Transport Committee on Sept. 12th, 2017

[Lucia Stuhldreier]

I didn't actually get to our recommendation in the last go-round. Because of where WCSC's members are located—outside, typically, that 160-kilometre radius—some of them have facilities within the 160-kilometre radius or the potential to develop facilities in that radius. From that perspective, the 160-kilometre regulated interswitching rate is much preferable because you can actually use it in planning purposes. A one-year rate that will change every year depending on factors that you have no control over.... You can't use that in a business plan. You can't use that to attract investment.

A regulated interswitching rate, one that everybody sees, that's transparent, and that people know as they're planning their business and negotiating how they participate in this with the local and connecting carriers and everybody else involved, is much more user-friendly. Beyond that radius, though, as I said, it all depends on whether or not the connecting carriers are prepared to compete. From that perspective, CLR, LHI.... CLR has less restrictions than LHI does. My personal perspective is that it's a bit of an academic debate because I don't see a huge uptake on either one of those in the current environment.

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

Do the other witnesses share that opinion?

Do you want to add anything else about the issue?

[Perry Pellerin]

In Saskatchewan, especially with some of the short-line grain shippers, access to what was in Bill C-30 would allow some new businesses to take a look at our short lines as an opportunity to build on to give them access to other class 1s. The way it's structured right now, I think new business would be reluctant to build on the short line, because you might as well at least get within that 30-kilometre zone to give you those options.

To be honest with you, I think my answer would have been that if we didn't have Bill C-30, this one's worse. I'd rather not have it at all compared with what we had before, if that makes sense.

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

Thank you.

I was also struck by a statement you made in your opening. Every time the minister has come to meet with us, he has talked to us about the importance of harmonizing our operations and our legislation with those in the American market, because the USA is our biggest exporter, but sometimes also with those in the European market. Now you are telling me that data reporting is being completely ignored. What I understood from your comments was that we see to be light years away from what the Americans are doing, because our data is aggregated and not broken down.

If that is the case, what would you propose in order to make the data useful?

[Lucia Stuhldreier]

Yes. The differences really had to do with the performance reporting of the railways in the U.S. system, and that includes CN and CP in respect of their U.S. operations. It is the data they report on a weekly basis and on a monthly basis. Within the space of a week, that information is on the website of the Surface Transportation Board and is visible on a railway-by-railway basis, and it shows a breakdown of 23 different commodities. It has a different car count for pulp and paper, for forest products, for coal, for potash, for you name it. There are 23 different categories.

To us, that is really the minimum level of detail we need to see, and because of how large the country is and the fact that CN and CP operate pretty much across it, we would like to see that on a railway-specific basis as well as on some kind of geographic granular level. Otherwise, it's not useful.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Graham.

[David Graham, Liberal, Laurentides—Labelle, QC]

I understand that you mostly all watched the evidence earlier today. I'm going to go to my first question on captive customers. The larger railways suggested that if you have access to trucks, then you're not captive. I was wondering what your thoughts are on that.

[Kevin Auch]

We also have access to airplanes, but that would be a very ineffective way of shipping. Rail is still by far the cheapest way to move a bulk commodity. Speaking for grains, it's not an option to truck grain to the coast. It would be far more expensive. In a monopolistic environment with no competitors, the only way to stop a monopoly carrier from charging the very maximum price they can is through regulation. In a perfect world, there would be competition, so efficiencies would be bred into the system.

Speaking for grain farmers, it's not an option to truck grain to the coast.

[David Montpetit]

The same thing applies to all other commodity groups. If you have a mine, for example, and I'll hypothetically pick a coal mine that is producing two million tonnes a year, you're taking a truck down a road to the coast, I'm going to guess every 30 seconds, 24 hours a day, 365 days a year, from a mine that is probably located either in British Columbia or northwestern Alberta. Practically speaking, you have to give your head a shake. It just doesn't make sense.

[David Graham, Liberal, Laurentides—Labelle, QC]

How many trucks would the average railcar replace?

[David Montpetit]

Depending on the size of the railcar, it could be, I'm going to guess, depending on the commodity type, two to three trucks. I can be corrected if I'm wrong. You might get 40 or 45 metric tons per truck. You may get 100 to 108 in a car, perhaps.

[David Graham, Liberal, Laurentides—Labelle, QC]

Unless you have a Schnabel; then you can take a lot.

These rules are for federally regulated railways. I'm assuming, Mr. Pellerin, that most of your railways are not federally regulated. How does this impact your railways in that respect?

[Perry Pellerin]

All our short lines are still connected to those federally regulated railways. That's the reason for our interest in rate structure. If that rate spread gets higher between our short lines and the class 1s, it's harder for us to compete. All we're looking at is this. The decisions that the government makes today will impact us even though we're not federally regulated.

[David Graham, Liberal, Laurentides—Labelle, QC]

Mr. Pellerin, have you ever worked in the running trades?

[Perry Pellerin]

Yes, I started with CN and was there for 22 years.

[David Graham, Liberal, Laurentides—Labelle, QC]

In your opinion—you have the experience in the cab—should LVVR rules, the option we're discussing, apply to short-line operators?

[Perry Pellerin]

No. What I would suggest on the short line is.... I think we've been working with transport. I think it should be really based on.... A lot of our short lines do 10 miles an hour. We can draw pictures going that slow, never mind having a camera.

The other point I would like to quickly make on that is that I think some stats were brought out this morning about 53% being human failure. On the short line, at least for the ones I represent, in any of our incidents, 100% were track and zero were human. We don't really see that need for the short lines, especially at our speeds and way we handle our traffic.

[David Graham, Liberal, Laurentides—Labelle, QC]

Fair enough.

CN and CP both have operating ratios in the mid-50%. What's a typical operating ratio for one of your short lines?

[Perry Pellerin]

It's probably about 98%. I'm embarrassed to say that out loud.

The thing about our short lines is that our shareholders are the municipalities and the farmers we represent. That money is put right back into it. We don't worry too much about share price and profit margin. We worry about being safe and supplying service.

[David Graham, Liberal, Laurentides—Labelle, QC]

Fair enough.

CN has been buying back a lot of short lines across the country over the last few years. How do you take that?

[Perry Pellerin]

In some cases we've seen where maybe initially the short line bought into places. The oil boom caused a lot of people to change their minds. I think the class 1s had a couple of railways they wish they had hung on to. There are a couple in Saskatchewan that I think they would want back if they could get them.

[David Graham, Liberal, Laurentides—Labelle, QC]

If they took them back, do you think they would actually keep them running the way they are running now?

[Perry Pellerin]

One thing about it is that, if they took them back, they'd have more capital to put into them, but then the customer on that line would have to deal with, let's say, service.

[David Graham, Liberal, Laurentides—Labelle, QC]

Fair enough.

I have one last question. I think I'm almost out of time. Can you go a little more in depth into why short lines are able to run a carload for $650 dollars when the main lines charge $2,000 for the same car, less efficiently, and don't want to do it.

[Perry Pellerin]

Part of it was, I guess, because we try to keep our customers competitive. We really do what our costs are.

The interesting part of that was that some of these rates that we're charging were originally set by our class 1 partners as our division, so that's all we ever got. Our customers were used to that portion. If we went to increase it, then we'd look like the bad person in this. When we look at it, our issue on a lot of short lines is the fact that we could make money. We just have to figure out how to do volume. That's what we have to work on. We've taken quite a hit on the producer car side. Right now, you can't send a producer car to western Canada. That's not good. That's to export position.