Transport Committee on Sept. 12th, 2017

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

The railway people tell us that truckers can do it cheaper than they can. That would be the competitive way to handle that, wouldn't it? Or maybe they can't deal with the volume?

[Wade Sobkowich]

Chris, do you want to answer that?

[Chris Vervaet]

I'll do my best to maybe indirectly answer the question.

When in 2013-14 we had a service meltdown when it came to rail performance, we as oilseed processors were forced to use trucks. We would usually prefer to use the rail. We needed to do that to service our customers, but the rates weren't competitive rates. I don't have the rates in front of me. I don't have exact numbers. Anecdotally, my members told me it was a last resort to use the trucks because we were risking shutting down our operations otherwise.

To move things a longer distance, rail service is the most efficient and cost-effective.

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

Yes, but only up to 500 miles, supposedly. We were told that by the railway people.

[Wade Sobkowich]

My memory is being jogged. Back in 2013-14, there were situations in which we were trucking grain from one elevator to another because one elevator was getting good service and the other elevator wasn't getting good service. We were doing it in limited circumstances. There were some heavy costs associated with it, and it was being done under desperate circumstances.

[Norm Hall]

If I might, there aren't enough trucks on the road in the Prairies to handle what would be needed under that 500 kilometres.

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

It's supply and demand.

[Norm Hall]

Exactly. For the 250 kilometres from the border, that would mean between half and two-thirds of the prairie grain would not be eligible for interswitch, which is unacceptable.

[The Chair, Liberal, Judy Sgro]

Thank you.

Mr. Aubin.

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

Thank you, Madam Chair.

I don't know if I will be referring to one of the 76 amendments you have submitted to us, but I would like you to provide me with some explanations.

Interswitching seems almost to be a cornerstone of Bill C-49. But while the rail companies tell us that it is absolutely not needed any more, you are telling us that it is practically vital.

According to Bill C-49, a rail company has to provide grain producers with 60 days notice before an interswitching interchange is removed. Theoretically, companies can remove themselves from an interswitching point. But last week, I read on Transport Canada's site that rail companies are still supposed to honour certain general obligations. That was all they said about it.

Do you know what those general obligations are? Should Bill C-49 be more specific about what would happen if a rail company were to issue a 60-day removal notice?

[Wade Sobkowich]

That's an excellent question and it gets to the heart of one of our four amendments, actually, which is the list of interchanges. With the introduction of Bill C-49, there will be two different sets of instructions or requirements under publishing a list of interchanges.

For long-haul interswitching, it would say the railways have to publish a list and they can remove anything from that list with 60 days' notice. Proposed subsection 136.9(2) sets out the parameters for the railways to publish a list of interchanges as well as removing them from the list. This is a new provision that goes along with long-haul interswitching. It says railways have to publish a list. They can take something off that list with 60 days' notice. We're worried that a long-haul interswitching order is going to go against them. They're not going to like it. They're going to remove an interchange.

However, we were told that there's already existing legislation that covers interchanges in the act—subsections 127(1) and (2) under “Interswitching”. It says that a party can apply to the agency for the ability to use an interchange and that the agency has the power to compel a railway to provide reasonable facilities to accommodate an interswitch at that interchange.

These are contradictory. One says one thing about interchanges and the other says something about long-haul interswitches, but a long-haul interswitch for one shipper could be an interchange for another shipper, so it doesn't make sense to have two different and potentially divergent sets of instructions on what happens with the interchanges and how they can be decommissioned by the railway.

What we are saying is that you can remove the provision in Bill C-49 on the railways' publishing a list and being able to remove it with 60 days' notice. The existing provisions that talk about the agency's powers to instruct the railways to keep or install an interchange—all this is already in the act and should apply equally to interchanges and long-haul interswitching. Does that make sense?

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

Yes.

[The Chair, Liberal, Judy Sgro]

We've finished our first round. Does the committee have any further questions?

Mr. Badawey, go ahead.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you.

I'm trying to get this balanced between all of the participants in the discussions we're having. The railways mentioned reciprocal agreements—reciprocity with our American counterparts. They stated, if I understood correctly, that because this doesn't currently exist, first, the asset management requirements cannot be satisfied. Second, they are forced to shut down and abandon lines that, because of the service requirements in some areas, would then be picked up by short-line operators, which, I might add, have limited capital resources. Finally, their competitiveness is affected, and this is something I'll leave open for interpretation.

When it comes to reciprocity, what are your thoughts? Keep in mind that we're trying to get a balance here. This goes to Mr. Fraser's question about trying to establish a balance between the railways, the shippers, and those who rely on the service. What are your comments on the reciprocity?

[Wade Sobkowich]

We see the shippers entering into discussions with railways and negotiations on what a service contract would look like after Bill C-49 passes, presuming that it passes in a similar form to what it is today. We see them entering into negotiations, and then if and when those negotiations fail, the parties would each submit their best offer to an arbitrator and the arbitrator would decide.

We would be looking to the arbitrator to decide that penalties would apply to the shipper and would apply to the railway for similar functions of the same magnitude of a penalty.

For example, if the railways say they're going to.... When grain companies don't load a train of railcars within 24 hours, we pay a penalty of, say, $150 a car. If the railways say they're bringing the cars on a Tuesday and they don't come on a Tuesday, we would see a penalty of $150 a car applied. We're looking for balance in the service contract, something that clearly identifies what the railways' obligations are and what the financial consequences are to them for failure to do so, and the same thing with shippers, and that they be reciprocal. The spirit of it is that you would have penalties of the magnitude that reflect each other's obligations.

That has nothing to do with damages, I might add. We still have issues with damages. If you don't receive the train and you can't get your product to the customer and there are contract extension penalties, or maybe you've had to default on a contract, as we saw in 2013-14, those are still issues that would need to be addressed on the heels of a level-of-service complaint or through the courts. We're just talking about the speeding tickets, if you will, in the system to provide those penalties as discipline to motivate the right behaviour.

[Vance Badawey, Liberal, Niagara Centre, ON]

Great.

Are there any further comments?

[Norm Hall]

Yes.

I'm afraid that the railways have been monopolies for too long. They don't know how to compete.

In the last panel they talked about losing about 2,000 cars. That's 200,000 tonnes. How many millions of tonnes do they move on an annual basis? The question from over here was what percentage of their business were they actually losing. I would suggest it's far under 1% that they would be in fear of losing.

Mr. Shields brought the question up to them before. Mr. Finn talked about the OECD numbers—the lowest rates in the world, even compared with the U.S.—yet are they worried about losing business to them? I don't see it. They may lose some, they may gain some, but it's not going to hurt them, especially when they're guaranteed profits under the MRE.

[The Chair, Liberal, Judy Sgro]

Go ahead, Ms. Block.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

I have just one last question and it's in regard to a measure that's included in Bill C-49 that hasn't been mentioned yet, except in the last panel. I recognize you've indicated that you had numerous amendments, 80, and you've boiled them down to just a few that you believe are technical amendments that would truly address the spirit of what was intended.

It's actually that the act is amended by adding the following after section 127, and I'm going to read it. It's under interswitching rate and it says:

127.1(1) The Agency shall, no later than December 1 of every year, determine the rate per car to be charged for interswitching traffic for the following calendar year.

Then it has the considerations, and it states:

(2) In determining an interswitching rate, the Agency shall take into consideration

(a) any reduction in costs that, in the opinion of the Agency, results from moving a greater number of cars or from transferring several cars at the same time; and

Here's the one that I'm really interested in:

(b) any long-term investment needed in the railways.

I'm just wondering if you could comment on that. If you have any comments, was that something you were looking at when you were looking at amendments, or how does this fit in terms of addressing competitiveness?

Also, are you very aware that this is a consideration when looking at an interswitching rate, and how will long-term investment be monitored? Do you know the answer to that?

[Wade Sobkowich]

Those are all awesome questions, and I don't know the answer to any of them. We've never been against a reasonable rate of return to the railways for proper investment in the system. The devil is in the detail on those types of things. We would want to spend a lot of time working with the agency to understand how it plans on doing it and to try to provide our perspectives as we get into the meat on this. However, in terms of providing you with an on-the-spot comment on that, I don't know the answer. It's a great question, though.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you all very much.

As you can see, all of the members are very interested in how we're doing with Bill C-49. They want to ensure that we've heard all the voices that are necessary and that it's reflective. Thank you all very much for coming.

We will now suspend for a short period of time.

[The Chair, Liberal, Judy Sgro]

We will resume our afternoon session.

Welcome to all of our witnesses. We are pleased to have you here with us.

We have the Western Canadian Shippers' Coalition, the Western Canadian Short Line Railway Association, and the Alberta Wheat Commission.

Would the Western Canadian Shippers' Coalition like to go first?

[David Montpetit, President and Chief Executive Officer, Western Canadian Shippers' Coalition]

Thank you.

Good afternoon, Madam Chair and members of the committee. On behalf of the Western Canadian Shippers' Coalition, WCSC, I would like to thank you for the invitation to participate in this session. My name is David Montpetit, and I'm the president and CEO of WCSC. With me today is Lucia Stuhldreier, our legal adviser.

WCSC represents companies based in western Canada that move mainly resource products through the supply chain to both domestic and international customers. Our organization focuses exclusively on issues related to transportation. Since its inception, WCSC has been actively involved in providing shipper perspective on numerous amendments to legislation. Most recently, we participated in a 2015 review of the act, led by David Emerson, as well as subsequent consultations initiated by Minister Garneau.

WCSC's goal is a competitive, economic, efficient, and safe transportation system in Canada that permits our members to compete both domestically and internationally. Our members represent a wide variety of commodities, including forest products, oil and gas, cement and aggregates, and sulphur, just to name a few. A list of current members is included in the brief if you'd like to take a look further.

One thing they have in common is that they are all users of rail transportation. Their facilities are located where the natural resources are. Their remote locations and the large volumes they ship make them completely dependent on rail to move their products to market. In the vast majority of cases, our members have access to only one rail carrier at origin. That creates a significant imbalance in the commercial relationship, even for very large shippers, which the majority of mine are. Being able to move a small portion—as indicated this morning, something like 25%—of product by another mode does not change that in any significant way.

Our members do try to negotiate commercial agreements for rail freight rates and service, and their preference is to resolve disputes commercially. However, the market in which they have to do this is not competitive. The option of taking their business to a competing railway when faced with excessive freight rates, large price increases, and non-performance or substandard performance simply does not exist. Effective shipper remedies act as a kind of backstop in commercial negotiations carried out in a non-competitive market. The fact that such remedies exist and can be used helps introduce a measure of balance to the shippers.

With respect to Bill C-49, WCSC is focusing on the following key areas: railway data reporting; railway service obligations; more accurate, timely, and effective remedies; agency powers; a mandatory review of the rail-related provisions of the act; and finally, access to competing railways.

Lucia Stuhldreier, my colleague, will walk you through the concerns and specific recommendations in this area.

[Lucia Stuhldreier, Senior Legal Advisor, Western Canadian Shippers' Coalition]

Good afternoon.

With respect to the data reporting requirements in Bill C-49, our comments are focused on railway service and performance data. Policy-makers, regulators, and users of the transportation system need this information in order to make evidence-based decisions. They need it to be detailed and they need it as close to real time as possible.

WCSC has two main concerns regarding the interim requirements in the bill. First, the information is too highly aggregated to be of any use. For example, the railways will need to report, on a weekly basis, the average number of boxcars online anywhere in their system in Canada. Those cars could contain refined metals originating in the Montreal area, pulp from a mill north of Edmonton, newsprint from the Maritimes, or any number of other things.

The published data will not tell us that because, unlike in the U.S. where CN and CP have to report separately for 23 separate commodity groups, all of this is going to be aggregated in Canada. There has been a suggestion also that rather than publishing this information separately for each of the railways as is done in the U.S., it might need to be aggregated for CN and CP, and that would further mask what's actually happening in the system. In short, as it stands, this will produce general high-level statistics that are not of any practical value.

Secondly, the information is not going to be available on a timely basis. First, as you've probably heard already, the bill defers any of these requirements for a full year. Once they do kick in, there will be a three-week delay in the publication process. Just for the sake of comparison, that's three times as long as it takes in the U.S. to put this information in front of the public. Historical information is probably useful in tracking overall trends and maybe in assessing past service failures, but when it comes to day-to-day decision-making, it's of very limited usefulness. So we have recommended some changes to those provisions.

The second area I want to talk about is adequate and suitable service. There's a proposed new subsection 116(1.2) in Bill C-49 that states that the agency has to dismiss a shipper complaint if it is satisfied that the railway is providing “the highest level of service...it can reasonably provide in the circumstances”. I was looking for an appropriate example, but this is really a bit like a teacher telling students, “If you get 95% on the final exam, you cannot possibly fail this course.” That doesn't tell the student what happens at 90%, at 85%, or at 65%.

What shippers and railways need to know is when service is no longer adequate and suitable. If the intent is to require the railways to provide the highest level of service they can reasonably provide in the circumstances of the case, we believe the bill should say that, and it should say it clearly. If it doesn't, we expect unnecessary litigation, preliminary objections, and ultimately it may very well be that the Federal Court of Appeal agrees with our interpretation, but we will have spent extra time and money to get there when it can be fixed at this early stage.

Another aspect of the service-related provisions in Bill C-49 has to do with timely access and timely relief. The bill would shorten the time period the agency has to issue a decision from 120 days to 90 days. When you're dealing as a shipper with serious acute shortfalls, waiting three months instead of four months for a fix is really only a marginal improvement. In those cases, it's crucial that the agency continue to have the ability to expedite the process and to make interim protective orders that keep a modicum of service in place while the complaint carries through the process. That can mean the difference between continuing to operate and shutting down, at least on a temporary basis, with all that entails in terms of personnel, cost of restarting major equipment, and loss of business.

As with most administrative tribunals, the agency has the ability to control its own process. What Bill C-49 would do is mandate minimum time frames that the agency has to allow in a level-of-service complaint for the railway and the shipper to present their case. That means the agency will not be able to expedite that process, and it also calls into question whether the agency will be able to issue interim relief on a timely basis. We've made some recommendations to deal with that.

The fourth area I want to touch on is more broadly the agency's authority. One of the things the WCSC has advocated for some time is giving the agency the ability to investigate matters within its jurisdiction on its own initiative. You've heard in the earlier part of these meetings about the investigation the agency initiated into the Air Transat tarmac delays. A similar initiative was taken by the U.S. Surface Transportation Board in the case of CSX and widespread complaints about deteriorating rail service that affected a broad range of their customers. Giving the agency that ability will allow them to better address those kinds of systemic issues.

The second point in this area relates to final-offer arbitration in freight rate disputes. A crucial piece of information that's normally not available to the arbitrator in those cases is how each of the final offers stack up in terms of covering the railways' costs and providing a sufficient return above those costs, and you heard this morning from the railway witnesses how significant that issue is to them.

The agency is an independent body. It has the requisite expertise to make cost determinations and to provide them to the arbitrator, and we're recommending that an agency determination of costs be part of what is provided to an arbitrator in every final-offer arbitration.

Before I get into long-haul interswitching, there is one area that WCSC noticed was missing in this act and in this bill that has historically been part of every major amendment to the railway legislation, and that's the provision requiring the minister to initiate a review of how those amendments are faring. We are suggesting that this would be appropriate here.