Transport Committee on Sept. 11th, 2017

[Scott Streiner]

Absolutely, Madam Chair.

Thank you.

[The Chair, Liberal, Judy Sgro]

Mr. Emerson, would you like to go next?

[David Emerson, Former Chair, Canada Transportation Act Review Panel, As an Individual]

Thank you, Madam Chair, and honourable members. I'm appearing here not really on behalf of anybody except myself. I headed up a transportation review, some two and a half to three years ago, of the Canada Transportation Act. Much of what I have to say will reflect some of the conclusions of that report.

In the interest of disclosure, I also serve as the chairman of the board of Global Container Terminals, which is in the transportation space, as you know. I am not speaking on behalf of that organization; I'm speaking on my own behalf here today.

I'll just read a statement into the record.

Never before has the triangulation of trade, transportation, and technology been so central to Canada's economic success. We are a small trading nation spread out over a massive and diverse geography. Canada has to get transportation right, in the interest of our competitiveness and of future generations of Canadians. Getting it right requires that we recognize the massively complex, tightly integrated, multimodal, and international nature of the transportation system. It's increasingly a system that is in constant motion, 24 hours a day, seven days a week.

In 2014, as I alluded to, I chaired a committee charged with conducting a wide-ranging review of the Canada Transportation Act and related matters. Some 56 recommendations came out of the report, plus over 100 sub-recommendations. An overarching theme in the report was the need for better, more timely decision-making adapted to the evolving nature of today's trade, transportation, and logistics networks.

Many recommendations have been or are being acted upon, at least in spirit, by the government of the day, for example, elevated priority to infrastructure investment, including development of financing mechanisms and a more systematic database on the state of Canada's infrastructure; an increase in the foreign ownership limit for Canada's airlines; recapitalization plans for the Canadian Coast Guard; greater and more comprehensive focus on the transportation needs of Canada's north; a serious move to separate passenger rail lines and operations from freight in the high-density corridors of Ontario and Quebec; a major funding initiative to continue developing Canada's transportation and trade corridors; enhanced rights for air travellers—Mr. Streiner was alluding to that in his remarks—and strengthened standards for travellers with disabilities.

The core of the CTA review was a recognition that there are no magic fixes or silver bullets, and that getting it right involves improving governance. By that we mean establishing frameworks for decision-making that are better adapted to the massive complexity of the modern transportation system and its millions of users and service providers. Getting it right means recognizing that transportation crosses all sectors of the economy, all parts of the country, and virtually all parts of government and public policy. In few areas is the so-called whole-of-government approach more critical to our long-term future. Getting it right also means that the regulator, the CTA, Transport Canada, and other agencies, have the information, the mandate, and the tools to deal in real time with a massively complex and dynamic system.

Bill C-49 includes some significant steps to improving the information base to enable better decisions, improve dispute resolution, and generally enhance the regulatory framework. However, in my view, more is needed. Perhaps the most glaring omission in the context of Bill C-49 is the continuation of the reactive, one-at-a-time, complaint-driven approach of the CTA. I believe the agency needs the mandate and capacity to anticipate and deal with issues before they become systemic crises. Dealing with one complaint at a time when many complaints are symptoms of a broader malaise is simply not effective.

Similarly, the agency needs the power to self-initiate investigations. Where there is real and substantial evidence of an emerging problem, the agency needs the own-motion power to self-initiate an investigation, and it should have the ability, where practical, to initiate mitigating or preventive measures. None of this should detract from the ultimate authority of the minister and Parliament to direct the agency, but it should enable better, more timely decisions that lubricate the transportation system in support of better service to the travelling and shipping public.

Getting it right also requires the establishment of robust governance frameworks for organizations created and empowered by government to run various aspects of the transportation system. Airport authorities, for example, were set up 25 years ago to recapitalize and operate Canadian airports. In general this has worked very well, but the governance arrangements need to be refreshed. Airports are for the most part local monopolies with de facto powers of taxation. I note airport improvement fees, for example, buried on airline tickets, tepid accountability to the public, and no real shareholder to hold boards and management to account for the way in which capital is deployed. Similar arguments could be made about port authorities. For the most part there are no legislated guiding principles spelling out public interest considerations. Authority relationships with tenants and customers are important aspects of the public interest, yet there is no clear guidance against abusive pricing power or limiting preferential arrangements with tenants that may undermine the common user principles that are so critical to well-run public facilities. Also, should authorities be permitted to go into business in competition with their own tenants, for example?

At the moment, there is no practical mechanism of appeal for possible abuse of power over tenants and/or customers. An aggrieved party can't even appeal to the CTA because the agency is not empowered to deal with it, and appealing to the minister is generally not practical. There are many mandated entities outside of government. They operate across different modes of the transportation system and with arrangements that are generally spelled out in ground leases, bylaws of the entities or some other form of contractual arrangement. Many of these governance issues were highlighted in the CTA review.

Again, decision making in the world of transportation, where thousands of service providers interact to serve millions of customers and shippers, is all about governance. A healthy, vibrant, global, competitive transportation system requires clear accountabilities in combination with strong checks and balances. The Canada Transportation Act should spell out the principles of good governance to be applied to regulatory bodies as well as non-governmental facility operators and service providers. The act should also include the formal requirement for ongoing renewal of a national transportation strategy. The concept of a decennial review is archaic and it should be done away with in favour of an evergreen process.

Thank you, Madam Chair and honourable members. I look forward to our discussion.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Emerson.

Mr. Al-Katib, go ahead, please.

[Murad Al-Katib, President and Chief Executive Officer, Former Advisor, Canada Transportation Act Review, AGT Food and Ingredients Inc.]

Thank you.

I'm Murad Al-Katib. I'm CEO of AGT Food and Ingredients Inc. I had the honour of serving with Mr. Emerson on the Emerson report as well. I was his lead adviser on the grain sector, on the western Canadian rail chapter, as well as on natural resources, including oil and gas and the mining sector. I'm going to bring to you some perspectives not only in that role, but also as president of one of Canada's largest container intermodal shippers. AGT Food is among, maybe, the top five or seven container shippers in the country. We're also the largest class 3 railway in the country now as well, with the purchase of a short-line railway in Saskatchewan.

Let me pick up on a couple of points that were made by my colleagues. One concerns the work we put forward and the work before you now as Bill C-49. For Canada as a trading nation, transportation infrastructure and the interaction of policy with that infrastructure is one of what I would consider to be Canada's most important generational activities. It means taking a look at how we enable the economy to seize the opportunity, as trade continues to grow, particularly to get our products to market, because of the large geographies we have in our blessed country. With these physical distances, the regulation within the system needed to be addressed in a number of areas. I'm going to break them down into bite-sized pieces.

Transparency of the transportation system was a resonating point of our report and a point that continues to resonate within industry. I think that Bill C-49 addresses greatly one of the major criticisms of the system previously. At least now we have a system such that, if these measures are put forward, the railway systems will be not only encouraged but mandated to provide data input to a system. That data will come into the CTA, will be synthesized, will be published, and will allow policy-makers to make more informed decisions instead of attempting to react on the fly. I think data transparency is a very important part. It is something that was demanded by industry, among the recommendations we made, and certainly it is something we see within Bill C-49.

When we looked at transparency, though, to reiterate both of my colleagues' comments, there was quite a strong desire for ex parte powers of the agency to investigate and be able to look more like a Surface Transportation Board, like a U.S. type of system. We seem to be falling a little bit short on that within this particular round, but we are encouraged as industry, I think, by the type of moves that are being made.

In talking about transparency, I always made the point to industry to be careful what you ask for, because it comes with responsibility. One thing you have to recognize always is that this is a transportation system. Think of it as a supply chain in which each link in the chain is essential for the link directly in front of it and directly behind it. One thing we have in the transportation system is a tendency whereby each link only blames the link ahead of or behind it.

This is a very important element, in that the responsibility of the industry becomes also reliable reporting of our forecasting, reliable reporting of our performance within the system. Efficiency is something that data transparency will drive in the system. I think this is a very important element. This isn't just about railways; it's about each link in the chain.

As that chain continues, fair access to the system is part of what we were looking to see achieved, and I think we made some very good measures in Bill C-49. What we were aiming for in our recommendations was a system whereby the playing field would be levelled to a point that we could encourage commercial agreements.

I think we have to also be very careful. Over-regulation of the transportation industry is a very slippery slope. Over-regulation of our railway system can certainly also have unintended consequences. We have a difficult environment, with long distances, the physical attributes of our terrain, and climate, such that with over-regulation we could actually drive a non-competitive system to become a drag on the economy. But while I say that, I think that fair access to the system and encouraging commercial agreements was really part of the foundation of what we were recommending.

So let's get to some of those.

Shipper remedies were quite strong within Bill C-49. There were a number of moves on the agency's authority to make operational terms within service level agreements more permanent. Reciprocal financial consequences were mandated, which was a major ask of shippers for well over a decade, and which were actually skipped in a number of the previous policy revisions. So it was a very popular move within the shipper community to encourage, then, that when you would sit at the table with your railway on a service level agreement, those operational terms would be defined, reciprocal financial consequences would be mandated by each side, and the agency could then impose those on the parties if they couldn't come to a commercial agreement.

Streamlined dispute resolution mechanisms were key. I think we made some very good progress on those. With regard to the definition of adequate and suitable accommodation, you're probably going to hear a lot about that over the next three or four days, but I do think we've certainly made some very good progress there.

In terms of the overall efficiency piece within the system, long-haul interswitching is also something that there's a lot of angst about in the system, because within the grain industry in particular, with the Fair Rail for Grain Farmers Act, we actually had 160-kilometre interswitching available, hanging there as a shipper remedy that was basically accessible. It was there, and it was extended. That has been sunsetted now, and long-haul interswitching has been introduced as a potential new remedy. I think the angst amongst shippers is from not understanding whether or not it truly can be implemented. Having heard the comments of my colleague Mr. Streiner, I have a level of optimism that in essence shippers will have a chance to apply for 12-month long-haul interswitching, which will involve distances much longer than 160 kilometres, and combining interswitching and the competitive line-haul rates could be an effective mechanism.

It is a new system, and I think that sometimes leads to angst, and as Mr. Streiner has stated, the CTA will be judged by its ability to react and implement. I've also made very strong recommendations to both Transport Canada and the agency to consider expedited renewal processes. So once it is approved for a one-year duration, how do we get the second year and the third year approved on a quicker and quicker basis? Those are service delivery things that I have some optimism about.

In terms of the maximum revenue entitlement, the modernization started within the provisions of Bill C-49 being suggested here, we recommended much broader modernization of the maximum revenue entitlement. There are some first steps that I think are very positive. The container intermodal traffic being excluded and the interswitching revenues being excluded are, I think, common sense provisions, and it made a lot of sense to include those within the modernization. To me, the ability of the railways to reflect individual railway investments was always a ludicrous provision; when one railway invested, that investment was split between the two railways. We've now fixed those. We've fixed out, with the proposals, adjustments to incentivize hopper car investments. These are all positive provisions that still protect the farmer within the MRE and still allow time to see what effect those mechanisms have, but I think they have been very positive.

There are the regulated interswitching rates as well, and then the reduction or the elimination of the minimum grain volumes.

We've made some good progress, I think, and I'm looking forward to being here over the next hour to answer your questions and to give our perspective as you need.

Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Thank you to all of our witnesses.

Mr. O'Toole.

[Erin O'Toole, Conservative, Durham, ON]

Thank you very much, Madam Chair.

Thank you to all of our witnesses for being here. I certainly appreciate your testimony today and your participation in a review of our transportation system.

Mr. Emerson, it would be my privilege to ask you a couple of questions. We're at an interesting time in Canada. In your report, the “Pathways” report that you provided to government, which in some ways was the precursor to Bill C-49, you said on a few occasions that the theme of the report was the relationship between trade and our systems of commerce, and our transportation system, and getting those goods to markets in Canada, in North America, and around the world.

You, as a former minister of international trade, would know that we have a unique opportunity in that we're renegotiating and modernizing NAFTA at the same time that we are supposed to be modernizing our transportation networks for the next 30 years.

In your consultations, did you hear a demand, particularly from the air and the trucking side, for the transborder cabotage approach to linking the North American transportation system, and wouldn't this window—of renegotiating NAFTA— which didn't exist when you wrote the report, be an obvious opportunity to integrate the transportation system in North America?

[David Emerson]

I guess the short answer is we heard—and I know from my own experience in business that while we all obsess over international trade, and tariffs, and related agreements—that when you actually look at how supply chain costs accumulate in the total supply chain of companies, transportation and logistics is a lot bigger factor in terms of competitiveness than tariffs and related trade barriers.

Trade barriers are still important, but as you point out, the biggest risk is probably administrative and other kinds of delays, or discrimination, at the border that aren't really a tariff. It's some other form of impediment to a smoothly functioning liquid border, and so clearly North American integration of the transportation system is vitally important, because if you really look at where the potential to be competitive against Asia and some of the emerging power blocks in the world today is, North America really has to integrate integrate itself and not break itself into a fragmented three-country arrangement when it comes to trade, job, and value creation.

[Erin O'Toole, Conservative, Durham, ON]

It's interesting that you say that when free trade with the U.S. was negotiated in the mid-1980s, both Canada and the U.S. were in a process of breaking down internal barriers. The Mulroney government at the same time was turning Air Canada from a crown corporation into a private sector player, so to integrate transportation into the NAFTA negotiations wasn't really possible then, but perhaps it is now.

From your industry experience, when we're talking about efficiency, do you see both a cost saved to business and an environmental positive to integrating transport in North America? Would it make the private sector more efficient because we're using our systems more efficiently and therefore burning fewer GHGs with empty boats and empty trucks moving around the continent?

[David Emerson]

If I were to make a categorical statement, it would be this. For any given entity whether it's a province, a country, or North America, the more efficient the transportation system is in terms of its integration, its fluidity, and how it delivers products to the end user, the less greenhouse gases are produced per dollar of gross domestic product, whether it's North American GDP or Canadian GDP. So to me, people never talk about it, but it is fundamentally true that a highly efficient transportation system is probably one of the best anti-greenhouse gas policy frameworks you could adopt.

[Murad Al-Katib]

I would just add one thing to Mr. Emerson's comments.

The gateway approach was very prevalent within our analysis and the ability now to look at the Port of Prince Rupert and Vancouver as efficient gateways to Asia linking into the Midwest U.S. corridor. In particular, when I look at the Rupert CN Rail connection and 96 hours it takes to go from Rupert to Chicago and the congestion at Long Beach and on the west coast U.S., there is an opportunity to optimize that entry of traffic because this is a trade flow opportunity where imports come in and then we have an opportunity to stop those trains in Saskatoon and fill them with agriproducts so that those containers are not going back out empty.

From that perspective, the optimization of the north-south corridors both on the inbound and then also the north-south rail corridors and the trucking corridors, I think is certainly a massively impactful opportunity, not only, as you say, for the environment but for the economic performance of our country.

[Erin O'Toole, Conservative, Durham, ON]

I have a final question then. I think it's clear that optimizing our routes within North America—

Am I out of time?

[The Chair, Liberal, Judy Sgro]

I want to give everybody as much time as we can.

Can you hold that and try to get it in later? Sometimes I have to stop this right when we're getting some really key information and I don't like having to do that.

Mr. Sikand.

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

Thank you, Madam Chair.

My question is for the CTA and Mr. Streiner.

In your view, why doesn't our air passengers rights approach deal with physical assault, sexual assault, and assault generally?

[Scott Streiner]

I assume that your question is with respect to what's proposed in Bill C-49.

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

Yes.

[Scott Streiner]

That said, as I indicated in my opening remarks, questions around the policy intent in the legislation, I think, are best directed to the Minister of Transport and to Transport Canada. I would say, however, that I think those sorts of matters have the potential to be police or criminal matters. It may well be that part of the reason was simply that there is another existing mechanism within the law to deal with them. However, the underlying policy logic of the legislation is a question best directed to the minister.

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

Okay. Thank you.

In your opening remarks, you did mention tarmac delays. How do you see tarmac delays addressed through the proposed amendments?

[Scott Streiner]

As you know, the bill proposes that the CTA make regulations with respect to a series of different potential events, one of which is tarmac delays over three hours. Exactly how those will be dealt with in the regulations is something that we'll be able to determine after we've held consultations with industry, with consumer rights associations, and with Canadians and the travelling public. That said, I think the hearings we held on August 30 and 31 on the tarmac delay incidents involving two Air Transat flights underscored the importance of getting this right. I think the public reaction to those events and to the hearings themselves indicated that these are issues that Canadians think are very important.

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

In your opinion, what would be a fair metric to determine the CTA's effectiveness in protecting passenger rights?

[Scott Streiner]

I think one important metric is the speed with which we are able to process the various complaints.

As I noted in my opening remarks, Madam Chair, we've seen a significant increase in the number of complaints. I think that Canadians expect that when they turn to a body like the CTA, they're going to get relatively quick resolution. We've been placing a great deal of emphasis on a process we call facilitation. It's an ombudsman-like process through which one of our officers will make some phone calls between both parties, the complainant and the airline, to see if a quick and mutually acceptable resolution can be found. We've managed to resolve over 90% of complaints, including some of the more difficult complaints, through the facilitation process. I think Canadians will judge us in part on our ability to secure a fair but timely resolution of their air travel concerns, and that's something we're going to continue to focus on.

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

I would like to follow up on a question I asked earlier.

Do you think specific penalties should be placed in the rights? Penalties are not specified in there.

[Scott Streiner]

At the moment, the bill indicates that for certain of the events listed in the section that deals with the regulations, the Canadian Transportation Agency should establish appropriate levels of compensation. In other cases, it talks more about treatment or appropriate measures. At the end of the day, obviously, the regulations that we pass are going to follow whatever you and your fellow parliamentarians decide to put in the law. If the law provides for monetary compensation as well as other measures, then we will set the monetary compensation levels through the regulations. If the law doesn't provide for monetary compensation, then obviously we will not be able to include that.

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

I have a very specific question for Mr. Emerson.

In regard to CN, I know there are changes proposed regarding the percentage an individual shareholder can have. Can I perhaps get your view on that?

[David Emerson]

For the benefit of other members, there is a restriction that is being altered—I don't know if it's through this legislation or another bill—that limits a single shareholder presently to 15% of the voting shares of CN. That is being raised to 25%, but the reality is that CP is not subject to that. We have a situation in which railways in North America are either consolidating or on the verge of consolidating. We have Berkshire Hathaway owning 100% of Burlington Northern Railroad. It makes no sense to me to have a limitation placed on CN that wouldn't apply to other competitive railways here in Canada. I would be an advocate of lifting it entirely and putting them on the same footing as CP.