 growers and 132 processors or exporters of peas, lentils, beans, and chickpeas, as well as specialty crops such as canary, sunflower, and mustard seeds.
Since 1996, Canadian pulse and special crop production has quadrupled, and Canada is now the world's largest producer and exporter of peas and lentils, accounting for over one third of all global pulse trade.
The market for pulses and special crops is highly competitive, and maintaining and growing Canada's market share is, of course, a top priority for the industry. Competitiveness in global markets depends on a range of factors, and without question one of the most critical factors is the ability to supply in a consistent fashion.
The World Bank, in its “Connecting to Compete” report, noted that “Predictability is central to the overall costs that companies incur in logistics and thus to their competitiveness in global supply chains.”
We were pleased to see that the recent report of the Canada Transportation Act review also acknowledged that “Today’s transportation decisions underpin tomorrow’s economic structure...and, ultimately, the competitiveness of the Canadian economy.”
Pulse and special crops utilize integrated supply chains and are the most multi-modal grain crop in western Canada, with product moving in boxcars, hopper cars, intermodal vans, and marine containers. Even with the product moving in multiple modes through multiple corridors, rail is central to every move.
Rail is central, and Canada's railways hold a great deal of market power, particularly in the grain industry. Of the primary elevators and process facilities in western Canada that serve the grain industry, only four are dual-served by CN and CP. The grain industry is highly captive to one or the other railway, and this market power has given the railways the ability to optimize their networks for their economic benefit, to the detriment of the needs of the users of the rail system.
Canada has always recognized this market power imbalance and prescribed and adjusted the legislative and regulatory framework to address it, the latest example being the act we are speaking about today.
The forces that created the need for the Fair Rail for Grain Farmers Act are the same forces that will fuel the development of a broader strategy to improve the legislative and regulatory environment to offset railway market power, and to create the conditions that result in behaviour, capacity, and service that would be available to shippers in a normal competitive environment.
We view this strategy as needing to focus on two priority areas.
The first is to improve the service level agreement provisions so that shippers can negotiate an effective contractual arrangement for service with the railways.
Second, because not all shippers nor all traffic will be covered by an SLA, we must enhance the provisions of the act that encourage adequate and suitable service and enhance the role of the regulator, the Canadian Transportation Agency.
I will speak first, briefly, on the need for enhancing the service level agreement provisions of the act.
The Fair Rail for Grain Farmers Act gave power to the agency through the new subsection 169.31(1.1) to develop regulations specifying what constitutes “operational terms” in service level agreements. This provision and the subsequent regulation should be made permanent.
SLA should also be strengthened by including financial consequences for railway non-performance as a matter that may be submitted for arbitration. This right should be enshrined in legislation under section 169.31 of the Canada Transportation Act. Financial consequences are critical to the effort of establishing balanced accountability between railways and their customers.
Again, because not every interaction between railways and their customers will be governed by the terms of a confidential contract, it is critical that we also create the broader conditions that will ensure adequate and suitable service for all shippers and all movements.
As a critical first step, Pulse Canada recommends that government restore the Canadian Transportation Agency's power to act on its own to investigate service issues, including systemic issues; to issue general orders; and to issue ex parte orders.
To ensure the agency can fulfill this enhanced regulatory oversight mandate and to aid commercial activities and public policy evaluation and development, a comprehensive integrated data platform, administered by the agency, that supports and delivers information regarding the capacity, demand, and performance of the rail logistics system should be created.
I'll move on to interswitching, because it is a popular topic.
The power given to the agency through the Fair Rail for Grain Farmers Act to extend rail interswitching limits has strengthened an important pro-competitive measure and shipper protection feature of the act. The extended interswitching provisions introduced in the Fair Rail for Grain Farmers Act have given shippers access to another carrier that is willing to compete for business.
Seventy-six per cent of the extended interswitching movement to date has been to the U.S.A., with the largest interswitching move being 125 kilometres and the average being 76 kilometres.
Our members who have used the provision report freight rate savings of between $500 and $1,500 per car, which are significant cost savings over current rate offerings and significant savings for the small and medium-sized shippers we represent. However, we must keep in mind that the purpose of interswitching provisions is to encourage competitive behaviour—namely, to ensure railways are offering competitive rates and service.
When interswitching provisions are working, customers won't have to activate the provision. Therefore, we cannot rely solely on the number of times interswitching has been used to assess its value. The extended interswitching provision should remain in place, as it is now achieving what a pro-competitive measure is meant to achieve.
I'll conclude there, and we can move to questions. Thanks.