Thank you, Madam Chair.
The Railway Association of Canada represents more than 50 freight and passenger railway operators composed of the six class I rail carriers identified in this bill, and 40 local and regional railways, known as shortlines, from coast to coast, as well as many passenger and commuter rail providers, including VIA Rail, GO Transit and RMT, and tourist railways, such as the Charlevoix Railway.
I should mention at the outset that Bill potentially affects all of our members, including provincial and commuter railways, because of the proposed safety measures included in the bill.
When I appeared before you last year to comment on the Fair Rail for Grain Farmers Act, I mentioned the negative effect that extended interswitching could have on the short-line rail sector and suggested letting these provisions sunset. We were relieved to see that Bill , by creating the concept of class I rail carriers in its clause 2, has made clear that long-haul interswitching does not apply to short-line railways.
In your report you recommended:
||That the Minister of Transport request the Canadian Transportation Agency to examine the railway interswitching rates it prescribes to ensure that they are compensatory for railway companies.
Bill does not request the agency to review interswitching rates but goes one step in the right direction with respect to LHI, by specifying that the rates set by the agency shall be based on comparable commercial rates.
In addition to setting this average as a minimum, the act says that the agency must consider the traffic density on the line and the need for long-term investments, which, if applied properly, should lead to rates above the minimum, which is the average rate. That is good news, but the devil will be in the details of future decisions from the agency.
There are more experienced people from CN and CP with me to speak to the impact of long-haul interswitching and related service provisions on their businesses. Instead, I thought it would be useful to speak to the recent history of the railway industry, the success of Canadian railways in a public policy context, and some important and hard-won lessons from the past three decades of rail regulation and deregulation.
Successive governments, and indeed this committee, have enabled the positive accomplishments of Canada's railway industry by introducing and improving a regulatory regime that prioritizes commercial freedom and reliance on market forces over government intervention.
Before the introduction of the National Transportation Act in 1967, railway economic regulation in Canada involved increasingly restrictive regulation focused on freight rate control and uniformity. This approach led to inefficient railways that had difficulty undertaking much-needed capital investments to maintain and grow their networks.
Railways in the United States faced similar challenges, leading to the adoption of the Staggers Act and, as a result, significant deregulation in the U.S. rail industry. Canada's National Transportation Act represented the beginning of a dramatic shift in the regulatory environment for Canada's railways. Rigid regulatory constraints on pricing were removed, allowing railways to compete more effectively.
By the 1990s, decades of incremental deregulation placed an increasing emphasis on market and commercial forces, while maintaining a number of protections to ensure balance between railways and shippers. The passage of the Canada Transportation Act in 1996 introduced additional changes that reduced market exit barriers, allowing railways to discontinue or transfer portions of their networks to other carriers so as to become more efficient. This gave railways greater freedom to control costs and generate efficiencies. It also fostered sharp growth in Canada's short-line rail industry. Around the same time, CN was privatized, creating competition between two privately held, publicly traded national systems.
As a result of these policies, Canadian railways evolved into highly productive companies capable of providing low-cost service while generating revenues needed to reinvest into their respective networks. Shippers meanwhile gained access to a world-class railway system and today benefit from freight rates that are among the lowest in the world. Canadian railway performance, in terms of rates charged, productivity, and capital investment, greatly improved under these regulatory freedoms.
Since 1999, Canada's railways have invested more than $24 billion in their infrastructure, which has resulted in a safer and more efficient rail network that benefits customers directly.
Despite this record of public policy success, and a national transportation policy that clearly recognizes that competition and market forces are the most effective way of providing viable and effective transportation services, we are here today debating a bill that adds recourse mechanisms for the sole benefit of shippers.
Three weeks ago, the president of the Canadian Transportation Agency gave a speech in Vancouver in which he stated that existing mechanisms—including mediation services, final offer arbitration on rates, arbitration on service levels that allow the agency to craft service-level agreements, and adjudication on the adequacy and suitability of services provided by railways—are not used very often, and that in fact the agency is planning outreach to stakeholders who are not taking advantage of existing provisions. Yet we're here today to discuss new provisions on top of existing recourse mechanisms that are currently underutilized.
Under this bill, long-haul interswitching is available to a rail customer even if they have access to trucking or marine transport, which are competitive services. It is an example of how we can lose sight of the need to recognize competition and move backwards toward regulation.
Let me now turn to safety, and to the locomotive voice and video recording, or LVVR, provisions of the bill.
Yesterday, I sent all members of this committee an article outlining the reasons for our support of LVVR for both accident investigation and accident prevention. For a long time, railways have advocated the right to use this technology as another safety defence within railway companies' safety management systems. It has always been the industry's belief that LVVR will, simply by its presence, help to prevent accidents by discouraging unsafe behaviours and unauthorized activities that may distract crew members from their duties.
We believe that this technology will increase safety and that it can be introduced in a thoughtful way and used responsibly. Even with significant investments, there are still accidents that can be prevented. The record of class I railways in North America is excellent, but it is not perfect. Until we have full automation of both freight and passenger trains, we are going to see accidents that can be traced to human error.
LVVR is not a silver bullet. Rather, it is an important, proven tool that can help identify dangers and act as a deterrent for the very small percentage of employees who might be tempted to use their smart phone or read a book when they should be alert and working. In this respect, it will help to change the culture of the workplace in a positive way. This has been the experience of companies such as Phoenix Heli-Flight, a Canadian helicopter company that today uses voice and video recorders in their aircraft. In addition, it is expected that in most cases the LVVR evidence would corroborate the statements and explanations provided by the crew members themselves.
Let me talk about privacy versus safety. Some have expressed concern about privacy, but we already know from the introduction of other technologies and from video in the workplace that there are tests imposed by the Privacy Commissioner to guide us on the responsible implementation of LVVR. We are anxious to work with you and with the department on the creation of these regulations.
LVVR is a technology that will prevent accidents. Investigative bodies such as the TSB and the U.S. NTSB have called for its use. When there is an accident, investigators from the Transportation Safety Board will better understand what happened, and everyone will learn from it.
Thank you very much.
Thank you, Madam Chair, and good morning.
I'm Jeff Ellis, chief legal officer for Canadian Pacific. I am joined by James Clements, our vice-president for strategic planning, and Keith Shearer, our general manager of regulatory.
Thank you for the opportunity to speak with you today. In the interest of time, we will focus our remarks this morning on just two issues, LVVR and long-haul interswitching.
As one of Canada's two class I railways, we operate a 22,000-kilometre network throughout Canada and the United States. We link thousands of communities with the North American economy and with international markets. CP has made and continues to make significant levels of capital investment to improve safety and grow the capacity of our network. Since 2011 we've invested more than $7.7 billion on railway infrastructure. In 2017 we plan to invest an additional $1.25 billion. Should the changes to the maximum revenue entitlement come into effect in their current form, CP will likely make a major investment in new covered hopper cars, creating new supply chain capacity.
CP has been recognized as the safest railway in North America by the Federal Railroad Administration in the U.S. We've achieved the lowest frequency of train accidents in each of the past 11 years. That being said, safety is a journey and not a destination. One incident is too many. LVVR technology is essential if we are to materially improve railway safety in Canada, because human factors continue to be the leading cause of railway incidents. Since 2007 we've had a 50% reduction in safety incidents caused by equipment failures. Similarly, track failures are down 39%. However, human-caused incidents have seen little change over the same time period. According to data published by the TSB, 53.9% of railway incidents in 2016 were caused by human factors. It's clear that we must take action to tackle this category of rail safety incidents.
The evidence is also clear. One example is that since the implementation of DriveCam in New Jersey, New Jersey Transit saw a 68% reduction in bus collisions from 2007 through 2010. The number of passenger injuries fell 71% in the same period. Rail commuter Metrolink in California similarly saw a significant reduction in red-signal violations and station platform overruns.
It's imperative, however, that these regulations allow for safety issues to be exposed before an incident occurs. That would enable us to proactively develop effective and appropriate corrective action. It would be a mistake to amend Bill to prevent any kind of proactive use of LVVR data by railway companies. It would negate a key safety benefit of adopting the technology. CP recognizes the need to use this technology in a way that is respectful of our operating employees, in accordance with Canadian privacy laws, and we are committed to working closely with Transport Canada and our unions over the coming months to do so.
I'll now turn it over to James.
The rail supply chain is the backbone of our economy. Not only is the Canadian freight rail system the safest, most efficient, and environmentally friendly means of transporting goods and commodities, it achieves these goals while maintaining the lowest freight rates in the world. This is a key point. A healthy rail system is critical to Canada's international competitiveness, given our vast geography. Without a competitive, economic, and efficient rail system that can move products thousands of kilometres to ports for export, at the lowest cost in the world, much of what Canadians sell on international markets could not be priced competitively.
Canada's freight transportation system has been successful because the legal and regulatory environment, particularly in recent decades, has recognized that competition and market forces are the most effective organizing principles. These principles are articulated in Canada's national transportation policy declaration, contained in section 5 of the Canada Transportation Act.
It is important not to lose sight of these principles when reflecting upon legislative changes to the framework that has been proven to be so successful in delivering economic benefit to Canadians. CP is pleased that the government has decided to allow the extended interswitching regime of the previous government's Bill to sunset, as it was based on what we saw as a deeply flawed rationale, and it generated a number of harmful public policy consequences that ultimately disadvantaged the Canadian supply chain.
Similarly, however, the proposed new long-haul interswitching, LHI, regime contains a number of problematic elements. Most fundamentally, the LHI regime, like the extended interswitching regime it is replacing, is non-reciprocal with the U.S. As such, American railroads would be granted significant reach into Canada, up to 1,200 kilometres, to access Canadian rail traffic, but Canadian railways will not have the same reciprocal ability under American law.
The LHI regime is constructed in such a way that it is asymmetrical in its impact, both in terms of non-reciprocal access for American railroads vis-à-vis CP and in terms of CP and CN, because CP's exposure to American railroads under this regime is much greater than is CN's, given the geographical location of our respective networks, further compounded by the two excluded corridors.
The LHI regime could undermine the competitiveness and efficiency of the Canadian supply chain by incentivizing the movement of Canadian traffic to American railroads and supply chains, thereby eroding traffic density for Canadian supply chains.
The negative consequences to the Canadian economy will not be limited to the rail industry. If Canadian rail traffic is diverted to American trade corridors, it will also dampen shipping volumes at Canadian ports. For CP alone, there is a significant amount of our annual revenue that could potentially be moved to American railways and trade corridors under this proposed LHI regime.
A decision to allow non-reciprocal access for American railroads represents a significant concession by Canada to the U.S. while NAFTA is being renegotiated. This strikes us as an unwise public policy choice for the Canadian economy. The proposed LHI regime ought to be reconsidered in that context.
As drafted, Bill also imposes an obligation on connecting carriers to provide rail cars to the shippers in addition to their other service obligations. It has been well understood that as part of its common carrier obligation, a railway is required to furnish adequate and suitable accommodation for traffic. However, in some cases, the provision of railcars by a connecting carrier is not practical. For example, tank cars are typically owned by the customer, not the railway. The Canada Transportation Act already addresses a railway's car supply obligation, so it is important to clarify that the railway does not have a higher standard to provide car supply under LHI than already exists.
Since the LHI rate is to be determined by the agency, based on the commercial rates charged for comparable traffic, it follows that traffic moving under an LHI rate or any other regulated rate, such as grain under the MRE, should be excluded from the LHI rate determination since those rates cannot be considered commercial.
Further, American railways operating in Canada and regulated by the federal government should also be compelled to provide rate data to be used by the agency in determining LHI rates.
We will conclude our opening remarks there. I know there are many other elements of Bill that we have not discussed this morning. Our letter highlights some considerations on those points, and, of course, we are happy to take questions on any element.
Thank you, Madam Chair.
Madam Chair, good morning, and thank you very much.
This morning I'm joined by two of my colleagues, first of all Janet Drysdale, who's vice-president of corporate development and sustainability at CN; and also, Mike Farkouh, who is vice-president of operations, Eastern Canada. I'm the chief legal officer and executive vice-president of corporate services at CN.
We appreciate very much the opportunity to meet with you today to discuss Bill , which has significant implications for the rail sector in Canada. CN participated very actively in the statutory review of the Canada Transportation Act by the Honourable David Emerson. We believe the panel did a good job in the review of the act, identifying the sorts of policy changes that are necessary to enable Canada to meet its goals for growing trade in the coming decades. Mr. Emerson and his colleagues commissioned a number of useful studies. With regard to rail we recognize that, unlike some past reviews, the panel based their recommendation on evidence and data and less on anecdotes. The panel also accepted the clear evidence that deregulation of the rail sector supported innovation, which derived benefits to shippers, customers and the Canadian economy. We are somewhat disappointed that not more of the panel's recommendations are included in Bill .
After the report of the review panel was published, we participated in the consultation process undertaken by Minister , specifically in a number of roundtables held across the country.
We have also been encouraged by the work of the government's advisory council on economic growth chaired by Dominic Barton. We are particularly pleased with their first report's focus on the importance of growing trade and the need to strengthen and grow our infrastructure in order to achieve this. The council also stressed the importance of having a regulatory system that encourages investment in infrastructure and enables the transportation sector to attract the capital needed to invest in growing capacity.
I am sure that you are familiar with CN, but I would like to remind you of some important aspects.
CN operates its own 19,600-mile network, serving three coasts, the Atlantic, the Pacific and the Gulf of Mexico, as well as the port of Trois-Rivières. In Canada, our network extends over 13,500 miles, linking all main centres and access points. This makes CN a strategic partner in Canada's logistics chain.
We have an extremely diversified commercial portfolio. Our biggest sector is intermodal transportation, or import and export container traffic. Container transportation is the fastest growing and most competitive sector in the rail industry.
More broadly, I think it's imperative for the committee to know that deregulation and market-driven forces over the last 20 years have been the key underpinnings enabling investment and innovation in Canada's rail sector. According to the OECD, Canadian shippers today benefit from rail rates that are the lowest in the industrialized world, lower even than in the United States. In addressing Bill , we acknowledge the minister's attempt to design a package that addresses the interests of both railways and shippers; however, we are concerned with the failure to recognize the degree to which deregulation has led to an environment of both lower prices and more reliable services for shippers and the degree to which deregulation has enabled railways to invest heavily in maintaining and growing our network. CN's capital investment over the last 10 years has totalled approximately $20 billion.
I'd like to turn the microphone over to my colleague, Janet Drysdale.
There are a number of provisions in Bill that run a high risk of unintended consequences. The part of the bill with the greatest risk potential is long-haul interswitching, which I'll subsequently refer to as LHI. LHI is a remedy which, until it appeared in this bill, had never been recommended, discussed, or considered. No assessment of this remedy on the rail industry has been performed and we believe that significant unforeseen and adverse consequences could result from its implementation.
CN has an extensive network of branch lines serving remote communities in all regions of the country. Those branch lines present a challenge, as they are expensive to service and maintain while at the same time handling low volumes of traffic. In many cases, the reason we are able to justify keeping those lines in operation is the long-haul business they generate. LHI makes it possible for a customer to require us to take the traffic to an interchange point and hand it to a competitor, who would then get the majority of the move and its associated revenue.
Under this remedy, the other railway is in a good position to offer lower rates, as it bears none of the cost of maintaining the remote branch line where the shipper is located. Needless to say, if this were to become a common occurrence, it would be difficult for us to justify the ongoing investments required to keep those remote lines operational.
During second reading debate, LHI was identified as an option to captive shippers that would “introduce competitive alternatives for their traffic and better position them in negotiations for service, options and rates”.
Let me start with the notion of captivity. The bill defines captive as having access to only one railroad, completely ignoring the shipper's access to alternative modes of transportation. So if a customer ships product today using both rail and truck, Bill considers them captive to rail. We are proposing an amendment to clarify the definition of captive such that if a shipper uses an alternative means of transportation for at least 25% of its total shipment, that shipper must be considered to have competitive options and therefore should not have access to LHI.
With respect to negotiating service options and rates, Bill maintains the shipper's access to all of the existing remedies respecting rates and service, including final offer arbitration, group final offer arbitration, complaints against railway charges, level of service complaints, and arbitration on service-level agreements. Consistent with Canada's national transportation policy and that LHI provides a competitive option, we are proposing an amendment whereby a shipper that can access LHI should not have access to the other rate and service remedies.
LHI also provides a non-reciprocal competitive advantage to U.S.-based railroads. Railways in the U.S. already have a significant advantage because of the much higher density of traffic on their lines. They simply have much more traffic per mile of railway. That higher density means more traffic over which to spread the high fixed cost of maintaining the network. Railways are most profitable on long-haul moves. Under LHI we can be required to move goods a short distance and then transfer them to a U.S. railway that would get the long-haul move and most of the revenue. That is revenue that then becomes available for investment into the U.S. network at the expense of Canada.
We don't understand, particularly at a time when NAFTA is being renegotiated, why Canada would give away this provision with nothing in return. Providing such an advantage to U.S. railways creates a risk to the integrity and sustainability of Canada's transportation network, ports, and railways, which depend on a certain volume of traffic to generate the capital necessary to keep Canadian infrastructure safe and fluid and to keep good, middle-class jobs in Canada.
We acknowledge that the exclusions in the act limit the areas where this new remedy is available, but those exclusions are insufficient, especially near the Canada-U.S. border in all three prairie provinces. If we had access to similar provisions in the U.S., we would not be objecting. However, there is no right to interswitching in the U.S., and this absence of reciprocity is prejudicial to the Canadian rail industry. We are therefore proposing an amendment that would create an additional exclusion to provide that a shipper not be entitled to apply to the agency for an LHI order if the shipper is located within 250 kilometres of the Canada-U.S. border.
Another area where we do not understand the need for intervention is the attempt to define the level of service requirement. The current provisions have been in place and effective for a long period of time. In our view, the current provisions are balanced and do not require the proposed amendment. We are also proposing an amendment respecting the provisions of Bill that introduce penalties when railways fail to meet service obligations.
In 2012, Jim Dinning, a facilitator appointed by government, recommended that penalties of this type should only be introduced when penalties also apply to shippers that commit volumes and fail to meet their commitment. Bill has no such reciprocity. We are proposing amendments that better balance penalties between shippers and railways by making railway penalties contingent on shippers having similar obligations.
We would like to commend the minister for his decision to move forward with legislation making the use of locomotive voice and video recording devices compulsory. This is an important step in our collective goal to increase rail safety. While it is important to have the information provided by these devices available when determining the cause of an accident after it has occurred, they are even more valuable in our ongoing efforts to prevent accidents.
We want to say a word about the provision of the bill that increases the ceiling for the percentage of CN shares that can be held by a single shareholder. The current limit of 15%, a limit no other railway has, impedes CN in attracting the kind of patient, long-term investors that we require in our extremely capital-intensive industry. This change is a good first step to correcting the uneven playing field vis-à-vis our competitors. We will be asking members to consider a minor amendment to ensure that this change takes effect immediately upon royal assent.
Finally, we have a word about grain shipments. In the crop year that just ended, CN moved 21.8 million metric tonnes of grain, the most we have ever moved in a year. We beat the previous record set in 2014-15 by 2% and exceeded the three-year average by 7%. I'm also pleased to be able to tell you that, in advance of the start of the crop year, grain shippers secured approximately 70% of CN's car supply under innovative commercial agreements that provide shippers with guaranteed car supply and that include reciprocal penalties for performance.
We have entered into a period of dramatically increased service, innovation, and collaboration with our customers. We have achieved this through commercial negotiation, improved communication, and a better understanding of the challenges we each face. If the Canadian supply chain is going to move the increased volume of trade that we all support and that we all believe can be achieved, it can only happen with collaboration across the supply chain. Regulation has its place, but experience shows that we reach our goals when it is the exception.
We appreciate the opportunity to speak with you today and look forward to your questions.
Thank you very much, Madam Chair.
Thank you to our witnesses for being here today, day two of a four-day study on this issue. We're very interested in hearing your testimony.
I will start by saying that it goes without saying that we understand the importance of our railways to our country and our economy and recognize that there needs to be a balance struck between the railways and the customers they serve. Certainly, looking at the legislation that's before us today, I think we're all committed to doing that and ensuring that this legislation does that.
I'm a little confused by some of what I've heard today in relation to Mr. Bourque's comments around Bill, describing this legislation as creating additional measures on top of measures that are rarely used. I want to then look at the testimony that was given by Mr. Ellis and Mr. Clements in regard to long-haul interswitching. I think those were the measures that Mr. Bourque may have been referring to, I'm not sure, where you defined the extended interswitching regime as being deeply flawed and generating a number of harmful public policy consequences that ultimately disadvantage the Canadian supply chain.
I want to reflect back on some of the testimony that we heard when we were studying the Fair Rail for Grain Farmers Act. The stats that were provided to our committee during our study demonstrated that extended interswitching was, in fact, rarely used. Our shippers acknowledged that, while that was the case, it was seen as a very helpful tool in negotiating contracts with the railways.
We have folks saying that this was a remedy that was rarely used, but that it created harmful public policy consequences and ultimately disadvantaged the Canadian supply chain. I'm trying to reconcile those comments and would give you an opportunity to speak to that.
I'll make a couple of comments first on where we saw some of the flaws in extended interswitching, and then bring it across to where LHI has flaws.
Extended interswitching was done at a regulatory costing at a prescribed rate, which didn't necessarily give us an adequate return. You were effectively giving a regulated, below-cost rate to an American shipper or carrier to gain access to our networks. So that was one of them.
Another component was that it was very regional, which I think the government has acknowledged in some of the amendments it has made.
Then, what's carried over—the final flaw—was this lack of reciprocity. Today let's say that the Burlington Northern has a downturn in crude oil going to the Pacific northwest. It can now choose to fill that vacant capacity and try to cover its fixed cost of that capacity by potentially getting the shipper to get an LHI rate down to the border, and then pricing the rest of the move very cheaply and attracting that volume to be incremental on the top to fill the density.
As you've heard, that takes revenue away from the Canadian railways, takes jobs away from Canadians, and it also takes the density out of the other components in our supply chain, such as the ports. That's the third component that we see is the flaw.
Thank you, Madam Chair.
Gentlemen, madam, welcome. Thank you for joining us.
I would like to start with a question for all the witnesses about safety.
I certainly heard your comments about the importance you place on audio and video recorders. However, my gut asks whether a voice and video recorder is going to help the TSB draw any conclusions on an unfortunate event that has already happened. I was rather looking to find out about the measures you plan to implement, or that Bill should implement, in order to prevent accidents.
As Mr. Ellis said, we know that most incidents are linked to human factors.
There are two major questions about the frequency with which the human factor is at play in accidents. First, there is the level of fatigue of locomotive operators. Then there are the repeated demands from the TSB pointing to the need to instal additional means of physical defence. This can mean alarms. or even technological mechanisms that can make a train stop when the driver has missed a warning he should have noticed. It seems repetitive.
In the major companies, what measures are in place, first to achieve better management of fatigue, and second to move towards these means of physical defence?
Perhaps, Mr. Ellis can start, but I invite everyone to respond.
Maybe I can take that with an example.
We have an existing customer today located in a remote region that ships lumber, and they ship all of that lumber today by truck. In coming together on a commercial basis, we made a decision to make some investment in order to bring rail to that customer, which supports our climate change agenda and supports the low-cost enabling of the infrastructure and the shipping of freight. But by bringing rail to that customer who today ships all by truck, once we make that connection this bill now considers that customer to be captive to rail.
Our issue in terms of captivity really concerns the way in which captivity is defined. Particularly on short-haul movements, truck is a viable competitor. We also can't lose sight of other competition, such as the St. Lawrence Seaway, for example.
In the case of other shippers, including very much the petroleum business, there are actually options for swapping: producers will actually change the location from which they are sourcing product. We face competition from product sourcing, we face competition from trucking, in some cases from pipeline, and certainly in the context of the Great Lakes St. Lawrence Seaway.
We're very competitive in terms of the CN/CP dynamic. Our issue is with defining “captive” as only having access to one railroad, when the shipper actually may have access to other modes of transportation that are viable.
Thank you very much, Madam Chair and members of the committee.
The Western Grain Elevator Association is pleased to contribute to your study on Bill . The WGEA represents Canada's six major grain-handling companies. Collectively, we handle in excess of 90% of western Canada's bulk grain movements.
Effective rail transportation underpins our industry's ability to succeed in a globally competitive market. We recognize this committee's comprehensive work last year. That was a very important report that this committee completed. The one published in December 2016 largely supported our points of view on the main issues.
In Bill C-49, a number of recommendations made by grain shippers were accepted and a number were not. We were asking the government to strengthen the definition of “adequate and suitable accommodation” to ensure that the railways' obligation to provide service was based on the demands and needs of the shipper, and not on what the railway was willing to supply. The definition proposed in Bill C-49 isn't explicitly based on shipper demand. There are positives and negatives with this new definition.
We were seeking the ability to arbitrate penalties into service-level agreements for poor performance, along with a dispute resolution mechanism to address disagreements in a signed service-level agreement. We are pleased that this is included in Bill C-49. It will resolve many of our challenges on rail performance matters.
We were requesting that extended interswitching be made permanent to allow for the continuation of one of the most effective competitive tools that we have ever seen in rail transportation. Extended interswitching was not made permanent—a significant loss to us.
We were asking that the government maintain and improve on the maximum revenue entitlement to protect farmers from monopolistic pricing. This protection was maintained; however, soybeans remain excluded from this protection.
The WGEA had also supported expanding the agency's authority to unilaterally review and act on performance problems in the rail system, similar to what the U.S. Surface Transportation Board enjoys in the U.S. Bill C-49 includes the provision for the agency to informally look into performance problems, but it doesn't give the agency added power to correct systemic issues.
Lastly, the WGEA was asking the government to improve the transparency and robustness of rail performance data. This has been improved in Bill C-49; however, shipper-related demand data is still not captured. Later this week, some of our colleagues in the grain industry will provide additional perspectives on use of the data, timelines, and reporting to the minister. The WGEA shares their views.
To be clear, on balance, this bill is a significant improvement over the existing legislation and is a positive step forward for the grain industry. As a result, we are choosing to offer only four technical amendments, representing the bare minimum of changes, where the proposed legislation would not be workable and would not result in what the government intended. The main area is long-haul interswitching.
For your reference, annex A, which we circulated to committee members in advance, contains our suggested legislative wording amendments. The extended interswitching order had been in effect for the last three growing seasons and had evolved into an invaluable tool for western grain shippers. Instead, the new long-haul interswitching provision is intended to create these competitive options. In that spirit, shippers need to be able to access interchanges that make the most logistical and economic sense, not necessarily the interchange that's closest.
In terms of reasonable direction of the traffic and its destination, the current wording in proposed subsection 129(1) may give a shipper access to the nearest competing rail line, but this would be of little or no value if the nearest interswitch takes the traffic in the wrong direction for the shipment's final destination, if the nearest interchange does not have the capacity to take on the size of the shipment, or if the nearest competing rail company does not have rail lines running the full distance to the shipment's destination. For the committee's reference, we've circulated annex B, which visually depicts real-world examples of where accessing the nearest interchange makes neither logistical nor economic sense.
Two clauses need to be amended to better reflect the spirit of creating competitive options. If you go to map 1 in the package we circulated, you will see an example of an elevator that has access to an interchange within 30 kilometres, but that interchange takes the traffic in the wrong direction. Bill C-49 stipulates in proposed paragraph 129(3)(a) that a shipper may not obtain a long-haul interswitch if a competing rail line is within a distance of 30 kilometres.
Sending a shipment in the wrong direction or to the wrong rail line is cost prohibitive and in those cases renders the interswitch useless. A shipper that happens to be within 30 kilometres of an interswitch that is of no use to them is excluded from long-haul interswitching and is put at a competitive disadvantage.
A similar problem exists for dual service facilities given the prohibition in proposed paragraph 129(1)(a). The solution to this problem is to add the wording “in the reasonable direction of the traffic and its destination” to proposed paragraphs 129(1)(a) and 129(3)(a). This language already exists in the legislation in proposed section 136.1 for other purposes and needs to be replicated in proposed section 129.
On long-haul interswitching rates, proposed paragraph 135(1)(a) of the bill directs the agency to calculate the rate by referring to historical comparable rates, but most comparable rates to date have been set under monopolistic conditions. If the rates themselves are non-competitive and may be the very reason a shipper wants to apply for a long-haul interswitch in the first place, this process would not effectively address the heart of the problem. We're concerned that without an amendment of the nature that we're proposing, LHI will become like CLRs.
Proposed subsection 135(2) directs the agency to set a rate not less than the average revenue per tonne kilometre of comparable traffic. This enshrines monopoly rate setting. In any reasonable marketplace, profitability is set on how much it costs you to do the business, plus a margin to generate a profit. Simply being able to charge any amount without regard to costs will result in rates divorced from the commercial reality of cost-plus.
We're seeking important changes to proposed paragraph 135(1)(b) and proposed subsection 135(2) to ensure the agency has regard to the cost per tonne kilometre, not the revenue, and that the rates are based on commercially comparable traffic, not just comparable traffic. If long-haul interswitching is to work, the rate has to be based on a reasonable margin to the railway, and not at least as much and maybe more than they can charge in a monopoly setting.
The third area where we have a concern is the list of interchanges. Proposed subsection 136.9(2) sets out the parameters for the railways to publish a list of interchanges as well as removing interchanges from the list. Grain shippers are concerned that the railways would have unilateral discretion to take out of service any interchange they choose.
There is existing legislation already in play: sections 127(1) and (2) under “Interswitching” have a process by which a party can apply to the agency for the ability to use an interchange, and the agency has the power to compel a railway to provide “reasonable facilities” to accommodate an interswitch for that interchange. This same language should apply to long-haul interswitching. From an interchange perspective, both interswitching and long-haul interswitching could apply to the same interchange.
On soybeans and soy production, when the MRE was first established in 2000, soybeans were barely grown on the Prairies, and therefore were not included in the original list of schedule II eligible crops. Since then, soy has become a major player in the Prairies and a commodity that holds significant potential growth for oil, meal, and food uses.
It must be pointed out that the Canadian portion of the U.S. movement of crops into Canada is covered under the MRE. As a result, U.S. corn, for example, that happens to be travelling in Canada is covered under the MRE, while Canadian soybeans are not. There is no reason why the government should not take this opportunity to add soybeans and soy products to schedule II.
In conclusion, Bill C-49 is, on balance, an important step in the right direction.
It's with restraint that we ask the committee to make only four non-invasive technical amendments to ensure it accomplishes what was intended.
Thank you very much.
Madame Chair and members of the committee, on behalf of the Canadian Oilseed Processors Association, or COPA, I would like to extend our thanks to the committee for the opportunity to contribute to this important study of Bill .
COPA works in partnership with the Canola Council of Canada to represent the interests of oilseed processors in this country. We represent the companies that own and operate 14 processing facilities spanning every province from Alberta through to Quebec. These facilities process canola and soybeans grown by Canadian farmers into value-added products for the food processing, animal feed, and biofuels sectors. This not only creates incredible demand for oilseeds grown by Canadian grain farmers but also injects stable, high-paying jobs into the rural areas where we operate.
Our industry’s success is predicated on the ability to access foreign markets. Indeed, 85% of our processed canola products are exported to continental and offshore markets. Efficient rail logistics are paramount to getting our products to these markets in a reliable and timely fashion. To put this into perspective, about 75% of our processed products are moved by rail.
Given the importance of rail to the success of our industry, COPA has been working closely with the WGEA over the last couple of years to advocate for key policy recommendations that we believe are fundamental to creating a more competitive rail transportation environment. In our view, Bill is, on balance, a good bill. It is not a perfect bill but it contains several critical components that value-added processors feel will improve the commercial balance between shipper and railway. These include the ability to arbitrate poor performance penalties into service-level agreements, along with a dispute resolution mechanism to address disagreements in the application of a signed SLA. We also feel that data transparency and its robustness have been significantly improved in the bill, and we have seen a strengthened definition of “adequate and suitable”.
This being said, our concerns with the bill’s proposed changes to essentially convert the former extended interswitch provisions to long-haul interswitching are especially noteworthy. To be very clear, extended interswitching was an incredibly important tool for value-added processors. For the first time, interswitching breathed a semblance of real competition into rail logistics for our sector where there had never been any before, giving previously captive facilities access to a second carrier for U.S.-bound product in particular. Our industry saw a dramatic improvement in rail service to the U.S. while extended interswitching was available.
Extended interswitching was an extremely simple and effective tool. It put all interchanges into scope and involved no application or bureaucratic red tape to access. Rates were clearly published for set distances, giving shippers the certainty and predictability needed to book freight over a longer term. Moreover, it was also a highly effective negotiating tool with the local carrier, which we found to be much more service oriented and likely to enter into a conversation about better service or rates with the leverage of the extended interswitching.
By contrast, the long-haul interswitch mechanism contained in Bill presents a number of challenges and removes the key characteristics that we were leveraging in extended interswitching. Most notably, LHI proposes a multitude of complicated parameters and conditions to determine how and which interchanges are accessible for shippers. LHI also proposes setting rates based on historical comparable rates. All comparable rates, to date, have been set under monopolistic conditions. If the rates themselves are not competitive, there is no incentive for my members to apply for long-haul interswitch.
Left unaddressed, both of these provisions as currently drafted would render the LHI to be of little to no use. Therefore, we are interested in working with members of this committee to find solutions to put long-haul interswitch to work as a competitive tool for our industry, as we believe the government has intended in this bill. Similar to WGEA, we see three key areas of concern that need to be addressed to make LHI an effective tool.
You will find some of our technical amendments—again, similar to those of the WGEA—in annex A, which we circulated to the committee members prior to this meeting.
Number one in terms of our list of technical amendments is to clarify that access to the nearest interchange means an interchange that is in the reasonable direction of the traffic and its destination, whether or not a facility is dual served or if there is another interchange within 30 kilometres. Prescribing access that is simply based on shipper access to the nearest competing rail line without taking into account other considerations would limit the value of LHI. Practically speaking, when determining the nearest interchange, consideration needs to be given to whether, one, it is in the right direction of the shipment's final destination; two, it is serviced by the right rail company to move the shipment to the desired destination; and three, it is the right size with the necessary infrastructure to execute the interswitch.
The intended spirit of the LHI mechanism is to give shippers competitive options. These have to be options that we can actually use and are applied equally among shippers. Proposed paragraph 129(1)(a) of the bill stipulates that a dual-served shipper may not apply for a long-haul interswitch, for example. Excluding dual-served shippers simply on the assumption that they have competitive options is a false premise. In many instances, both rail lines do not service the traffic's final destination. As well, restricting access to long-haul interswitch places dual-served facilities at a competitive disadvantage to those who do have access to the long-haul interswitch.
Let me give you a quick example of what that means in practical terms. In annex B we have attached map 2. In Alberta, in the town of Camrose, we have a member operating a processing facility that is dual served by CN and CP. Currently under the long-haul interswitch they do not have access to apply for long-haul interswitch, even though there is an interswitch opportunity at Coutts in Alberta, at the border, where they could have access to BNSF. This not only limits their access to markets served by BNSF in the United States but also puts them at a competitive disadvantage in terms of other members or other facilities that do have access to that long-haul interswitch because they are not dual served.
Two, in terms of the key technical amendments we're looking to propose, we are also very concerned about the ability of the long-haul interswitch provision to address shipper concerns over rate-setting. In other words, the way that Bill is currently written, it places a floor on LHI rates, indicating that a rate cannot be less than the average of per-tonne kilometre revenue of comparable traffic. The bill needs language that gives the CTA the ability to consider commercially comparable competitive rates when determining the interswitching rates. Looking to historical and comparable rates as a reference to determine interswitching rates ignores the fact that these rates have been determined under monopolistic conditions. The CTA should also give regard to the actual cost to move the shipment, not what the railways have managed to charge in the past when monopolistic powers were at play. In this way, the agency can ensure that a railway gets a reasonable rate of return for conducting LHI business, on the one hand, and also guard against perpetuating excessive rates set under circumstances where competition does not exist.
The third amendment that we're looking to propose is that we are concerned about the ability of a rail company to take unilateral decisions to stop serving an interchange or tear it up altogether without any further check and balance. Again, this runs directly against the original spirit of the new LHI to give shippers more competitive options. We believe the bill requires tighter controls around decommissioning interchanges and in fact recognition of the other common carrier obligations that seem to already limit the ability for this to happen.
Finally, we just would like to add our voice to the growing number of grower groups and associations raising concern over the fact that soybeans and soy products have been excluded from the MRE. The MRE is a viable tool to protect farmers from exorbitant rate hikes. We know that the government and members of the committee share this concern for farmers, thus the decision to keep the MRE in this new iteration of the CTA. It is therefore surprising that soybeans and soy products would be excluded. As Wade mentioned, soy is now one of the major commodities grown in Manitoba and is expected to see similar growth in seeded acreage in the other two prairie provinces. With this growth in acres, there is increasing potential for value-added processing to expand into soybeans in western Canada, where there is currently no large commercial value-added processing for soy. There is no logical policy rationale to exclude soy over any other crop already under the MRE. COPA members and our farmer customers are asking that soybeans and soy products be added to schedule II.
In conclusion, oilseed processors are of the view that Bill is an important step in the right direction. Our suggested technical amendments on LHI would provide shippers an opportunity to access alternate carriers, which strengthens the overarching intent of the bill to provide a more competitive system.
Thank you, Madam Chair.
As introduced, I am Norm Hall. I'm the first vice-president of the Canadian Federation of Agriculture, but more importantly, I sit here as a farmer from western Canada, east-central Saskatchewan, Wynyard, on the largest saltwater lakes in Canada, which are rising. Thank you for the invitation to appear before this committee.
As you know, CFA has been a strong proponent of advocating for a review of the regulations and legislation that govern and manage the movement of grain for export and the review of transportation. The government's advisory council on economic growth had coined the phrase “unleashing Canadian agriculture”. An important component of unleashing agriculture is building an efficient export corridor through sound legislative and regulatory process, up-to-date infrastructure, and information systems with the full accountability of all transportation and grain-handling participants. It is very important in order for the industry to confidently develop new and larger export markets. The primary stakeholder in all of this is the producer of the product, the farmer.
In 2014-15, Canadian farmers paid $1.4 billion in freight charges to the railways under the MRE. This was not paid by shippers. Grain companies are cost plus brokers. Any charges from the railways get passed through to the producers. They pay the bill. The railways are basically cost plus facilitators. Under the MRE, they are guaranteed a 27% return. A recent study by one of our members, APAS in Saskatchewan, saw that the number was closer to 60% or 65% return to the railroads in profit. It is the farmers who take all the risk in the production stage and the farmers who pay all the costs of production, the cost of freight from farm gate to the inland terminals and transload sites, the freight to export position, and the cost of any disruptions or delays.
Canada's railways and an efficient, low-cost grain rail transportation system are critical to the country's agricultural economy and the financial health of grains and oilseed producers. To ensure that the system works overall, decision-makers must recognize that farmers pay the entire bill for transportation of export grain from farm gate to port. Western Canadian financial livelihoods are captive to the railway monopoly that is trying to maximize profits for its shareholders.
Between 35 million and 40 million tonnes annually are captive to the railway monopoly. Since transportation costs represent one of the highest input costs in grain farm operation, the importance of ensuring competitive environment through regulation and legislation can never be understated. As Emerson so aptly stated, transportation costs, for example, often represent a more significant hurdle to expanded trade than do the costs associated with international tariffs or trade barriers. This was all brought to a head with the failure of the 2013-14 crop year. Twenty million additional tonnes, as was stated by the previous presenters, could have been alleviated if they had contacted the industry and were able to plan that way instead of leasing 400 of their engines into the States and shorting themselves of power for the winter.
While Bill takes great steps in the right direction, it almost seems as if they are meant to look like improvements without involving real change, leaving railways with far too much room to not comply with the intent and ending up with far short of a competitive environment: requesting more information while restricting the agency's use of that data; institutionalizing long-term interswitching but with historical revenue-based freight rates and not actual costs; avoiding giving the agency powers to pre-empt problems and requiring formal complaints; regulating interswitch options without giving the shipper flexibility to choose interswitches that would really help the shippers and result in higher levels of competition amongst the railroads; continuing to allow the railways to randomly or arbitrarily close producer car-loading sites and interchange facilities; continuing to allow the railways to use 1990s costing data when they've implemented savings on the backs of farmers; and giving railways a full year post-implementation to comply with new information data requirements.
I also want to say that while my comments focus on general policy positions, the CFA fully supports the more detailed technical legislative amendments proposed by the Crop Logistics Working Group, which will be in a letter to your minister.
Under transparency, since 40 million tonnes of grain are annually slated to move by rail, it's absolutely imperative that the railways comply with new regulations for additional data and information to allow proactive logistics and marketing and planning by the entire industry. Real-time data is required to achieve this objective, and timelines for the release of data and information have to be short enough to allow for proactive planning. There is no justification to allow the one year after legislation to come into force before they have to comply.
The use of data information by the agency should not be restricted and should be fully utilized to facilitate and manage the flow of traffic and grain volumes to pre-empt delays, backlogs, and disruptions. For example, if information or data is used for LHI administration, it can be used in other areas and for other purposes. The agency should have the freedom to do so, not for public release, but just for their own use. Further, the agency must be given the authority to find solutions to problems proactively, without waiting for industry to file complaints. The legislation must be amended to give the CTA the added powers to correct service performance failures through their own volition.
Under reciprocal penalties, while this is a contractual agreement between grain companies and railways, I've already told you that any problems arising between these two parties eventually get charged back to the farmers. The CTA must have the mandate and the resources to monitor, regulate, and ensure compliance. Level of service and compliance mechanisms have to prevent the railways, with their monopolistic powers, from becoming nonchalant about service provided, since shippers/farmers have no other options. Producer car loading sites are a good example, and I'll talk about them soon.
The minister must monitor the railways' overall level of service and service availability, and cannot allow the railways to arbitrarily and randomly withdraw services that are required to efficiently and expeditiously transport grain to export markets that provide farmers and shippers with the opportunity to improve their competitive position in the market. Since we're going to be looking at the MRE penalties imposed as a result of this service deficiency or contract, non-compliance must not be allowed to be included in the cost calculations of the MRE.
Under the long-haul interswitch, LHI, railways are concerned about losing market share. Welcome to competition. In one voice, they want to talk about having market-driven agreements, yet as soon as that threatens their monopoly by allowing LHI and U.S. carriers to come up here, they don't want it. They want to have regulation in place.
Under the current interswitch, 30 kilometres, there are four points in western Canada that are naturally served by the two railroads. The 30-kilometre interswitch takes that up to a whole 14 out of 368. Under the 160 kilometres, that extended to 85% of all points, which allowed grain companies to use interswitch if needed, if service was poor.
That is why interswitch is there. It's because of poor service. It gives the opportunity for one company to search for another company for better service. It's supposed to be for competition.
Thanks for the great question. It's something that we're a bit confused about ourselves.
On one hand, we have a situation where both railways have said that they're concerned about extended interswitching because of poaching from the U.S. carriers into the Canadian marketplace. On the other hand, we have Canadian rail carriers that already have extensive networks in the U.S. Those are two elements, I guess, to this discussion.
We found that initially the rail companies were objecting to the extended interswitching provisions when they were coming into play, but they began using the extended interswitching. They began soliciting business under extended interswitching and using it as it was intended to be used, which was as a competitive tool. That's what we're after here. I mean, how many times.... This is the fourth time I've personally appeared before the transport committee on different bills to amend the Canada Transportation Act. The recurring theme is, how do we get the rail freight market to behave like a competitive marketplace?
That seems to be a well-accepted premise, yet when we get close to doing that, people seem to get scared and want to pull back. We are after a competitive environment. If the railways are providing good service at good rates to the locations they serve, then they will not find that shippers are looking for other competitive options. It's only when rates are too high or service isn't there that shippers begin looking for other alternatives to get product to the marketplace.
The railways, for reasons I understand, prefer to move product east and west because of the cycle times on the railcars. They prefer to move to Vancouver and to Thunder Bay because of the cycle times; they can get their assets back in the system quicker. When they go down to the United States, it takes a lot longer for them to get the railcars back—maybe 30 days—so they're not that interested in serving the U.S. markets that we find. When extended interswitching was brought into play, it allowed for Burlington Northern, primarily, to come in, fill that void, and take that traffic down to the United States.
Shippers were using it both actively and passively. If you look at the straight statistics on the use of extended interswitching, it seems that maybe it's not a lot of usage. That's active usage. Passively, what would happen is that a shipper would go to the railway and say, “I need service, and these are the rates that I think are reasonable.” The railway might say that it can't do that, it can't provide that service to the U.S., and that it's giving priority to shipments in other corridors, or whatever it is. Then the shipper would say that they're going to talk to Burlington Northern to see if they can get traffic switched over there, after which time the primary carrier would come back and say, okay, let's be reasonable here. They would give you a better rate, or they would provide you with that service.
The benefit of extended interswitching can't be measured just based on how much it was used.
I'm going to take the opportunity to ask the same question I asked the last panel. I expected the answer I received from the last panel. I'm not expecting the same answer from you folks, so I'm going to move on with the intent...as you had mentioned.
We came a week early to the Hill to get this job done, and I'm sure you're anxious to get it done as well. Our intent is to listen and learn, and with that, respond accordingly.
Bills like are expected to be an enabler for folks like yourselves to work in an environment that, quite frankly, is going to provide the stakeholder the returns they're expecting. With that said, we're trying to create a balance. That balance we're trying to create between the shippers, the providers of the service in terms of transport, was mentioned earlier. You mentioned that you want to ensure you have that value established for all Canadians, in terms of their returns.
Again, being an enabler, we're expecting our GDP to keep rising, as it has in the last few months, and to continue to rise. By utilizing the movement of product, which contributes to our overall enhancement of global economic performance, a lot of that is done by integrating our distribution logistics systems. Bill is being put forward to provide a platform for good and fair service.
My question is very simple, and I'm going to open up the floor for all three of you to dive in, as I did with the last panel. How can Bill ultimately contribute to satisfying the objectives contained within your business plans?
Thank you for the question.
Farmers are not considered shippers under the act, so we're in a unique position. We pay all the costs, but we have no rights when it comes to shipping.
Monsieur Aubin asked about larger production. We are continually improving our production methods and producing larger crops, and therefore, we need larger markets. Without an efficient transportation system, all of that is for naught.
We have the right to order producer cars just in case Wade's members don't perform. We have a safety valve, but we have no right to service those producer cars from the railroads. The years 2013-14 and 2014-15 were some of the largest orders of producer cars in history, but because of poor service, a lot of those orders were cancelled, and those producers are not using producer cars again. Therefore, the railways are saying those sidings aren't being used, and they're going to shut some more down, which exacerbates the problem.
What we're looking for is a more efficient system to get our crops to export position, not always to the ports but to the U.S., to Mexico, and to the Canadian domestic users.
We see the shippers entering into discussions with railways and negotiations on what a service contract would look like after Bill 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.
I have just one last question and it's in regard to a measure that's included in Bill 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?
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 .
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 , 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.
With respect to the data reporting requirements in Bill , 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 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 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 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.
Good afternoon, Madam Chair and committee. Thank you for inviting me to speak today, and for giving the western Canadian association our opportunity to input into the transportation modernization act.
First, I'm thinking after listening this morning that this might be my last trip to Ottawa. According to CN, we're dead in the water—all our members. We don't operate over 500 miles of track. Some are as little as 23 miles, to as high as about 247 miles.
Let me start by saying we've just done a bit of an update on the western Canada association. On a positive note, we've been encouraged by Transport Canada's willingness and interest in working with us in short lines. Our relationship over the past couple of years has grown very strong, and we appreciate being consulted with and included in discussions surrounding direction of both policy and regulatory changes. This co-operation with Transport Canada is making us safer and better-informed short-line partners.
We've also been encouraged by some inroads with, believe it or not, CN. There's a renewed sense of co-operation on such efforts as our safety training program in Saskatchewan. There are some joint efforts where CN has allowed short-line partners to do intercompany switching, or switching at terminals where maybe they weren't very good and the short-line partners got in and supplied some excellent service. There were discussions this morning about where there is a win-win. I think that is one of them. They've also allowed one of our short-line partners to operate on their track into one of their mainline terminals and set off cars and take out their own cars. Again, that's a very efficient operation and cost-effective way of doing business, and a win-win for both.
The Western Canadian Short Line Railway Association, previously the Saskatchewan Short Line Railway Association, is a not-for-profit, membership-based organization that represents the interests of 14 short lines in western Canada. This morning I think CN talked a bit about its having 70% of its customers locked up in service agreements. The WGEA mentioned that it has about 90% of its farmers involved in its organization. I'd venture to guess that the other 10% to 30% are customers of ours, and we're here today to talk on their behalf.
While present in all western provinces, Saskatchewan has the most extensive network of short-line railways. Saskatchewan short lines own and operate 24% of Saskatchewan's 8,722 kilometres of track. We employ about 183 residents. When I say “residents”, these are folks who have grown up and live in the area where we work.
It should also be noted that we serve 72 small and medium-sized businesses and transport approximately 500 million dollars' worth of commodities each year. Every one of our head offices is within one mile of our own track. Also, I think it should be important to know that all of these small and medium-sized businesses that we support are also some of the bigger businesses that CN supports today. Not everybody starts as a corporate company. Some people have to start as single-point shippers and build their business from there. I think short lines are a great place to do that, because we're able to help them get that leg off the ground without a huge expense at the start.
Our members, our railways, and our customers depend on competitive rates and rail transportation options. We believe that the future of transportation should improve competitive choice for farmers, shippers, and small business. It is our fear in the proposed legislation that it will further deter competition. The newly introduced long-haul interswitching rate mechanism is designed in such a way as to be inaccessible to our shipper customers. Using commercial short-haul rates, which are currently higher than that of trucks, makes competing virtually impossible for us.
The legislation is prescriptive, and small shippers are not capable of spending years in litigation with class 1s, meaning that they will not bother to apply some of the mechanisms available to them, as was discussed this morning. It's inconceivable for a producer to take on a class 1. They're not only scared, but financially it does not make sense.
Paired with the sunsetting of the 160-kilometre interswitching mechanism and the rapid disappearance of the producer car, this risks putting shippers and short lines in a worse position should the legislation be passed as it is. We believed that the intent of this legislation was not to put small business or short lines out of business, but that appears to be the direction we're going.
I will begin with a quick discussion on the current rate structure for short haul and single car movements to provide some context to what I have been saying. Short-line railways have a variety of customers. Many shippers are single car shippers or, what we refer to as, producer car shippers. We would like to assist all of our customers with their transportation needs and movements. This is not feasible because of excessively high short-haul and single car rates imposed by the class 1s. These goods are often forced or shipped by truck and add significantly to greenhouse gas emissions, destroying our provincial highways and roads, and decentralizing small business economic growth.
Shipping by truck, for distances less than 500 kilometres, is typically more affordable than shipping by rail. The only point to add to that is the fact that, on a short line, we are cheaper than a truck. We can compete with the truck. The problem is that when they give that car over to our class 1 partners, they are unable to compete at that rate, as you heard from them this morning.
To give you an example, we have a line we run from Leader to Swift Current. We go 120 kilometres. We can run in there for about $650, which would be about half of what a truck would be, but if he wanted to move that car to Moose Jaw, which is another 122 kilometres away, we've been quoted rates from CP of about $2,600. All of a sudden, we can't compete anymore. What does the producer do? He puts his grain in his truck, turns on Fox News, and heads off to a distant large terminal or shipper.
As was mentioned this morning, the WGEA members supply competition, but some of that competition is increasing the number of trucks we're putting on the highway. That creates another problem and there will be another committee to decide what to do with our highway infrastructure in the future. Please keep in mind that it is important we understand that we are dealing with the current situation, but what will the future be?
We do need the capacity to move grain. There were discussions the other day about truck driver shortages. Rail is still going to be an option to do that and rail to mainline terminal points doesn't necessarily have to be to the export position. It could be to an inland terminal, which in turn, cleans that grain up and readies it for shipments in those larger trains, which CN and CP do a very good job of hauling.
The other challenge for us is that there is getting to be quite a spread between single and multiple car rates. Right now, even between single and 25-car rates going to the U.S., we see a difference of about $1,000 a car. If a shipper wants to ship 15 cars, he is probably looking at a $15,000 added expense and there is just no way he can justify doing that. Again, he is putting that grain in a truck and not always sending it to the most local inland terminal. He is sending it to where, in his mind, he is getting a better deal and that's a whole other discussion.
The other thing that we want to talk about is interswitching, of course. It is a major part of the legislation. The loss of the 160-kilometre interswitching option is very disappointing to our members. While not available to shippers on our entire network or short lines, it did provide a strengthened bargaining position in most locations. The return to a 30-kilometre switching zone will only make that available to the two of our 14 members that can make it cost effective, while the rest will be outside of that.
This affects our ability to attract new customers. Without access to multiple rail lines, businesses recognize that they will be captive to the class 1 that connects to our short lines. This decreases our ability to build new business on our lines.
Unfortunately, the proposed long-haul interswitching is not a good alternative to the 160-kilometre interswitching that has sunset. It is our understanding that the intent of the long-haul interswitching was to increase competition by providing expanded transportation options to shippers. We do not feel that proposed long-haul interswitching will achieve that goal.
Thank you, Madam Chair.
My name is Kevin Auch, and I am pleased to appear before this committee this afternoon alongside our industry partners from the Western Canadian Shippers' Coalition and the Western Canadian Short Line Railway Association to provide a producer perspective as part of this committee's review of Bill , the transportation modernization act.
I am chair of the Alberta Wheat Commission, an organization dedicated to improving the profitability of over 14,000 wheat farmers in the province of Alberta. I also farm in southern Alberta near the town of Carmangay.
I am here today because rail transportation has been one of the commission's top priorities since its inception in 2012. Costs associated with railway failures are ultimately passed down the supply chain to producers. As a price-taker, I cannot adjust the price of my product, so ultimately, these increased costs reduce my profitability. They also negatively impact my cash flow, making timely bill payments an issue.
These challenges are not unique to my operation. They are widespread and that is because when it comes to rail transportation in Canada, the agriculture sector operates in a monopoly environment. Most of the elevators where farmers in western Canada deliver their grain have only access to one railway, leaving both shippers and farmers captive to monopoly carriers.
This is a significant problem because wheat is a crop that relies heavily on export markets and rail transportation to ship our product from the Prairies to port terminal facilities along the west coast and Thunder Bay, as well as our neighbours to the south of the border. While we appreciate this government's efforts to increase market access for farmers through the establishment of free trade agreements, we will lose credibility with international buyers if we are unable to fulfill their orders due to railway failures. We experienced this in 2013 and 2014 when buyers simply sourced their grain from other countries. Canada's reputation as a reliable supplier to global markets is at risk.
Canada's grain supply chain is making significant investments in order to take advantage of new and growing market opportunities. We are seeing major expansion both in port terminal and country elevator capacity. Grain companies have invested hundreds of millions of dollars to ensure they are ready to service growing international markets, and farmers are preparing to take advantage of these opportunities as well. Farmers' significant investments in research as well as new and innovative technology have led to significant yield increases over the years. In fact, just last month CN Rail announced this growth when they implored the Canadian government to invest in new rail infrastructure in order to accommodate the influx of grain. In 2017, CN moved a record 21.8 million metric tons of grain.
My point is that ensuring adequate rail service is paramount to the growth of our sector and Canada's reputation as a reliable supplier of grain to international markets.
AWC appreciates the government's commitment to legislation that will ensure a more responsive, competitive, and accountable rail system in Canada. We believe that Bill is in fact an historic piece of legislation that paves the way for permanent long-term solutions to the rail transportation challenges that Canadian farmers have faced for decades.
That is why AWC is pleased to see the inclusion of provisions aimed at improving railway accountability, including shippers' ability to seek reciprocal financial penalties, a clear definition of adequate and suitable service, and enhanced interswitching—all measures that AWC has long advocated for. Bill also contains important provisions that will enhance the inquiry powers of the Canadian Transportation Agency and require that data on rail system performance be made available to the public.
Furthermore, AWC supports the decision to retain the maximum revenue entitlement with modifications that will reflect individual railway investments, incentivizing innovation and efficiency.
With respect to the role that reciprocal penalties play in this legislation, railways have always had a variety of measures that govern shipper efficiencies, including asset use tariffs. These tariffs are used to penalize shipper failures through monetary fines in order to gain shipper efficiencies. For example, when the railway spots cars at my local elevator and the grain company fails to load them within 24 hours, the grain company faces automatic monetary penalties. On the other hand, if the railway shows up two weeks late, there are no penalties. Therefore, the railways are the only link in the grain logistics supply chain that are not held to account.
In order to create an efficient supply chain, one with balanced commercial accountability, railways need to be held accountable for service failures.
We were recently made aware that CN Rail has included a form of shipper tariffs in about 70% of their service-level agreements. On the surface this seems like good news, but these tariffs are limited to a failure to spot cars and still neglect to address common challenges, including timely delivery or the provision of accurate information. We are encouraged to see that CN has taken some steps to increase railway accountability, and we are confident that the provisions outlined in Bill will ensure that, going forward, penalties are truly fair and reciprocal.
In addition to increasing accountability, reciprocal penalties will create the incentive needed for railways to focus on performance and invest in the assets that can improve efficiencies. This recommendation positions railways to compete in order to drive efficiencies, lower shipper risks, and ultimately better serve foreign markets for Canadian exports.
Under Bill , which expired on August 1 of this year, extended interswitching provisions proved to be a powerful competitive tool for grain companies. Bill proposes that, under some circumstances, interswitching distances will be increased to 1,200 kilometres, but unlike the previous extended interswitching option, there are conditions within the new provisions that seem to contradict the true intentions of the legislation, making them less effective than the provisions under Bill .
For example, the previous interswitching provisions allowed shippers to access any interchange within 160 kilometres without the need to obtain a permit from the Canadian Transportation Agency. The provision outlined in Bill stipulates that shippers must seek permission from the originating carrier or obtain an order from the agency to access the interchange, and it must be the interchange that is closest to them. Not only do these changes make interchanging more onerous and complicated, they can essentially render the provision useless in a variety of scenarios, including if the interchange in question does not service the appropriate corridor. In other words, if it moves the product in the wrong direction, if the nearest interchange cannot accommodate the size of the car load, or if it is serviced by the wrong rail company, the nearest competing line does not necessarily have lines running the full distance to the shipment's final destination.
To address these challenges we would ask the committee to consider the amendments put forward by the crop logistics working group, of which AWC is a member, that would allow shippers to access the nearest interchange that can accommodate their requirements with respect to the direction, size, and preferred carrier.
Costs incurred by shippers are ultimately passed down the line and on to producers. That is why our members are also concerned about the formula outlined in Bill to determine the rates associated with long-haul interswitching. Proposed subsection 135(2) directs the agency to set a rate not less than the average of the revenue per tonne kilometre of comparable traffic. In our view this encourages monopoly rate setting as it is based on revenue as opposed to a cost-plus model. Rates should allow for a reasonable profit, but should not reflect those previously charged in a monopolistic environment.
In closing, the Alberta Wheat Commission strongly supports the quick passage of Bill because we believe it will help to correct the imbalance between the market power of railways and captive shippers. We encourage the federal government to continue the conversation with Canada's agriculture sector as it works to develop the regulations to support the spirit and intention of the legislation, which seeks to create a more responsive, competitive, and accountable rail system in Canada.
With that, I would like to thank the committee for the opportunity to share the producers' perspective with you today, and I invite any questions you may have with respect to the comments I've made.
This map will look different from the description of the excluded corridors, but realistically any shipper in that area that's shipping traffic to the Vancouver area, to terminate on a rail siding there, would not be able to use this. We can draw a very similar map for Quebec to show that some of the most captive shippers in the northern part of that province will have exactly the same problem, because their only connection to any other carrier will be in that Quebec-Windsor corridor.
Quite apart from these things, though, one of the underlying issues that WCSC has with this remedy is that it will fundamentally succeed or fail with the willingness of any one of the railways to act as a connecting carrier and to compete for that traffic using long-haul interswitching. Just like its predecessor the CLR, that can make or break that remedy. We haven't seen any willingness to do that, to compete using CLR since the early 1990s, and we don't see anything in the long-haul interswitching remedy that changes that dynamic.
On top of that, the scope of traffic that's eligible for long-haul interswitching, geographically as well as in other respects, is much narrower than what could theoretically take advantage of competitive line rates.
Third, there are a number of hurdles built into this remedy that don't currently exist with CLR.
From that perspective, and given the experience with CLR, even though we may have seen some willingness to compete up to 160 kilometres under the Bill regime, we haven't seen anything beyond that. CLR has been on the books that entire time. We're concerned that we're not going to see what is really required, which is a willingness to compete on the part of CN and CP—certainly in western Canada the majority of interchanges is between those two carriers—that is necessary to make a remedy like this work.
Yes, the requirement for an agreement with the connecting carrier is taken away, but the fact that people haven't been able to get that agreement is really just a symptom of that underlying, more fundamental issue, which is that CN and CP have “declined to compete”. Those, I want to make sure you know, are not my words. Those are the words of the statutory review report that was issued in 1992. They were repeated in 2001, and I think there was also something along those lines in the most recent report.
We could start with that. When the meeting's over, we're going to go around and take a small collection to get us going.
First, I'll start with why. I thought CN did a good job this morning of outlining why they want to get off some lines. I'm not convinced that those lines they want off of are still not productive, and I think short lines have demonstrated right across Canada that, given the opportunity, we can make a go of it. Part of our problem has been that maybe we overpaid for these lines nobody wants, and that put us in a hole at the beginning. Then we get into trying to finance a loan and trying to maintain the railway.
I think, given the opportunity, short-line operators are very innovative. They're very customer-focused. They do a very good job, and they allow our customers to expand. I always said to the folks there when we bought our short line that the key to it is this: if you allow your line to disappear, be it a short line, a producer car site, or a siding, it'll never come back; it's gone. That is the key. We have some stories, especially in Saskatchewan, of where short lines were given up on. However, at the far end of the line they discovered that was a great place to load oil or to do that type of industry, or some grain customer came in there and put in there. Those lines are very valuable and viable now and will be for the conceivable future. What we have to do is figure out how to do that with the other lines.
With regard to your last point, we are very customer-focused. I think our customers really like the idea that they can phone and somebody answers. That's kind of unique. We listen to what our customers need. We're able to be a little more nimble than maybe the class 1 railroads and are able to help them out. This is especially true when we're trying to entice new business to Canada. I think it's critical that we are the points that really could get them off on a good start with good service and a low-cost start-up compared with some of the requirements on the class 1s.
As I was saying earlier, we created the organization in the aftermath of the tragedy of 2013. Local business people decided to take charge of the situation and try to make something positive out of this tragedy. We therefore have partnered with institutions such as Université de Sherbrooke, CEGEP Beauce-Appalaches, which is in our region, and the Commission scolaire des Hauts-Cantons. This partnership will enable us to work with people who are at three different levels of education. We are also partners with CN rail and Desjardins.
As you know, there's only one training centre for first responders in Canada: the Justice Institute of British Columbia (JIBC). This institute is in Vancouver, more specifically in Maple Ridge, and provides services in English only. We want to create a similar training centre in Lac-Mégantic, in eastern Canada, and provide those services to francophones and anglophones on our territory. Since Canada is so vast, it is very expensive for people from Quebec, Ontario and the eastern provinces to attend training in the west, for instance in Vancouver. After the tragedy, we felt the desire to create a centre like that in Lac-Mégantic.
As you said earlier, Madam Chair, some members of the Standing Committee on Transport, Infrastructure and Communities came to Lac-Mégantic in June 2016. One of the committee's recommendations was for Transport Canada to work with the City of Lac-Mégantic to create a training centre. We are here today to talk about it again and to draw attention to the project.
We are asking that Transport Canada standardize and enforce the training for conductors and that the training be provided by accredited organizations. We are also asking that Transport Canada standardize and enforce specific training on risks associated with railway operations for first responders in railway communities. As we know, 1,200 cities in Canada have a railway. However, people there do not receive the necessary railway training. So that's what we are working on.
We have shared a brief with you. I'm not sure whether everyone has seen it, but we can answer any questions you may have about that document.
Chair, members of the standing committee, clerk and witnesses, good afternoon everyone.
My name is Brad Johnston. I'm the general manager of logistics and planning for Teck Resources. Today I'm joined by my colleague, Alexa Young, head of federal government affairs.
Thank you very much for the opportunity to discuss Teck's view on Bill . Teck is a proudly Canadian diversified resource company. We employ over 7,000 people across the nation. As the country's single largest rail user, and with exports to Asia and other markets totalling close to $5 billion annually, ensuring that this bill enables a transparent, fair and safe rail regime, and one that meets the needs of users and Canadians is of critical importance to Teck.
Throughout the consultation process leading up to this bill's development, Teck has sought to advance balanced solutions to address the significant rail service issues that all sectors have regularly experienced. Perennial rail service challenges have impacted our competitiveness, our national supply chains' long-term economic sustainability, and Canada's global reputation as a trading nation. To put this into perspective, the direct costs attributable to rail service failures incurred by Teck alone have amounted to as much as $50 million to $200 million over 18-month periods in the past decade. These are added costs, of course, that our global competitors do not incur. Foundationally, we believe the solution is a legislative regime that inspires commercial relations in our non-competitive market, while maintaining the railways' abilities to be profitable and operationally flexible. This solution would benefit railways, shippers, and all Canadians.
At the heart of our recommended solution has been the need for a meaningful, granular, and accessible rail freight data regime. We've also advanced a definition of adequate and suitable service that acknowledges the unique monopoly context in which we operate. Teck has offered what we believe to be the only long-term and sustainable solution to addressing the acute imbalance in the railway-shipper relationship, and that is for allowing for real competition in Canada's rail freight market by extending running rights to all persons, including shippers.
What do we mean by “running rights”? Similar to when competition was enabled in the telecommunications sector in Canada, we mean opening the door to competition in the rail sector—in other words, allowing new entrants who meet specific criteria to run a railway. While disappointed that the introduction of real competition isn't addressed in the bill, more so than in any past legislative review, we're strongly encouraged by the bold vision Bill represents in many of its provisions. These include new reporting requirements for railways on rate, service and performance; a new definition of adequate and suitable rail service; enhanced accessibility to remedies by shippers on both rates and service; and a prohibition on railways from unilaterally shifting liability onto shippers through tariffs.
We also believe that Bill achieves the right balance in reflecting the needs of various stakeholders, including both shippers and railways. However, it's our view that to meaningfully realize the bill's intent and to strike the balance we believe it seeks to achieve, some minor adjustments will be required. The amendments we propose are meant to address design challenges that will have unintended consequences or that will simply not fulfill the bill's objectives. Our proposed amendments also address the reality that, due to having to rely on one rail carrier for all of the movement of our steelmaking coal and/or because of geographical limitations, some of the major provisions in Bill aimed at rebalancing the shipper-railway relationship won't apply to certain shippers, including Teck. For instance, the long-haul interswitching provisions aren't an option for our five southeast B.C. steelmaking coal mines, because this region is amongst the vast geographical areas that the provisions simply do not cover. Further, our recommended adjustments reflect Teck's actual experience with existing processes within the act.
On transparency, Bill goes a long way to addressing service level data deficiencies in our national rail transportation system, deficiencies that have led to business and policy decisions being made in an evidence vacuum. However, we're concerned that, as written, certain transparency provisions will not achieve the objective of enabling meaningful data on supply chain performance to be made available. Of specific concern is the design of the data-reporting vehicle outlined in clause 77(2).
The U.S. model that is being relied on is flawed and doesn't provide the level of reliability, granularity, or transparency required for the Canadian context. First, as the U.S. model is based on internal railway data that is only partially reported, it doesn't represent shipments accurately or completely.
Further, the U.S. model was created when the storage and transmittal of large amounts of data wasn't technologically possible. With the data storage capabilities that exist in 2017, there's no need for such a restriction in either the waybill system for long-haul interswitching outlined in clause 76 or the system for service performance outlined in clause 77. Note that railways are already collecting the required data.
To ensure the right level of service level data granularity is struck to make it meaningful, and to ensure it reflects the unique Canadian rail freight context we operate in, we recommend an amendment that ensures all waybills are provided by the railways rather than limiting reporting to what is outlined in 77(2).
For the ability of the agency to collect and process railway costing data, we believe the bill will significantly improve the Canadian Transportation Agency's ability to collect and process this costing data, enabling it to arrive at costing determinations to ensure the rates shippers pay are fair and justifiable. This is critical to maintaining the integrity of the final offer arbitration process as a shipper remedy to deal with the railways' market power. However, we're concerned that as written, a shipper won't have access to that costing determination, which defeats one of its purposes.
Under the current FOA model, it's the practice of an arbitrator to request an agency costing determination only when the railway and the shipper agree to do so. However, we witness the railways routinely declining to cooperate with shippers in agreeing to make such a request. Bill must limit a railway's ability to decline this request. To ensure the right level of transparency and accessibility is struck so that remedies are meaningful and usable, we recommend that shippers also be given access to the agency costing determination that comes out of this process.
On level of service, we're concerned that the language offered in Bill for determining whether a railway has fulfilled its service obligations doesn't reflect the reality of the railway-shipper imbalance, given the monopoly context in which we operate in Canada. In proposed subsection 116(1)(1.2), Bill C-49 would require the agency to determine whether a railway company is fulfilling its service obligations by taking into account the railway company's and the shipper's operational requirements and restrictions. The same language is also proposed for how an arbitrator would oversee the level of service arbitrations. This language doesn't reflect the reality that in connection with the service a railway may offer its customers, it's the railway that decides the resources it'll provide. Those decisions include the purchasing of assets, hiring of labour, and building of infrastructure. Any of these decisions could result in one or more restrictions.
As those restrictions are determined unilaterally by the rail carrier, it's not appropriate for those restrictions to then become a goal post in an agency determination. As such, we recommend either striking out the provision or making the restrictions themselves subject to review.
In conclusion, as the failures of past rail freight legislative reviews have demonstrated, despite good intentions, legislative design is critical to enabling those intentions to come to fruition. Getting this bill's design right with a few minor amendments will help Canada shift away from a status quo that has resulted in continued rail freight service failures and led to a proliferation of quick-fix solutions that have picked winners and losers across industries over the past years.
Again, as the biggest rail user in Canada, we believe this is the opportunity to be bold and to set a new course in building a truly world-class rail freight regime in Canada to the benefit of shippers, railways, and all Canadians. Thank you very much, and I look forward to your questions.
Thank you for the opportunity to appear.
FMA has been representing the freight transportation concerns of Canadian industry, including rail, truck, marine, and air cargo, to various levels of government and international agencies since 1916. We're now in our 101st year, and, despite appearances, I was not at the first meeting.
In our remarks today, we will focus primarily on Bill 's amendments to the rail shipper sections of the Canada Transportation Act, but we will make brief comments on the proposed amendments to the Railway Safety Act and the Coasting Trade Act.
There are approximately 50 railways in Canada, but the rail freight industry is dominated by the two class 1 carriers, and these two companies account for approximately 90% of Canadian rail freight revenues. The fundamental problem is that there is not effective competition within the railways, and the barriers to new entrants are so high that this situation will not be rectified through market forces.
The best that can be done, therefore, is to provide a legal and regulatory regime that is a surrogate for real competition and that rebalances the bargaining power between the buyers and sellers in the freight market.
While there is limited competition between CN and CP in a few markets, primarily intermodal, for many shippers the rail market can best be characterized as being a dual monopoly rather than even a duopoly; that is, each of CN and CP is the only railway available to shippers at many locations. It should be noted that this is not just a western Canadian problem. I'd like to stress that. This is not just a western Canadian problem, but it exists in the east as well, including in the Quebec-Windsor corridor. Rail freight is not a normally functioning competitive market, and this fact has been acknowledged in railway law in Canada for over 100 years.
The minister, in introducing Bill , stated the objectives of the bill, as follows:
||The Government of Canada...introduced legislation to provide a better experience for travellers and a transparent, fair, efficient and safer freight rail system to facilitate trade and economic growth.
Bill contains a number of provisions that will go some distance to meeting that objective. In its review of the bill, FMA has analyzed the changes that are proposed in Bill C-49 and how well they will play out in practice when shippers attempt to use them. Our recommendations address the places in the bill where our experience indicates that the provisions, as drafted, will not meet the government's stated objectives.
My colleague, Mr. Hume, will refer to the 10 recommendations that we're making on the rail shipper provisions and comment on the policy basis for Bill .
I should mention that Mr. Hume has worked in the law departments of both CN and CP in his career, and for the past 23 years has built a successful practice representing rail shippers before not only the Canadian Transportation Agency, using all the provisions of the act that are in place now, but in the courts, up to and including the Supreme Court of Canada. He has important insights that are somewhat unique, in that he is one of the few people who has been using these provisions over his career.
At the conclusion of Mr. Hume's remarks, unless we run out of time, Madam Chair, I'll comment very briefly on the proposed changes to the Railway Safety Act and to the Coasting Trade Act.
The recommendations we're making on the rail shipper provisions are summarized in our submissions beginning on page 25. As Mr. Ballantyne has indicated, the recommendations that FMA is making have been designed to give effect to what we believe to be the goals of the transportation modernization act.
Our recommendations deal with the proposed changes to the level of service provisions; the proposed creation of a long-haul interswitching remedy; the need for enhancing the powers of the agency over interswitching; providing the agency with adequate funding and the ability to act on its own motion, and on an ex parte basis where necessary, authorizing the agency to share reasonable railway-provided costs and rate information with shippers, and I stress “with shippers”; clarifying the proposed change requiring the filing of a list of interchanges; and suggesting changes to the service level agreement arbitration and summary process FOA amendments.
Following the filing of our submission with this committee, we received a copy of a Transport Canada document entitled “FAQs—Trade Corridors to Global Markets”, which provides insight as to the issues in Bill that the bill seeks to address. Unfortunately, the document contains a number of misconceptions that need to be addressed.
For instance, on page 11, the FAQ document claims that various factors help ensure that the LHI rate will be competitive. However, the bill has a provision that ensures that it will not be competitive. For instance, proposed subsection 135(2) requires that the agency not determine the LHI rate to be less than the average of the revenue per tonne kilometre for the movement by the local carrier of comparable traffic. What that means is that an LHI rate will necessarily be uncompetitive with other comparable traffic revenues that are below the average.
The document states in a number of places that the LHI provisions give the agency discretion in defining what traffic is comparable. However, when the agency does that, it is restricted in setting a competitive rate by the operation of subsection 135(2).
Our recommendation to fix the problem is twofold. First, specify in subsection 135(2) that the agency shall not determine an LHI rate that is more than—not less than—the average of the revenue per tonne kilometre for the movement by the local carrier of comparable traffic.
Second, amend the section to require the agency to determine the LHI rate from among rates where shippers have access to two or more railways at origin. If there are no competitive rates, i.e. rates where a shipper has access to two or more railways at origin, the agency should be required to set the LHI rate on a cost-plus basis. Thus, LHI rates would be determined from competitive rates, not from a menu of captive rates. I'll be talking a little more about “cost plus” later, because I understand that to be an issue before you that's somewhat controversial.
On page 11, the FAQ document refers to the many LHI exclusions in the bill, and attempts to justify them by citing possible congestion issues and the difficulty in allocating liability for certain hazardous materials. With great respect, Madam Chair, and members of the committee, these concerns have no merit whatsoever.
Why should the LHI remedy, a competitive remedy, be unavailable to large groups of shippers? Why should the remedy discriminate against shippers because of location or the type of commodity shipped? How does all of that comport with our national transportation policy?
In summing up on the exclusions, the FAQ document at page 12 refers the excluded shippers to other remedies since access to LHI is being withheld from them. This provides little comfort and doesn't say much about the efficacy of the remedy. Our recommendation is to eliminate the exclusions for LHI.
At page 7, the FAQ document states that extended interswitching demonstrated that railways can and will compete for traffic from each other's networks, providing shippers with leverage in negotiations. Similarly, it is expected that LHI will stimulate this kind of competition.
However, the comparison between extended interswitching and LHI is not an apt comparison. Extended interswitching rates—
I guess it would be our view that currently policy-makers or users are trying to carry out their different activities in an evidence vacuum. That's basically due to the fact that a coherent or rational system for measuring the movement of goods in Canada—like the waybill system—just simply does not exist.
Moving towards a data regime is part of that whole vision, and we welcome that step and think that we're moving in the right direction, but as it is currently drafted, it's not quite there yet. As for some simple changes to the legislation, ensuring that all data is accounted for is a very easy thing to do. Being a bit of a data-wonk myself, I'll say that we want to look at data. We want to look at raw data, not aggregated data.
On clause 76, the data piece on long-haul interswitching, our concern is that if we mimic the U.S. system, not all data is reported by the railways. It's all collected by the railways, but it's not reported by the railways. This we understand from our subject matter experts who also practise in the United States. That would be a concern. There's no point in collecting data and not getting all the data. That would quite likely lead to imperfect assessments or conclusions, whether that has to do with service failures or infrastructure investment.
On clause 77 on performance indicators, if we're going to measure the performance of the rail system with data, once again we have to look at all the data. I talked about the waybill system. It's not addressed in clause 77, but the waybill system is in essence a record. It's a record of movement of a good from a particular origin to a particular destination. It's a very easy way to document the movement of goods in our system. The two class 1 railways are doing it in the United States. They can do it in Canada.
I'm sorry. It was a lengthy question and—
There is no training in rail safety or the culture of safety.
The national railway companies, the CN and CP, provide training on safety, specifically to operators, but that training is not recognized from company to company. In other words, a CN employee who is going to work at CP has to redo the training.
Shortlines provide no training. CN or CP retirees are often the ones providing the training.
There is no common training whatsoever, whether in terms of operations or the culture of safety. We have been talking about the culture of rail safety since the 2013 accident, but that did not use to be the case in the industry in general. That said, I think that's a very important point.
The bill talks about voice and video recorders only. It is a useful type of technology, but the fact remains that it is used after a tragedy happens. But what is being done to ensure tragedies no longer happen? We want to make sure that no one ever has to go through a disaster like the one we experienced in Lac-Mégantic.
We want to work with Transport Canada and the Canadian government to improve this aspect of training, which is very important.
The second aspect that we are addressing is the training of first responders. In eastern Canada, they receive no training on rail safety. Not all the cities can afford to send their first responders to the training courses in Vancouver or Pueblo, in the United States. So a centre for francophones, a bilingual centre, needs to be established in eastern Canada. In my view, that's very important. The bill is silent on training like that. It only talks about voice and video recorders.
There's no doubt about it that Canada is a trading nation and, in our particular case, our main competitor is Australia. The output for steelmaking coal mines in Canada has been more or less flat for a decade, and in Australia it has grown by, let's say, 60%. I reflect sometimes on why that is, and one of the reasons is supply chain.
In my view, there are different characteristics of what we might call a world-class supply chain, and that would include a platform for investing in infrastructure. That's well understood by the participants. It would include real-time measuring and monitoring of the supply chain. It would include a common platform for planning, and.... Well, let's just leave it at those three items.
It's a measure of how the participants control the supply chain. All those things are fact driven; they're data driven. It's why we spent so much time in our initial submission on data, on assessing the U.S. waybill system, and the main point of our response.
On the earlier question, I talked about the importance of getting the data right. We're not measuring what we're doing right now. There's nothing world class about that, and we can't improve. As a quality management system person, you have to measure what you're doing. The actual publishing of that measurement has to be transparent. Everyone has to have the same understanding of what's taking place. That's how people run supply chains.
I have a couple of other comments.
In April of last year, Mr. Garneau made the following statement: “I see transportation in Canada as a single, interconnected system that drives the Canadian economy.”
If the overall objective is to make our economy as competitive as possible on a global basis, then all the things in Bill , and obviously other pieces of legislation and so on, and our trade agreements, whether NAFTA or CETA or whatever, should be geared towards that objective. One would hope, as we're talking about Bill C-49 today, that the various provisions would help lead to that objective.
I think in talking about it being an interconnected system, one of the inconsistencies that we have, and this is just an issue of a normal free market system, is that each of the players in effect is an island unto themself. They're all trying to maximize their own situation. That's, in a sense, a conundrum in terms of Mr. Garneau's view that it should be an interconnected system.
One of the governance problems, it seems to me, for the government, is how you reconcile the quite legitimate needs of private businesses to maximize the return for their shareholders on the one hand, but make sure that the system is working effectively for the whole economy on the other hand.
I think those are things that hopefully this bill will contribute to.
That's a great question.
Let's start with time, time for, in our case, a train to go from an origin to a destination and to return. We measure that in hours. The quantity is moot.
There is time over a particular subdivision. When we talk about granularity, to us that means not measuring things in terms of the system-wide averages. In our particular case, from southeast B.C. to Vancouver, that's not that useful to us. In fact, it's not useful at all. We would want to know, for our specific good, the time, the quantity, the availability of locomotives, the availability of cars. Gosh, why locomotives? What is the redundant capacity? We don't plan to 100% perfection, so what's available to us, should we need it? What's the contingent capacity on cars? Are there some available? Are they all being utilized? We go into a great deal of detail on that in our submission. There is time across a particular subdivision.
When we talk about the issue of congestion for someone like Teck, we could aggregate it, but we want to know what's moving in the corridor in which our goods are travelling. You could aggregate the rest of the traffic. You could do it by car type. You could do it by length of train, and so on. But when our particular good now merges with the other goods, how are they behaving in conjunction with each other? We do that. How it's happening in January might be different from how it happens in August. There's a seasonality to it too.
There's labour capacity. How many additional crews do you have? You have to measure, on a very granular basis, the supply chain in order to understand whether you have adequate capacity—that's the denominator—and what's actually moving—that's the numerator.
Thank you, Madam Chair and members of the committee, for the opportunity to discuss Bill with you.
Pulse Canada appreciates your focus on this bill and your efforts to expedite the study prior to the return of Parliament. We submitted a brief to you, and I will touch on a few of the recommendations contained within it.
Pulse Canada is a national industry association that represents over 35,000 growers and 130 processors and exporters of peas, lentils, beans, chickpeas, and specialty crops like canary, sunflower, and mustard seeds. Since 1996 Canadian pulse and specialty crop production has quadrupled, and Canada is now the world's largest producer and exporter of peas and lentils, accounting for one-third of global trade. The value of the industry's exports exceeded $4 billion in 2016.
The market for pulse and specialty crops is highly competitive, and maintaining and growing Canada's market share in over 140 countries that the sector ships to is a top priority for the industry. Pulse and specialty crops are the most multimodal grain crops in western Canada; 40% of our sector's exports through Vancouver are containerized. Efficiently managing the logistics in these supply chains drives the competitiveness of our sector. As such, predictable and reliable rail service is central to ensuring this competitiveness and economic growth.
It is through this lens that Pulse Canada has assessed Bill . Will it deliver improved service, increase rail capacity and competitive freight rates to the small and medium-sized shippers that constitute much of the pulse and specialty crops sector? Pulse Canada believes that Bill C-49 has the potential to deliver these outcomes, but we would like to offer some recommendations to ensure that the bill delivers the results that government intended, that shippers need, and that the overall Canadian economy expects.
Increased competition is the most effective way to deliver improved service capacity and rates, and this is where the proposed long-haul interswitching rate regime holds the most potential. The competitive forces that extended interswitching delivered to the rail market as a result of Bill were directly beneficial to pulse and specialty crop shippers, and the sector would like to see the long-haul interswitching deliver the same results.
You have heard significant and detailed recommendations on how to improve LHIR today. So I would only like to reiterate one point: excluding large groups of shippers from accessing the provision or limiting a shipper's access to the nearest rail competitor when the next competitor may offer the best combination of service, price, and routing, significantly decreases the potential impact of this provision. For LHIR to work as intended, by letting market forces and competition prevail—a point shippers and railways agree on—it should not be artificially limited through a list of exclusions that cuts out huge swaths of the economy. These exclusions should be removed to allow shippers and railways to operate under LHIR in as competitive an environment as possible. This will bring maximum benefit to shippers, railways, and the Canadian economy. This would also help reduce the differences in interpretation and intents as well as the expected legal challenges that will plague decisions with this remedy for years to come.
I will now focus on provisions of the bill that are intended to help increase supply chain transparency. Creating a competitive environment with balanced commercial relationships requires a transparent freight rail system so that all involved can make commercial decisions based on timely and accurate information. To achieve this, the bill proposes two significant new data regulations and a transitional provision that would require railways to provide service and performance data based on the model used by the U.S. Surface Transportation Board. This is a good start. However, Bill proposes that this data will not be available to the commercial market until a full year after royal assent. When the data does become available, the bill allows a three-week lag between collection and publication of this data.
In the U.S. case, the railways and regulator began publication of this data within three months after it was ordered, and it was available publicly one week after the railways provided it to the regulator. With a concerted effort by shippers, governments, and railways, and an amendment to Bill , Pulse Canada believes Canada can match, at minimum, the timelines set in the United States and fulfill the intention of Bill C-49 to provide timely data to the commercial market.
As recommended by the committee in your report on Bill in December, Bill has introduced a significant new requirement for the railways to provide confidential, commercial, and proprietary data to the Canadian Transportation Agency.
As you identified, this data is important, as it would permit the agency to more effectively identify and investigate issues in the rail system and exercise its authority to issue orders to railway companies. This is the point that Scott Streiner identified yesterday as an important issue, and it's one that Pulse Canada believes in as well. However, Bill limits the use of this data by explicitly specifying that it can only be used by the agency to calculate long-haul interswitching rates. Requiring this data from railways, but narrowing its application, severely limits the impact of this new regulatory provision and does not fully achieve the intent for the data to support the agency's delivery of its statutory responsibilities. Equally important, this data could be used to fully measure the impact of Bill C-49 and allow for evidence-based assessments as the bill is implemented.
To conclude, I'd like to address the proposed changes in Bill that will remove containerized grain from the maximum revenue entitlement. Pulse Canada understands that the government's intent with respect to this policy change is to incent innovation in the container supply chain, increase container capacity, and improve levels of service. These are valuable outcomes, and we must collectively ensure they are achieved, as removing this traffic from the MRE could potentially negatively impact the Canadian pulse and special crop sectors' international competitiveness. The focus, then, must be to ensure that other provisions in Bill C-49 set the necessary conditions for this change to the MRE to be a success and to truly result in more service and capacity. The data recommendations I discussed earlier will help ensure that everyone can measure the policy outcome, but Pulse Canada has recommendations on other provisions within the bill that will ensure that the remedy suite available to shippers in the event of service failure or costing disputes is functional.
First, the reciprocal penalty provision and the accompanying dispute resolution process introduced for service level agreements is a valuable change that will establish commercial accountability between shippers and railways. We applaud the government for introducing this. To ensure that it functions effectively, Pulse Canada asked the committee to consider clarifying that the intent of these penalties is to be sufficient to encourage commercial accountability and performance while recognizing the differences in economic power of small shippers compared with that of the railways.
Second, for small and medium-sized shippers and containerized shippers no longer shipping under the MRE, it will be essential that the general strengthening of the agency's information and dispute resolution services introduced in this bill, Bill , is effective. The agency having the ability to attempt to resolve an issue a shipper may have with the railway company in an informal manner provides shippers with a less confrontational, more cost-effective and timely way to resolve service issues without having to bring a formal level of service complaint to the agency. These are barriers facing shippers when considering accessing agency provisions, and this is why the agency has stated they will increase outreach to shippers. It has nothing to do with the agency “drumming up business”.
To fully realize the potential of this provision, Pulse Canada requests the committee to consider clarifying what it means for the agency to take action on informal resolution. Our view is that taking action can include a wide variety of activities, including such things as questioning, site visits, requesting information, investigating, etc. Clarity on this issue would help during the implementation of this bill. Ultimately, however, Pulse Canada views agency own-motion powers, which has been discussed at length today, as the most efficient and effective way to address disputes and network issues and strongly urges the government to consider the agency's request to be granted these powers.
Finally, I'd like to briefly touch on a provision in Bill that is specifically focused on the grain sector. The requirement in clause 42 of the bill that railways self-assess their ability to move grain during a upcoming grain year and identify the steps they will take to enable grain to move can be an extremely powerful provision that can establish the basis for measuring railway activities against their plan both during and at the end of the grain year. To strengthen this provision and ensure it delivers the intended outcome, Pulse Canada offers recommendations in our brief to enhance that section to clearly set the parameters for the type of information railway companies must provide. For the pulse and special crops sector, better defining these parameters provides an additional platform for the monitoring and assessment of the impact of the decision to remove containerized grain from the MRE.
Thank you, Madam Chair.
As vice-president, I represent members on every freight, commuter and passenger railway in this country. Prior to that, however, some 29 years ago, I was hired as a brakeman at CN Rail. I'm a qualified conductor and locomotive engineer, so I have spent a significant portion of my life cooped up in an 8' by 10' control cab of a locomotive, so I am very familiar with the conditions we're talking about with respect to live video and voice recording.
Bill would provide for potential relaxations of various pieces of legislation that cause extreme concern to Teamsters Rail. We believe that Bill C-49 would compromise our membership's privacy for what can be stated as questionable safety and public benefits. For example, many of you will recall that a few months ago there was a derailment in north Toronto. A locomotive consist crossed over into a train. There was little damage but a lot of publicity; it was in a very populated area. Immediately following that, senior management from CP Rail, who owned the equipment and the track, came out on record saying that live video and voice recording would have prevented the accident. That's impossible. Live video and voice recording is to be reviewed after the fact, so unless these employers are suggesting monitoring live video and voice at the time it happens, there is no prevention possible. It's a tool, at best, for studying incidents after the fact.
The TSB currently has access to LVVR equipment, so for the past several years both major freight carriers and VIA Rail have been receiving locomotives fully equipped with LVVR equipment. This is live equipment. It is recording to date. In the event of an accident or incident, current legislation provides the TSB with full access to the information or data collected through this process.
The proposed legislation would allow employer or third-party access to LVVR, and we believe that would create a chilling effect on communications within a locomotive. It's a 10' by 8' space, where a person is sitting for 10, 12, 14, or 16 hours, communicating with a fellow employee during that period of time, talking about a lot of things. The concern we have is with the the chilling effect—which has been discovered and was referred to by Parliament some time ago as a culture of fear—that was instilled and fostered and nurtured first by the management of CN Rail. That management all moved to CP Rail. The same type of effect is in place now, especially when I hear CP Rail speaking about using this type of information for disciplinary processes. And that's no secret to us, because they have approached the union to say, “We want to use this for discipline. We want to be able to discipline based on monitoring this equipment.”
We believe that open communication between the employees in the cab, much like that between a co-pilot and pilot in an aircraft, is essential to the safe operation of this equipment. If you stifle that for fear of employers reviewing video recording at their leisure for the sole purpose of disciplining an individual, whether or not something has happened, it's going to create a problem with open communications on a locomotive. The private information will no longer be private. People talk about a lot of things in the course of their daily work. This is a locomotive engineer and conductor's office for 10 or 12 hours a day, sometimes longer, and there are a lot of things discussed. Some of it is relevant to railway operations. Some of it is only the conversation that every one of us has with co-workers during the course of our day. Should employers have access to that for any reason?
We think the bill in its present form is contrary to our rights as Canadians. To exempt 16,000 railroaders from PIPEDA, we believe is not appropriate, and this legislation would call for a specific exemption for the purpose of our employers, the people who have been found to foster a culture of fear, to watch. We have a problem with that.
We think the bill is overly vague in how private information is accessed, collected, and used. What third parties are we talking about? What is the purpose of a third party looking at this information?
As you've heard earlier, at least from CP Rail, the LVVR recordings could be used for a disciplinary investigation and proceedings against employees. The employers already have significant means at their disposal to track. There are forward facing cameras called Silent Witness. These face outside a locomotive and track crossings. There are audio recordings of what's going on outside of the locomotive. In the event of a crossing accident, that information is used. There is a locomotive event recorder, commonly called a black box, that records all of the mechanical functions.
There are Wi-Tronix that track the speed and can be utilized to track cellular use. They will send an alarm to the employer to say when something is wrong. Currently, if a train stops in an emergency brake application, an alarm goes off, triggered by the Wi-Tronix, to tell the employer so. With the existing equipment, the employer can then remotely review the forward-facing camera. That exists today. That's what they're using today, without having the invasive technology that puts a camera squarely in my face for 10 or 12 hours, recording absolutely everything I do.
We believe the bill is contrary to the TSB recommendations in its report on the LVVR. The original TSB recommendations call for non-punitive, non-disciplinary, privileged recording of information. We're fine with that, and we're fine with the TSB having access to this information. There is no apparent limit to what data can be collected. We talked about safety-beneficial uses. It's a very vague term. What is a safety-beneficial use? As it stands right now, a recording is running, 24 hours a day, seven days a week. The TSB has full access to that today. Should an employer have access to that information as well?
Many levels of the legal system, including arbitration, judicial review, court of appeals, and all the way to the Supreme Court, have upheld our existing rights to privacy. This bill would exempt us from those rights. With respect to that, there are multiple cases. I brought two with me. Unfortunately, they're only available in English. In one case, an employer thought it necessary to purchase a camera from a local shop and to install it in a clock in the booking-in facility, where employees report for work, to surreptitiously monitor crews. The employer portrayed this as a rogue manager taking this action on his own, but what we have to keep in mind is that the actions of that rogue manager were defended by a multinational corporation to arbitration. Had those actions been upheld, that would be the law in Canada today.
With the other federal employer, we had an incident where there was some suspicion on the part of a manager that an employee was fraudulently claiming benefits from workers' compensation. The manager took it upon himself to retain a private investigator based on a hunch. There was no proof, no data. The video tape was entered into an investigation, and a manager testified that on the Monday following a hockey tournament, the manager became aware of this. I have to ask what this manager knew on the Friday such that he took it upon himself to hire private surveillance to surreptitiously monitor an employee, when he didn't become aware of the fact until Monday. Again, that is what the employers are doing today with the equipment they have at their disposal. Again, the company portrayed it as a rogue manager taking the law into his own hands, but a multinational corporation defended that to the point of arbitration, and again, had we not been successful at arbitration, that would be the law today.
We believe further that this bill is contrary to section 8 of the Charter of Rights and Freedoms, either because the state is allowing the collection of this private information without proper safeguards, or by virtue of allowing employers to collect this private information without proper safeguards. We do not believe there is an attempt to balance the safety benefits with the rights of employees to privacy, as protected by law.
Good evening, Madam Chair and members of the committee.
Thank you for inviting Fertilizer Canada to speak with you today in relation to your study on the . We are pleased to appear before you to provide the committee with information about our mandate, as well as to present our recommendations to help enhance the legislation's goal of furthering competition in the freight rail sector.
I will start with introductions. I am Clyde Graham, senior vice-president of Fertilizer Canada. I am joined by Ian MacKay, our legal adviser on rail issues.
Fertilizer Canada represents the manufacturers and wholesale and retail distributors of potash, nitrogen, phosphate and sulphur fertilizer, and related products. Collectively, our members employ more than 12,000 Canadians and contribute over $12 billion annually to the Canadian economy through advanced manufacturing, mining, and distribution facilities.
Our association, which includes companies such as PotashCorp, Koch Fertilizer Canada, the Mosaic Company, CF Industries, Agrium, and Yara Canada, amongst many more, is committed to the fertilizer sector's continued growth through innovative research, programming and advocacy.
Canada is one the world's leading producers of fertilizer. It is our products that help farmers produce bountiful, sustainable food in Canada and the United States and in more than 70 countries worldwide. We therefore play a crucial role in Canada's agrifood industry, an innovative industry identified by the 's advisory council on economic growth.
To meet the demand of the world's farmers, we rely heavily on the railway system to move our products along our trade and transportation corridors to national, North American, and international markets. Fertilizer Canada is a proud partner of the Canadian rail system, and our reliance on rail is so extensive that our membership comprises one of the largest customer groups by volume for both CN and CP.
As key stakeholders, we are encouraged to be working with the government, which has demonstrated a commitment to modernizing Canada's transportation system and capacity. We commend the legislation's objectives regarding freight rail, and we are supportive of many of the proposed changes, including those clarifying third party liability, reinforcing rail safety, promoting competitiveness, and increasing data transparency.
In an increasingly globalized world, we appreciate the government's recognition that a nuanced approach to freight rail is necessary to meet the needs of the Canadian economy. We make our following recommendations understanding that the freight rail system should evolve to ensure that management of Canadian railways does not impair Canadian jobs, trade, or healthy competition.
I would like to begin by discussing the exclusions for long-haul interswitching.
Measures proposed in the legislation that would exclude certain materials and certain regions from accessing the benefits of long-haul interswitching are a serious concern for our members. Canada has long adhered to the common carrier principle as a foundation of our economy. This principle prevents shipping companies from discriminating against a particular type of good. It is what has kept the Canadian economy in motion despite our vast distances. Amending the legislation to exclude certain materials and regions from long-haul interswitching will have the negative effect of eroding the common carrier principle—a concerning precedent for all Canadians.
As most of our members operate in communities and regions captive to rail, denying access to long-haul interswitching based solely on their location increases their costs of doing business. From a safety perspective, I would also like to draw attention to measures excluding toxic inhalation hazard materials from long-haul interswitching. One such material, anhydrous ammonia, is a key building block of nitrogen fertilizer, and it is used extensively in Canada for direct application into the soil to grow healthy crops across Canada. It's a vital fertilizer for many farmers.
To date, there is no evidence to suggest that this material is not safely and securely transported by rail. Our members take transportation of their material seriously.
In support of that record, I'll add the following. Our members use purpose-built railcars for safe handling of ammonia. Our members invest significantly in the insurance coverage and safety measures necessary to safeguard the transportation of our products. Our members already pay significantly higher freight rates to transport dangerous material, and our association proactively develops safety codes and educational resources for our supply chain and for first responders to support the safe handling of fertilizer.
Tragedies such as Lac-Mégantic must never happen again. However, having said that, it is critical that we approach the transportation of dangerous goods through responsible, evidence-based policy decisions.
I reiterate that there are not and have not been any safety reasons to discriminate against the shipment of TIH material, such as ammonia, by long-haul interswitching. Our members already pay premium rates, which compensate the railways for their liability in handling it. When it comes to hauling ammonia, the rates are four to five times the rates we pay for other kinds of fertilizer. Any long-haul interswitching rate established by the agency will reflect this and adequately compensate the railways.
I would also like to briefly present two other recommendations relating to changes to extended interswitching and interchanges.
First, we caution against the provisions that would allow rail companies to remove interchanges from service simply by giving notice. We are concerned that the amendments strip the Canadian Transportation Agency of its authority to reinstate interchanges and strengthen the existing power imbalance between shippers and our railway companies. In the past, railways have denied that interchanges exist to avoid having to turn traffic over to connecting railways. We recommend this provision be removed from Bill to prevent inadvertent harm to captive shippers in the future.
Second, Fertilizer Canada and its members are disappointed in the government's decision to sunset extended interswitching up to 160 kilometres. I think you've heard this over and over again. We have found 160-kilometre interswitching has strengthened competition over greater distances, as Transport Canada has confirmed. Since western Canada's freight rail landscape has not changed in any fundamental manner since 160-kilometre interswitching regulations were introduced in 2014, we are disappointed by the government's decision to sunset extended interswitching.
The Canadian fertilizer sector is a proud partner of Canada's rail system. It is a system that works for all Canadian industries. It's a team approach to moving goods within Canada and to export markets. Together, we support Canada's global competitiveness in the agrifood sector through trade and transportation. Our $12 billion industry and our 12,000 jobs depend on a healthy, modernized, competitive rail system to survive and to thrive. Ensuring that our products are delivered to farmers safely and securely in places such as Niagara, the prairie grain fields, or the B.C. interior is of paramount importance to us, and we have a long proud record of success in that regard.
We are very supportive of much of what this bill proposes and commend its intentions. The captive shippers, who are on one rail line and captive to that railway, need to benefit from our national railway infrastructure. It's great to see the government act to support them. We do believe that more can be done, though, which is why we strongly encourage the members of the committee to consider our recommendations. We believe they can improve Bill through a considered, evidence-based policy approach.
Thank you. That's the end of our presentation. Ian and I will be happy to answer any questions that you have.