Transport Committee on Sept. 12th, 2017

[Keith Shearer]

I'll start with our operating employees. They are very talented, well trained, well motivated. They know their jobs extremely well. I've had the pleasure of working with many of them myself.

But they are humans, and humans make mistakes. Furthermore, things such as electronic devices are, I would argue, a problem in society. You see that in society today. Their use is a strong detractor from safe behaviour. Certainly in the railroad operating environment, we have rules and procedures that say they must be turned off, stowed, and not on their person; we simply do not allow them in the environment. Without a means to actually monitor on an ad hoc basis, however, we have really no ability to know that this rule, this procedure, is actually being followed.

That's just one example.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

What would you do in a situation such as that? There's obviously corrective action, and then there's punitive action. Where would you go with it?

[Keith Shearer]

If it's egregious, if it's willful, then punitive options absolutely should be there. The minister and the public hold us accountable for safe operations. We take that accountability very seriously, and there's no reason that this shouldn't extend to our employees. For the most part, they understand that, and that's the way they operate.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

I want to shift gears to the LHI. I hear a lot of contradictions. On the one hand, I hear that we have one of the most efficient low-cost providers of service in the world. That being the case, why would there be any threat from LHI, particularly given that even in the previous regimes the extended interswitching limits were rarely used. What, then, is the threat?

Go ahead, Ms. Drysdale.

[Janet Drysdale]

I think LHI is significantly broader than what was in place in the context of extended interswitching. The fact that extended interswitching was somewhat a temporary measure may have also played into the fact that shippers perhaps limited their use.

Our point with respect to both of those remedies is that if the shipper has rate and/or service issues, there are significant existing remedies the shipper can use, and we see them used. Shippers use the final offer arbitration remedy; they have used level of service remedies. Those remedies exist to help the captive shipper deal with the nature of being captive.

Long-haul interswitching is a far extension from what we saw with extended interswitching; it could be in excess of 1,200 kilometres. We thus have deep concerns, to the extent that shippers use it and/or that U.S. railways encourage shippers to use it, about the impact it may have on the overall network business.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

I look at the service map, and what I see is that both your railways have extensive operations down into the United States. I don't see, other than perhaps in the case of the Burlington Northern Santa Fe line up to Metro Vancouver, a lot of incursion by American railroads into British Columbia.

Do you ever in the course of your business actually buy services from American lines?

[Janet Drysdale]

We do indeed. In fact about 30% of our business is interchange business with other railroads.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

What, then, is the difference?

[Janet Drysdale]

The difference is in the way the rates are negotiated. In the U.S. it's done on a commercial basis. What's being proposed here in Canada is to have those rates all fall under a regulated regime. That's the key difference.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Would you not say—and I'll turn this to CP, because you have taken the first few questions—that in fact the reason the interswitching wasn't used under the old regime very much is that when faced with the competition, you guys lowered your rates?

[Jeff Ellis]

I'll refer to James.

[James Clements]

I'll make a couple of comments. I'll answer that last question first.

The interesting scenario that happened is that we had negotiated commercial rates. I'm going to use the Burlington Northern into Lethbridge as an example. There were products moving in and out of Lethbridge under the bilateral agreements on creating through rates that Janet referred to. What happened is that when extended interswitching came in at a prescribed rate, the shipper paid essentially the same amount, we got paid less, and the revenue for the U.S. portion of the haul went up as a result of the application for interswitching.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Did you lose a lot of business?

[James Clements]

In the Lethbridge area, we saw an impact. If you looked at the whole of the system, it was relatively small. However, in the Lethbridge area where you had Coutts, where the Burlington Northern connects, if you took that as a percentage, it was more significant than elsewhere. Again, that's one of the few locations where the 160-kilometre interswitching limit with the BN really applied. The other area was around Winnipeg.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

However, I think we can count on the finger of one finger the number of times anybody went to the maximum limit.

[James Clements]

To 160 kilometres, but I can follow up with statistics.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

That would be worthwhile.

[James Clements]

We saw a significant percentage in that localized region move over. It was a regular occurrence, with traffic moving on a regular basis in and out of there.

We have moved a little away from that. The first comment I wanted to make overall—

[The Chair, Liberal, Judy Sgro]

I'm sorry, I'm going to have to cut you off. Perhaps you can find a way of answering Mr. Hardie's question among some of the other questions.

Mr. Shields, please.

[Martin Shields, Conservative, Bow River, AB]

Thank you, Madam Chair.

I appreciate the expertise here in the room today. Obviously, I have very little compared to the knowledge sitting here at the end of the table. Listening to some of the comments made, I say, well, we have the lowest rates, so why are you worried about the competition from the U.S. side? If you have the lowest rates, if you're selling shoes the cheapest, you're going to sell more than the guy next door. When you say that and then the rest of the argument, there's an oxymoron here somewhere.

Back in 2013 when oil was selling for $100 plus, you could make more money hauling oil than you could the wheat out of the Peace country. I understand what you were doing. Then you had intervention and you didn't like the intervention. Somebody stepped in and put a regional thing in to take care of that so you could move wheat that had been piled up for a year.

However, the real thing that gets to me is the consolidation in North America, and you mentioned it. Both CP and CN, can you talk to me about how railroads are consolidating in North America?

[James Clements]

I'll answer your competition question first, and then take the opportunity, as the honourable member suggested, to answer the previous question as well.

[Martin Shields, Conservative, Bow River, AB]

No, I want to know about consolidation.

[James Clements]

I'll get there. You asked about—

[Martin Shields, Conservative, Bow River, AB]

No, I don't want to go there. I want to talk about consolidation. That's what I asked about. I made a comment.

[James Clements]

All right. We haven't seen any major rail line consolidation in North America since the late 1990s. As a company, we have attempted a couple of consolidations with eastern U.S. carriers. In the long term, we think consolidation is something that is likely to happen, given the competitive pressures, when you start looking at, let's say, autonomous trucks and the ability for them to provide service. For us to compete, we're going to have to have end-to-end North American solutions to compete with the changing transportation environment and also address congestion issues and troubles we have building infrastructure. Because of the not-in-my-backyard syndrome, we have to maximize all the existing infrastructure, and consolidation is a path to that.