On behalf of Cereals Canada, I want to thank the committee for the invitation to appear before you today. It's not usual for a committee to be holding hearings like these when Parliament is not sitting, and it's definitely not usual for a committee to be holding marathon sessions such as you have been holding. We recognize this and thank you for the high priority you are placing on this legislation. It is absolutely critical for Canada's agriculture sector.
As I mentioned, Cereals Canada is a national value chain organization. Our membership comprises three pillars: farmers, shippers, and processors in crop development and seed companies. Our board has representation from all three of these groups. All parts of the value chain look for transportation reform as a key requirement for the success of our sector.
Canada exports more than 20 million tonnes of cereal grains every year, worth about $10 billion. Virtually all of this grain moves to export position by rail. The profitability of every part of the Canadian agriculture value chain depends on the critical rail link to our markets.
Agriculture has a strong growth potential. The Barton report indicated that Canada has the potential to become the world's second-largest agriculture and agri-food exporter in just a few short years. The report set a target of $75 billion in exports in 2025. This is up from $55 billion in 2015. Modernized transportation legislation is critical if Canada is to meet this growing demand and maintain our reputation as a reliable supplier.
Agriculture is not just about exports. The industry employs Canadians. One in eight jobs in Canada depends on agriculture. Our ability to meet these growth targets and our ability to increase the number of Canadians employed by the sector depend upon moving production to market in a timely manner. I want to stress this next point: “timely manner” must be defined by the international marketplace. We will not achieve these goals if transportation providers limit our ability to satisfy world demand.
These are the implications of Bill , which is before you today. The first message I want to deliver on Bill C-49 is to quickly return this bill to the House for third reading. The bill will help introduce better commercial accountability into the grain transportation system, it will help improve grain-movement planning, and it will improve transparency and reporting.
I do not want to leave the impression that the grain sector has received all that it requested in this bill. There are provisions that the industry had requested: continuation of the extended interswitching provisions from the is an example of provisions that have not been brought into the legislation. However, no piece of legislation is perfect, and we believe that the bill should proceed. Cereals Canada has some suggestions for technical amendments to Bill , which are outlined in detail at the end of the written brief you have received.
I want to touch briefly on why we're here and why we have the need for legislation.
Flaws in the grain handling and transportation system were highlighted in 2013 and 2014 when the system suffered a significant breakdown. The systemic failure impacted the entire value chain and damaged Canada's brand and reputation as a reliable supplier of agriculture products. This resulted in lost sales and it resulted in decreases in price. The crisis cost farmers, grain-handling firms, exporters, Canadian value-added processing, and ultimately the Canadian economy.
This was not the first time the transportation system failed one of Canada's largest sectors. This is clearly demonstrated by the multiple past reviews and commissions, such as the studies conducted by the late Justice Estey and by Arthur Kroeger and the report from the senior executive officers, and the list goes on. It is a long list of reports on grain transportation. History shows that if the underlying structural issues are not addressed, transportation failures will recur. Canadian agriculture and the Canadian economy cannot afford to let this happen again.
Railway monopolistic power is a key reason the grain transportation environment does not function to maximize the profitability of the entire value chain. Virtually all shippers are served by one carrier and are subject to monopolistic pricing and service strategies. Therefore, the government has a critical role to play in establishing a regulatory structure that strikes a measured and appropriate competitive balance.
I stress the word competitive. System reform will be successful only if the legislated and regulatory structure for grain transportation is adjusted so that it mimics the conditions of a competitive environment.
It is worth noting that the record size of the 2013 crop, over 70 million tonnes in western Canada, is often cited by the critics of reform as the cause of the breakdown in 2013 and 2014. However, this level of production is not an anomaly. Rather, it is the new normal. Grain production in Canada continues to grow, as does world demand.
This year, 2017, I'm sure many of you have heard—and Ms. Block is in the affected part of the province—there was a drought in many parts of Saskatchewan, yet western Canada is still going to produce one of the largest crops we have ever seen. We expect it to be between 63 million and 65 million tonnes. We have to be able to meet growing demand with growing supply.
I'm not going to go into the details of our amendments; you have them. But in summary, Bill will move us towards a more accountable and reliable grain-handling and transportation system. This is good news for everybody involved, including our customers.
The grain, oilseed, and special crops industries have been united in their call for measures that will help ensure accountability in the performance of the railways. Bill will help correct the imbalance in market power between the railways and captive shippers.
The legislation includes the following key positive elements: tools that will allow shippers to hold railways financially accountable for their service performance; improved processes for the Canadian Transportation Agency if issues do arise; clarification of the railway responsibility in the Canada Transportation Act by better defining “adequate and suitable” service; and increased requirements for reporting and railway contingency planning.
If passed, Bill will help balance railway market power and will help mimic what would happen if we had open competition. This is good economic and public policy.
While the most important part of the railway legislation is the increase in railway accountability, all of these provisions are important. Improving CTA processes is important to ensure that problems are caught and addressed before they snowball into major failures. Together with clarification of the meaning of “adequate and suitable”, this will help ensure that the Canadian transportation system meets the expectations of our customers both within Canada and internationally.
No piece of legislation is perfect, and Bill is no exception. Cereals Canada has presented a number of technical amendments. The adoption of these amendments should not significantly delay the passage of the bill, and the adoption of these amendments will significantly improve the transparency of the legislation. These are the first four amendments in our brief. They will also help align North American regulations between Canada and the U.S.
The amendments will also help to improve operational planning, as stated in the fifth amendment in our brief. It will also help give improved access to competitive tools to help improve the imbalance in market power. These are the last three amendments.
I welcome any of your questions on my verbal remarks or on the more detailed brief that has been circulated.
Thank you again, Madam Chair.
It is an honour to be among the witnesses to appear before this committee as it conducts this very important business on the review of Bill , the transportation modernization act. In our brief time with you today, we want to share three key messages on behalf of Canada's chemistry sector. These are included in the brief before the committee, which provides additional details on our thoughts on Bill C-49.
Briefly, here are our three comments. First, it's important that you recognize that the chemistry industry plays an important role in the Canadian economy, and efficient and competitive rail transportation is critical to our business success. The second key point I wish to emphasize is that we enthusiastically applaud the work of and his department. They've listened, and both the transportation 2030 agenda and Bill are highly responsive to the long-standing concerns expressed by our industry regarding Canada's freight rail system. Finally, while we do want to see Bill C-49 advance promptly, and we do not wish to introduce any new measures, we do believe that some amendments are necessary to ensure that the provisions of the act will indeed meet their intended objectives.
Let me begin by providing you with information about our sector, to underscore how important Bill is to the growth prospects of our industry. Canada's chemistry industry is vital to the Canadian economy. We are the third-largest manufacturing sector, with over $53 billion in annual shipments. Nearly 73% of that is exported, making us the second-largest manufacturing exporter in the country.
Like many people in the country, you probably don't give much thought to the role of chemicals in the economy, but it's important to note that 95% of all manufactured goods are directly touched by the business of chemistry. That includes all the key sectors of the Canadian economy: energy, transportation, agri-food, forestry, mining, and metals. Likewise, the goods the industry produces are also critical to communities and to quality of life for Canadians. This does include some dangerous goods: products such as chlorine, used to purify drinking water; and sulphuric acid, used in the manufacture of agricultural fertilizers.
Equally important, chemistry is a growing sector, both globally and within North America. During the past five years, more than 300 global-scale chemistry investments, with a book value of more than $230 billion Canadian, have been announced in the United States alone. Unfortunately, Canada has missed out on much of that initial wave of investment, but there are some promising prospects for capturing a share of the next wave of investments.
More than three-quarters of the chemistry industry's annual shipments in Canada move by rail. That accounts for 14%, or nearly one-seventh, of all freight volumes in the country. This makes rail costs and service two of the most important factors when investors are deciding whether to locate a next new facility or expand operations in Canada—or not. This makes a well-functioning and competitive rail freight market vital to the competitiveness of our industry and its investment prospects.
As mentioned earlier, we wish to stress that we applaud the government's efforts and are supportive of the rail freight measures to advance “a long-term agenda for a more transparent, balanced, and efficient rail system that reliably moves our goods to global markets”, as outlined in transportation 2030. Regarding Bill , we believe the government has struck a balance between the needs and concerns of both shippers and rail carriers. We also believe the provisions of the bill are highly responsive to the concerns we have shared during consultations both with the Emerson panel, and more recently, with leading up to the publication of transportation 2030.
Specifically, Bill addresses the important issues of data transparency and timeliness, market power, shippers' rights, reciprocity, fairer rates, and extended interswitching. The bill also proposes important measures to incorporate best available safety technologies by incorporating in-cab video and data gathering systems that have been used for many years in other transportation industries.
Taken together, the package of measures in Bill has the potential to make a meaningful contribution to a more balanced relationship between shippers and carriers, where the realities of today's transportation system mean a normal market environment cannot exist. Therefore, we believe that Bill C-49 presents a rare instance where our sector welcomes government involvement in creating market conditions.
The key word I want to stress in what I've just said, however, is the “potential”. Again, we do believe Bill is responsive to shippers' needs, we do believe it makes an important effort to establish a more balanced relationship between shippers and carriers in an otherwise non-competitive marketplace, and we are not here today to propose a suite of additional measures for your consideration.
Nevertheless, we are concerned that specific measures outlined and described in the bill may not achieve the desired outcomes. Specifically, with respect to the data transparency provisions in the bill, we would strongly recommend that these provisions include commodity-specific information on rates, volumes, and level of service that would support investment decisions and assessment of fair and adequate service. In this regard, we also recommend that the availability of information to shippers be expedited by establishing a firm early timeline for the implementation of the regulations.
On a closely related note, we recommend that the act include specific requirements for railways to provide the highest level of service that can be reasonably provided. We see ambiguity in the current language that stops short of equating “adequate and suitable” with the highest reasonable level of rail service. This should be clarified for all parties.
With respect to the Canadian Transportation Agency's powers and informal resolution process, we recommend that the agency's powers be increased, providing it with the ability to independently investigate issues on its own initiative and ensure informal resolutions are implemented and effective, and that policy-makers and stakeholders are then able to measure and analyze the broader trends in freight rail performance.
Finally, and perhaps most importantly to us, the intent of the long-haul interswitching provisions in the bill are most welcome. As noted in the government's own discussion paper, the previous competitive line rate measures were little used and provided no appreciable contribution to establishing a more balanced environment between shippers and carriers. We are, however, concerned that the range of limitations and specific exclusions on long-haul interswitching in the bill will likewise lead to its underuse and ineffectiveness. Many of our members are captive shippers. For many, trucking is not an option. For over 50% of our members, trucking becomes economically unviable at a distance of 500 kilometres. As such, we recommend the elimination of those limitations specifically related to toxic-by-inhalation products, to traffic originating within 30 kilometres of the interchange, and to exclusions pertaining to high-volume corridors.
Madam Chair, in my brief time with you, I'll stop here and welcome any questions you may have. Thank you again for the opportunity to speak to you today.
Thank you, Madam Chair, and committee members.
Thank you for the opportunity to provide comments on this important bill. Grain Growers of Canada represents 50,000 grain, pulse, corn, oilseed, and soybean farmers from across Canada. We have members from the Atlantic provinces to the Peace Country of British Columbia. We are the only national farmer-run group representing all the grains that are exported around the world. Given our dependence on export markets, farmers like myself are highly dependent on a reliable, competitive rail system.
I run a family-owned, incorporated grain farm in south central Alberta near Olds. I grow wheat, malt barley, and canola. Right now, we're in the middle of the harvest. Luckily, we had rain today and I got the day off and I came here. It is important for me to come here personally to speak as a farmer on my thoughts about Bill .
We greatly appreciate the work this committee has done in the past, including the excellent study on the former Fair Rail for Grain Farmers Act, and the recommendations made to the government. As Cam mentioned, the Barton report brought to light how important agriculture is, how the government views the goals, and how agriculture can grow to $75 billion in exports by 2025. We're thankful the government has that recognition and had the Barton report presented to Parliament.
The Grain Growers of Canada welcomed the announcement of this new legislation back in December, and we are hopeful for third reading of this bill and royal assent as soon as possible to avoid any of the handling issues with this year's crop, as we are heading well into fall now and winter is on its way. My entire crop is shipped by rail. I need a rail system that will not only perform for me but for our customers. These customers, we know, can go elsewhere. It is imperative that Canada has a rail system that is effective and responsive to get our crops to export position.
With that, I see opportunities within Bill to look at the ability to hold railways financially accountable for service provided. I want to give an example of how this would work for my farm.
Currently, there's no avenue to penalize the railroads for poor service. This lack of accountability impacts all players in the supply chain and, ultimately, farmers. I market my crops throughout the year when I see best-price opportunities for my farm and for my financial needs. Let's say I decided to sell 200 metric tons of canola in February because I saw a price signal there, and also in February I have an input bill that my farm needs to pay. It is not that I like choosing February, because it's minus-20 and I might need to shovel snow, but I'm quite willing to haul grain any time of year when I have signed contracts.
Here comes February. It's cold, it's snowy, and I'm out there ready to haul grain. The auger's in the bin, and I get loaded up and the elevator calls me that the train's not here. It has been put off for a few weeks. Then I call again and find the train has been put off for another few weeks. Now it's late April, and I'm getting my machinery ready to seed next year's crop. I have delayed paying my farm account, because I hadn't had the grain sales that I thought I had contracted for in February.
It has had a great effect on me personally and on my farm. My grain company has been affected, too. They had sales booked for that canola for an offshore customer. That canola did not reach port in time and those ships may have had to wait in Vancouver harbour for a lengthy period of time. That costs money too. It's called demurrage, which sooner or later will be passed back to me as a producer.
On the flip side, my grain company is fined by railroads if a train is not loaded within a set period of time, yet my grain company cannot fine the railroads for not supplying the train on time as scheduled. I've seen cars sit there for well over a week after they've been filled, yet there's no penalty issued to the rail companies then. That delay in moving that train for that week also delays the next train from coming in, which starts a snowball effect of delays.
We are all very familiar with the mess that happened in the winter of 2013-14. As a grain producer, I experienced it in many ways. I believe I lost marketing opportunities since I could not sell into certain markets because there were no opportunities for grain to be delivered. We saw contracts that were set for December and not delivered until well into the spring. That, of course, affected farmers' financial cycles as far as paying their bills and such. We saw customers, and I'll point to oats here specifically, who lost business. Those customers in the U.S. who wanted Canadian oats went to Scandinavia to fill their needs.
As I mentioned before, our customers have other choices. If we continue to allow the railroads to provide irregular, spotty service, we will lose those customers forever. Winter on the Prairies happens. Sometimes it's more severe than others, but it happens every year.
One of the other provisions we welcome in Bill is the increased requirement for reporting and railway contingency planning. It is hoped that our rail companies will quickly adopt and publish sound contingency plans to demonstrate that they have the capacity to get our products to wherever on time.
In the fall of 2013, farmers, grain companies, and Stats Canada knew that we were going into a large crop, which as Cam has pointed out, is now the norm. We are producing more grain continually, yet our rail companies, in the fall of 2013, were not ready. Winter hit and things literally went off the rails.
Data collection is another key point. It is important that we have a complete dataset. I commend the work of the Agriculture Transportation Coalition and Quorum Group for the information they provide, which has filled in significant gaps and helped us work with railroads to hold them more accountable in the last couple of years.
In Bill , we also appreciate the ability of the Canadian Transportation Agency to play a larger role in areas such as improved dispute resolution. We see increased clarity of railway responsibility in the act when it comes to the definition of adequate and suitable service. One of the clear benefits I see of these two items is a much-needed assurance to me, as a producer, that if there are issues, they will be identified and hopefully dealt with prior to any severe impacts and the potential loss of sales or customers.
Grain Growers of Canada has a few recommendations we feel will strengthen the bill. I reiterate that it is critical that we have this legislation passed as soon as possible to ensure the smooth movement of this year's crop.
Grain farmers support maintaining the current maximum revenue entitlement, MRE, with the adjustments for capital spending, as proposed in Bill . The MRE is working well at this time, and changing it slightly to recognize and incorporate the investments made by each railroad should encourage more investment and will gain infrastructure for the future as a result. The point there is our hopper car fleet, I believe. As we know, it's aging badly.
One glaring omission of grains under the MRE is soybeans. On behalf of our members, we ask that soybeans be included as one of the crops under the MRE's schedule II. Soybean acreage is increasing year over year in the prairie provinces, and naturally, those products are shipped by rail. This update reflects the current needs of an industry that were not anticipated at the time the MRE was set. This truly will be a modernization of the act. Once Bill is fully in effect, and we've seen the proposed improvements, a comprehensive review of the MRE can be undertaken, but not before.
I would like to quickly speak to long-haul interswitching. In the previous Fair Rail for Grain Farmers Act, we saw interswitching increased to 160 kilometres. This provided a very useful tool for our grain companies to obtain more competitive terms of service.
To illustrate how important interswitching is, I draw your attention once again to oats. Oats are a corridor-specific commodity being used by major processors in the U.S., and they need to get to the buyer in a regular, timely fashion. Many customers were lost as a result of the 2013 winter crisis, and the industry is still trying to get those markets back. The extended interswitching provision has helped many oat growers. Given the usefulness of that tool, we, as the Grain Growers of Canada, are concerned that the long-haul provisions set out in Bill may not be as effective or address some of the needs of all our producers.
We ask that you review the attachment to our submission for the recommendations from the newly reinvigorated crop logistics working group, of which I am a member. The group has proposed amendments to the long-haul provisions that we believe will ensure the security and market reliability the previous extended interswitching provided. Already this year we are seeing increased demand in the U.S. for some of our crops due to the poor quality in the U.S., and it must go by rail.
Grain producers are working hard to provide the world with top-quality grain, oilseeds, pulses, and corn. We believe strongly that the goals set out for increased exports are achievable and we are ready to work with the government to meet those goals. However, we need this legislation to pass as soon as possible to ensure that we can rely on the grain-handling system to get our products to export position.
I thank you for the time.
This is a question that came up in discussions previously. Does Canada need something that the U.S. has that we don't have? There are a number of factors that say, yes, we do need it. To answer the question from Madam Block, yes, we need it urgently.
The United States has a number of factors that assist in transportation issues. One is that industry and people are much more consolidated and concentrated. When it comes to our business of chemistry, their resources—natural gas, petroleum products, and others—are located much closer to coasts. Texas is on the coast. Louisiana is on the coast. It's easy to get stuff to market, and especially through barging.
In Canada we have tremendous resources, largely in the petrochemical industry concentrated in western Canada—specifically Alberta—and there is something called the Rocky Mountains between Alberta and the west coast that prevents our moving any volumes at all by barge.
Canada is, then, a different marketplace. We have much longer distances to market, and in our case fully 60% of every tonne of product that we move goes across the border into the U.S. Those are long distances. Our industry, like many, is deeply interconnected. Volumes move between Alberta and Texas and back into Ontario, and even into Mexico, on an ongoing basis. That is not going to be accomplished by moving millions of tonnes of product by truck.
We have to make the system we have.... If we want the economy to be strong and to attract investment into our sector, we have to make sure that the economy is working as efficiently as it can in all areas. What you've heard regularly from the stakeholders who have been here is that the rail freight market has not been efficient and competitive for many years.
Thank you, Madam Chair.
I'll preface my questions by stating that on Monday we had a strong theme of safety and passenger rights. Yesterday we had a strong theme of safety and business practice, which ultimately lends itself to safety. Today we're hearing about service levels to the customer.
As I said yesterday, a lot of what we're discussing regarding safety has to do with business practice. How do we lend ourselves to the broader transportation strategy of Bill , building in a better business practice, a better level of service, and being able to bring our product to market, nationally and internationally?
I want to drill down a bit. In my former life at the municipal level we were all about these issues. We considered how to apply ourselves, our daily business at city hall, so as to allow business to be in a more effective and friendly environment. That's what I see here. One of the things we did back then, which I can see happening now on a national level, was to sometimes enter into the business world, not as a government but as a partner. Back then we entered into a partnership with a short-line railway because the class 1s abandoned us. To keep what happened in nearby jurisdictions from happening in ours, we bought a railway, which we ran and operated. We brought a short-line operator on board to make sure the companies that depended on those railways continued to be healthy and got the service they needed.
I want this to be a dialogue like we had back then, the same kind of dialogue here in Ottawa. Business often finds itself abandoned by the traditional transportation services. That could be on the water, the railways, the roads, or in the air. It could have to do with the government or the private sector. One example is short-lines. We all know this service attaches itself directly to business and provides a link to a broader transportation network. Often the future of business depends on that link and that network.
My question to you is twofold. First, can the product be moved by truck or other method of transport? I think I got that answer earlier when you said no. We know that some companies ended up closing because those lines were abandoned and nobody picked up the ball with a short-line operator.
Second, Bill addresses the broader transportation network and the broader transportation strategy. Do you, being in the business every day, have any recommendations on how this bill could give short-line operators a mechanism that would allow them to pick up on these abandoned lines so that local economies are not hurt and local communities remain healthy?
Thank you very much, Chair and members of the committee, and clerk and fellow witnesses. It's a pleasure to be here.
My name is Pierre Gratton. I'm president and CEO of the Mining Association of Canada. I'm joined by my colleague, Brad Johnston, whom I think you met yesterday. He is the general manager of logistics and planning for Teck Resources Limited and is someone who works with the railways on a daily basis.
I'll begin by saying just a few words about the mining sector, which, as you know, is an economic stalwart, contributing some $56 billion to national GDP in 2015 in what was a down market. We're major employers, with some 373,000 people working directly and another 190,000 working indirectly for our sector. We pay the highest industrial wage in the country. We're active in both urban and rural settings. Proportionally, we're the largest private sector employer of indigenous peoples and a major supporter of indigenous businesses and are thus a powerful partner in indigenous economic reconciliation.
While increased mineral prices have returned some confidence to the global mining industry, increasing domestic uncertainty and business costs are raising questions over whether Canada is well positioned to take advantage of the next upswing. We are seeing Australia, our major competitor, rebound at a far greater rate than we are currently in Canada, which is concerning.
The effectiveness and reliability of rail freight service are critical to Canada's mineral investment competitiveness throughout the ups and downs of the commodity cycle. There are significant costs associated with transporting goods to and from the mine site, and companies need to get their goods to their international customers on time. I can report that our members' customers are closely monitoring this bill and its potential impacts as a measure of Canada's reliability as a source for raw materials.
If railways are the arteries of our trading nation, then the mining industry is the lifeblood upon which they depend. We account for 20% of Canada's exports and over half of total rail freight revenue generated each year, making us the largest single customer group of Canada's railways. I would just ask you to imagine the state of Canadian rail without mining and the impacts it would have on grain, forest products, and all other rail-reliant industries in Canada.
Despite this, we are continually facing an unlevel playing field in the rail freight market, which manifests itself as significant and perennial service failures. The reason is that the Canada Transportation Act is an imperfect surrogate for competition in a monopoly marketplace. Many shippers are captive to one railway and are beholden to railway market power as a result.
It's crucial to get this bill right on this third legislative attempt in four years. We hope the committee is also encouraged by 's boldness in introducing an ambitious package of reforms. On this note, we are highly supportive of a number of provisions in the bill, including new reporting requirements for railways on rates, service, and performance; the addition of a definition of “adequate and suitable” rail service that confirms railways should provide shippers with the highest level of service that can reasonably be provided in the circumstances; and strengthening the prohibitions against railways shifting liability onto shippers through tariffs.
We want profitable railways, but not at the expense of national economic growth. That is why we support the objectives of Bill , with minor adjustments that will ensure its intended outcomes are achieved. I will now address three areas where we think that's necessary.
The first is data transparency. Enhancing railway data transparency is not only consistent with the government's commitment to data transparency and evidence-based policy, but critical to improving the functionality of rail freight markets. Robust disclosure would inform public policy-making, improve railway-shipper relations, and avoid unnecessary and costly disputes. All parties having a clearer picture of respective capacity and limitations would better compel them to achieve the optimal workable outcome.
While Bill proposes positive measures to address service-level data deficiencies, we're concerned that, as written, certain transparency provisions will not lead to meaningful data on supply chain performance. Of specific concern is the requirement in subclause 77(2), a measure that would align the Canadian and U.S. systems.
Our concern is that the U.S. model is based on internal railway data that is only partially reported. It doesn't represent shipments accurately or completely. It was created decades ago when large-scale data storage and transmissions were not technologically possible. With the data-storage capabilities that exist today, there is no rationale for such a restriction in either the waybill system for long-haul interswitching outlined in clause 76, or for system performance outlined in clause 77.
To ensure the appropriate level of data granularity and to ensure the proposed legislation reflects Canada's unique rail freight context, MAC recommends an amendment that would require all waybills to be provided by the railways, rather than the limited reporting that is outlined in subclause 77(2). This modest enhancement is consistent with the direction of this bill, but with the added benefit of modernizing a system that was designed decades ago.
While MAC is supportive of Bill improvements to costing data collection and processing by the agency, we also raise one minor but important consideration related to final arbitration.
Currently, arbitrators request an agency costing determination only when the two parties agree to make the request. However, railways habitually decline to co-operate with shippers for this request, thus limiting the ability of the parties involved to be equally informed. We know of no legitimate rationale for a railway to decline an agency costing determination, other than to deliberately frustrate the process. To ensure that the right level of transparency and accessibility is struck so that remedies under the act are meaningful and usable, we recommend that shippers be granted the right to an agency costing determination. Often confidentiality considerations are raised, but the committee should note that in agency proceedings redacted decisions protect confidentiality. Further, FOA processes are already confidential. We are not proposing any changes to these practices.
The second issue addresses level-of-service obligations. In proposed subsection 116(1.2), this bill would require the agency to determine whether a railway company is fulfilling its obligations by taking into account the railway company's and the shipper's operational requirements and restrictions. Identical language is also proposed to govern how an arbitrator oversees level-of-service arbitrations.
Our members are concerned that the proposed language for determining whether a railway has fulfilled its service obligations does not reflect the reality of Canada's monopolistic rail freight market. The quality of service that a railway company offers is influenced by how it allocates its resources. These decisions include purchasing assets, staffing, and construction. All those restrictions are determined solely by the rail carrier. Their consideration and fulfillment of service obligations leaves the shipper structurally disadvantaged. The goal of the agency should be facilitating the correct decision based on the facts, not a balanced decision between the parties. To address this, we recommend either striking out this requirement or making the restrictions themselves subject to a separate review.
Third and last, Bill proposes a long-haul interswitching remedy that demonstrates in principle a creative approach to addressing a long-standing competitive imbalance in our rail freight market. By design, however, when the number of non-entitlement provisions are taken into account, a remedy that could hold significant promise if implemented more liberally, becomes unduly restricted to the exclusion of many. As proposed, it mirrors the current competitive line rate remedy that it proposes to replace.
However, CLR has been largely inoperative for the past three decades because class 1 railways have declined to compete for traffic and are not naturally compelled to do so by market forces. Hypothetically, even if the railways chose to compete using long-haul interswitching, Bill includes a number of provisions that would make LHI unusable or would create unnecessary barriers for many captive shippers, including a long list of excluded traffic, including by cargo type or geographical restriction. Unless these are revisited, the remedy as proposed will de facto confirm in policy and law the captivity of a host of shippers, the very same shippers it purports to assist.
To conclude, we acknowledge that this bill represents a bold and holistic attempt to addressing the anti-competitive challenges inherent in Canada's monopolistic rail freight market, and the disproportionate burden that shippers endure as a result. For this reason, its direction should be lauded.
The amendments we are seeking are modest and highly consistent with the legislative package. They continue to allow the railways to be profitable and have operational flexibility, but are material enough, and definitely important enough, to make a critical difference if not taken into account. In fact, we fear that without these amendments, this bill may leave us in the same situation that the previous bills have done in the past, not ultimately solving the issues we have been challenged with.
Thank you for your time, and I would be pleased to answer questions.
Thank you, members of the committee, and thank you very much for having me here today on behalf of the members of the Forest Products Association of Canada.
FPAC is the voice of Canada's wood, pulp, and paper producers, a $67-billion a year industry. Our sector is one of the largest employers of indigenous peoples in Canada, including 1,400 indigenous-owned forest businesses. As the third-largest manufacturing industry, it is a cornerstone of the Canadian economy, representing 12% of Canada's manufacturing GDP. We export 33-billion dollars' worth of goods to 180 countries. We are also the second-largest user of the rail system, transporting over 31 million tonnes by rail in 2016.
As said in his May 18, 2017, speech in Edmonton, “The challenge of our time is to further enhance the utility, the efficiency and the fluidity of our rail system.”
FPAC believes that the primary goal for transportation policy is a freight system that is even more competitive, efficient, and transparent, to reliably move Canada's goods to global markets. This is most likely to emerge if guided by commercial decisions and competitive markets. At the same time, there are some markets where competitive forces are limited or non-existent, and where there is a legitimate and necessary role for regulation and other government action, including a number of the types of concepts being considered in Bill .
Forest industry mills are normally located in rural, remote communities, and served by one single rail carrier hundreds of kilometres away from the next competing railway. That causes an imbalance of power between these mills and the railways. Poor service costs our members in the hundreds of millions of dollars every year, including the cost of things like lost production, alternative transportation costs, additional storage, additional management and overhead costs, and long-term business impacts.
While the railways are one of our most important partners on Canada's supply chain infrastructure needs, as well as reducing GHGs, FPAC members need Bill to help balance the playing field when it comes to their business dealings with railways.
Bill needs more robust and workable measures than what are currently included. Without these changes, Canada's economy and the jobs that our member companies and other industries provide across the country will continue to be threatened. Urgent action is needed. The economies of over 600 communities across Canada depend on their local forest products mills. Making Bill work the way it is intended to will enable our members and other industries to create more middle-class jobs and help prevent economic failures in communities, such as but not limited to things like mill shutdowns resulting from poor rail service. In the case of a large pulp mill, for example, this would mean losses in the range of $1.5 million a day.
FPAC supports Bill 's wording on reciprocal penalties. However, to be truly effective, there are some critically important amendments that should be made, which are consistent with the minister's intent for this bill.
FPAC urges the government to make changes in five key areas. The specific wording changes and rationale behind each of these is outlined in the detailed annex that is included with my remarks this morning. I would like to focus today on a few of these important changes.
First is the improved access and timelines to agency decisions. As is, the bill will weaken the agency's ability to respond quickly to urgent rail service issues, unless it is amended so that the agency controls its own procedure. The U.S. equivalent to the Canadian Transportation Agency, the Surface Transportation Board, or STB, recently began a service-related investigation on one of the class 1 railways in the United States. The STB did not have to wait for the U.S. Secretary of Transportation to instruct them to do this. They recognized that there might be a problem and they began to investigate.
Why can't we have the same set-up here in Canada? Who wants to wait for the to ask the police to investigate every time someone may not be following the law? Bill needs to be amended to make this so, to help ensure that Canada's supply chain is working well in delivering for the 600 forest communities, hundreds of other communities, and millions of workers it supports across Canada.
The second one relates to the definition of “adequate and suitable”. As currently written, the bill tells the railways that if they provide the highest level of service they can reasonably provide in the circumstances, they cannot lose a service complaint. The objective of our proposed wording change is to make the intent absolutely clear, without the need for protracted litigation about what this clause really means. The final outcome on this component of the bill must prevent current failures, such as the following that our members must live with. At a minimum, give the Canadian Transportation Agency the mandate to investigate, on its own, these types of matters.
When members ask why their traffic has been left behind or why they have not received empty cars that have been sitting at the railway's serving yard, they hear it is because priority is being given to another commodity sector.
We have members who have product to ship to current and potential customers, whose facilities are accessible by rail, but they cannot get enough railcars or are not served frequently enough and are being discouraged by the rates that are quoted. These types of service issues are not isolated, and they cost our members in the hundreds of millions of dollars annually.
Third is long-haul interswitching. The bill needs to be amended to eliminate the unnecessary prerequisites for using this remedy as well as the many exclusions. Without important amendments, long-haul interswitching will not be a usable remedy for the majority of captive forest products traffic.
Next is data disclosure. As currently worded, the interim provisions in the bill dealing with rail performance data will provide supply chain participants with data that is too aggregated and too out of date to be of any real use in their planning. The time frames for reporting and publication need to be shortened. For example, the bill says requirements will be set out in a regulation in a year. Can we not do better than that with so much at stake? Also, more granular detail needs to be published, such as, but not limited to, commodity-specific information regarding such things as grain, coal, lumber, pulp and paper; results by railcar type, on a weekly basis; and by region, for example, east and west.
Oversight of railway discontinuance processes needs to be strengthened. As currently worded, the bill will prevent the creation of viable short-lines by allowing railways to suspend service before the process is completed, thereby making it more difficult for an alternative railway to take over. Making these changes will mean Canadians in communities across the country will be served by a more reliable and competitive freight transportation system.
FPAC members take great interest in transportation issues because they account for up to one-third of their input costs. The availability of an efficient, reliable, and cost-competitive transportation system is essential for the future investment in our sector and to support the families across Canada that rely on our industry for their livelihoods.
Members of the committee, for the 230,000 Canadians across Canada directly employed by the forest sector, a more competitive freight transportation system, as outlined here, will ensure increased access to the rail system, more reliable service throughout the supply chain, more competitive rates, and a more competitive supply chain.
I will now be happy to answer any questions you have.
Thank you very much.
Thank you. Good morning, Madam Chair, and thanks for the opportunity to appear before the standing committee on Bill , the transportation modernization act.
My name is Karen Kancens. I'm here with my colleague Sonia Simard on behalf of the Shipping Federation of Canada, which is the voice of the owners, operators, and agents of foreign-flag ships that carry Canada's imports and exports to and from world markets.
Our members represent more than 200 shipping companies whose vessels make thousands of voyages between Canadian ports and ports overseas every year, carrying hundreds of millions of tonnes of commodities, ranging from dry bulk commodities such as grain and coal, to liquid bulk such as crude oil and oil products, to containerized consumer and manufactured goods.
These ships play an essential role in the Canadian economy by facilitating the movement of Canada's international trade, and they do so safely, securely, and efficiently day in and day out. Indeed, ocean shipping is one of the world's most highly regulated industries, and foreign-flag ships are subject to a stringent regime of safety, environmental, and crewing regulations when sailing in Canadian waters, which are enforced by Canadian authorities as part of Canada's port state obligations.
Like many of our colleagues who have spoken before us, we also have a strong interest in Bill 's rail provisions, as we believe that the development of a more efficient rail freight system will have a positive impact on all of the elements of the logistics chain, from carriers in the rail, marine, and trucking sectors, to ports and marine terminals, to inland distribution centres and warehouses, and beyond.
That being said, we'd like to focus our comments today not on Bill 's rail provisions but on its maritime provisions, which we believe will also have a beneficial impact on the fluidity of the trade chain overall.
We're especially interested in clause 70 of Bill , which proposes to allow all foreign-flag ships to reposition their empty containers between Canadian ports on a non-revenue basis, which is an activity that has been closed to them up until now due to the prohibitions of the Coasting Trade Act.
It's worth just backtracking a bit and noting that this isn't a new or a revolutionary concept. It's actually something that our container carrier members have been asking for and that our association has been advocating for over the last decade.
Indeed, discussions on this subject between the government and our industry had advanced to such a degree that, in 2011, Transport Canada was on the verge of introducing an amendment to the Coasting Trade Act to allow for the repositioning of empty containers by foreign-flag ships. However, those discussions were subsequently placed on hold when empty container repositioning became a negotiating item in the CETA between Canada and the European Union.
Now that those negotiations are over, Bill essentially seeks to complete the discussions that were placed on hold in 2011, when we had reached general agreement, including from some domestic ship owners, that empty container repositioning should be open to all ships regardless of flag or ownership.
Why is this issue important? It's important because a significant aspect of the container shipping industry involves moving empty containers from locations where they are not needed, or where there is a surplus, to locations where they are needed or where there is an exporter who needs empties so that he can load them with cargo for an overseas customer.
Because up until now the Coasting Trade Act has prohibited foreign-flag carriers from using their own ships to carry out this activity, they have had no choice but to employ alternative solutions such as moving the empty containers by truck or rail, or more commonly, importing them from overseas. However, none of those solutions represents the most productive use of the carrier's transportation assets, and all of them come at a price not only for the carrier but also for the exporter in the form of a less cost-efficient transportation option, as well as for the logistics chain in the form of reduced fluidity and overall efficiency.
The maritime provisions of Bill would address these issues by giving carriers the flexibility to use their transportation assets, their ships, and their empty containers in the most productive and cost-effective manner possible for the ultimate benefit of everyone in the supply chain.
Although we very strongly support Bill 's provisions on the repositioning of empty containers, we have a concern that the actual wording the bill uses to define the party that is eligible to reposition empty containers may be too narrowly focused and that this may make it difficult to achieve the full benefits of liberalizing this activity.
More specifically, subclause 70(1) of Bill provides that the party that may reposition its empty containers is the owner of the ship, which is defined in subsection 2(1) of the Coasting Trade Act as the party that has the “rights of the owner” with respect to both the ship's possession and its use. We see a potential problem in how this definition will be applied in cases involving vessel-sharing agreements, in which a number of container carriers enter into an agreement to share space on one another's ships and which are used extensively in the container shipping industry.
It's not clear to us at this point how the partners in such an agreement would have the rights of the owner with respect to the ship's possession other than in cases where it's their ship that's being used to reposition the empty containers. Indeed, depending on how the ships in a given vessel-sharing arrangement are allocated, a ship owner may only have the ability to reposition its empty containers on every fourth or fifth voyage, which would reduce the significant potential benefits of liberalizing this activity.
We believe that if Bill 's provisions on the repositioning of empty containers are to be fully and effectively implemented for the benefit of all parties, then it must be made clear that any partner in a vessel-sharing agreement may reposition its own empty containers, as well as those of the other partners in the agreement, using any of the vessels named in that agreement. Although there may be various ways of achieving this, including through additional guidance and clarification from Transport Canada, it's our view that the optimal solution is to amend subclause 70(1) of Bill to clearly indicate that the party that is eligible to reposition empty containers encompasses not only the ship owner, as defined in subsection 2(1) of the Coasting Trade Act, but all the partners who share operational control and use of that vessel as part of a larger vessel-sharing agreement.
We believe that the introduction of such an amendment represents the best means of ensuring that Bill 's maritime provisions are implemented in a way that reflects the realities of how the container shipping industry operates, and this for the benefit of all stakeholders, from shipping lines to Canadian importers and exporters to the supply chain overall.
We thank you for your attention and look forward to any questions you might have.
Thank you, Madam Chair.
I do want to note my appreciation to all of you for coming out today. There's no question that we all have a role in contributing to the overall economic growth of the nation, and you guys are contributing to that today.
We want to get this right. We want to ensure that what we hear, we're going to discuss. I was told by our team today that this has been a continuation of dialogue over the course of the years, and the expectation is to in fact get this right from their end, your end, and our end as a committee. I appreciate your participation.
I want to ask one thing of you before I ask my question. For any information and any recommendations—you mentioned the details, Mr. Gratton and Mr. Neuheimer, that you've passed on—could you pass that on to us as well? Albeit it may be for a second or third time, I'd appreciate that. That way, when we go into the room, we can really ensure that those details are being discussed.
I want to ask a question with respect to the indigenous communities. For the northern communities, Mr. Neuheimer, you touched on this a bit, and I believe you did as well, Mr. Gratton, especially in line with your business interests. It's in terms of mining in northern communities and remote communities that are sometimes so remote that service costs and the balancing of the playing field become next to impossible.
My question is very simple. How do we become an enabler—I use this word a lot—for you and what you're doing in these communities to really level that playing field, to contribute to lesser service costs and ultimately to allow those communities, some of which are indigenous, to have available to them a strengthening in the development of their economy, thus creating more jobs for them and ultimately ensuring that access to growth and to goods—affordable goods—is available to them?
This is about empty-container repositioning on a Canada-wide basis. It's not part of the CETA trade agreement.
In the context we're looking at this, with Bill , I would caution perhaps that when we talk about the costs of repositioning empty containers, the costs are not only financial. Yes, you will always have an extra financial cost, especially when you're using truck or rail, but there are other costs.
Let's say you're a shipowner and you're doing a regular service from Montreal to Halifax. You have a pile of empty containers at Montreal and you have a customer in Halifax who needs 300 containers for export. Your ship is going from Montreal to Halifax in any case. It's part of your regular run. Right now you can't load those empty containers on your own ship. You have to put them on rail or you have to import them. If you're putting them on rail, you're subjecting those containers to additional moves. They're not just going from the port to the ship. They're going to the rail yard and they're being put on the railcars. There are more moves. There is more handling of the container. Yes, of course you have your additional external cost associated with the rail movement, but you also have logistical delays. Your containers are being moved at the convenience of the railway, not at the convenience of the carrier and of the exporter. You're adding elements to the chain, which are costs, yes, but there are also other elements in the form of time, in the form of additional moves.
By the way, the railways would much rather not haul empties, because they generate more revenue hauling laden containers. You're making what could and should be a very simple logistical process a lot more complicated than it needs to be, and you're adding a lot of trade-chain impediments along the way, so I would caution you to maybe not think of it only in terms of costs.
Thank you very much for the opportunity to appear. It's greatly appreciated. We are very happy to be here after requesting to be here.
The Canadian National Millers Association is Canada's national not-for-profit industry association representing the cereal grain milling industry. Our member companies operate milling establishments across Canada, and a number of them operate establishments in the United States or have affiliated companies with milling facilities in the U.S.
By virtue of where the Canadian milling industry capacity is situated and the regional markets served, the Canadian industry can quite correctly be described as a participant in a North American industry. It is a North American market for this industry, and the industry is integrated much like the rail transportation networks are throughout North America.
We are, however, an independent Canadian not-for-profit organization. We do not directly represent members of the U.S. milling industry except for those who are members in good standing of the CNMA by virtue of their operating facilities in Canada.
In light of the few minutes that are available for everyone to speak, I'd like to start by advising the committee at the outset that the CNMA supports the recommendations that are set out in the amendments to the bill as submitted and presented by the Western Grain Elevator Association. Members of the WGEA are the predominant link between grain producers and our member grain processors and others who are processors in Canada. This is the case for the majority of wheat and oats milled in western Canada.
I would like to touch upon a number of points as context for the committee's consideration of all the submissions you've heard. They are the following.
Our members are primary processors of wheat, oats, rye, and other cereal grains. By “primary processors”, we mean the step in the supply chain at which grain is transformed from a commodity that generally is not consumed to commodities that are consumed and are ingredients in food products and other products at the consumer level.
Top of mind for most people who think of foods that contain such ingredients are bread, other bakery products, pasta, breakfast cereals, and cookies, but I'd like to emphasize that you'll find wheat flour and other products of grain milling in products that are in every aisle of the grocery store, including pet foods, which contain products of grain milling. There are many products that contain or are derived from milled grain products. Those milled grain products are derived from grains across Canada, but predominantly the grains that are produced in western Canada.
There are also very few food service chains or restaurants, if any, whose menus are not largely based on foods based on cereal grains and manufactured from the products of grain milling. During the duration of these hearings, I was reflecting on this. I think Canadians will have consumed approximately 200 million meals containing bakery products, pasta, breakfast cereals, and snack foods, which in turn contain other products of grain milling.
These businesses, from the very largest to the very smallest, operate on a just-in-time delivery basis. The major manufacturing companies or the further processors of milled grain products—such as bakeries for frozen bakery products, or pasta, but principally those further processing manufacturing industries—have only a few days of ingredients in stock, and not just wheat flour and other milled grain products, but all grain products. In that sense, the supply chain beyond the milling industry operates on a just-in-time delivery basis, just like the automotive industry.
The CNMA's interest in rail transportation policy in Bill C-49 is that the cereal grain milling industry is heavily reliant on rail transportation, not only for inbound unprocessed grains but for outbound processed products. Two-thirds of Canada's wheat milling capacity is located off the Prairies, outside of Alberta, Saskatchewan, and Manitoba, and is situated in B.C., Ontario, Quebec, and Nova Scotia primarily. These mills require rail service to receive approximately three million tonnes of wheat and oats annually. This represents a very predictable demand for rail transportation: in my estimate, 34,000 cars annually for inbound grain, and perhaps another 6,000 to 10,000 cars for the movement forward of milled grain products and by-products.
This demand doesn't fluctuate significantly by crop year, is not variant on the size of the Canadian crop for any commodity. Rather, it can be easily forecast a year in advance because it's based on a domestic and a nearby export market, the United States of America.
Having noted some of the ridings held by committee members, it might interest you to know that during the dramatic shortfall in service in the 2013-14 crop year, there were mills in Mississauga, Montreal, and Halifax that actually ran out of wheat, in some cases more than once. That meant that major bakeries were within two to three days of running out of flour, and major retail grocery establishments probably within four to five days of running out of bread on shelves.
In hindsight—and that is now a long time ago and we're not here to whine about what happened back then—we came very close to having a serious interruption in our grains-based food supply. How would we have explained that to Canadians who had gone to the store and found no bread, or to fast-food restaurants which would have had nothing to put their ingredients on in those menu servings?
Other than the extended switching rights, the provisions of the Fair Rail for Grain Farmers Act did not recognize or assist the rail service requirements of Canada's milling industry. The same can be said for U.S. establishments. In fact, that intervention provided an impediment to service to our industry. As we see it, there are no provisions of the CTA that presently speak to the very predictable and forecastable service needs of the Canadian milling industry, and in most respects the same can be said about the amendments proposed by Bill . The act, as it exists and even as amended, doesn't really speak directly to or recognize the needs of domestic processors.
Those processors really do not have the capacity to receive and unload grain in the way that grain elevators have on the way to export markets. Almost all mill locations are urban. They're in multi-mix environments, in some cases surrounded by residential development, commercial development, and they are equipped to handle only a few cars at a time. The largest capacity of a mill that I'm aware of, without using a transfer elevator nearby, is about 15 cars at a time.
In regard to Bill , it really remains important that under the amended act the definition of “shipper”, as I understand the proposed amendments, will remain, “a person who sends or receives goods by means of a carrier or intends to do so.” That's an extremely important aspect of the legislation as it exists today, and that does ensure that processors, including millers, have access to the benefits of the same provisions of the act.
The key point I want to make is that grain rail service is not only about moving grain to port for onward movement to export markets. It's about moving grain to mills in Canada and the United States, meeting the needs of Canadian and U.S. consumers. The Transport Canada question-and-answer document that was circulated about 10 days ago speaks of global markets. I want to emphasize that North America, Canada and the U.S. combined, is a global market of 400 million people. From our investigation, the recommendations of the WGEA and those carefully considered points of the crop logistics working group will go a long way to meeting the substantial improvement that is described by the WGEA in these amendments. We are supportive of those recommendations.
I must emphasize, however, neither their submission, nor any other that I've read to date, speak to the importance of rail service to cereal grain milling establishments. There are actually many, and the Canadian population relies upon the timely operation of those facilities and the delivery of foods from those facilities.
I've provided some very brief correspondence to the Honourable Marc Garneau, to the clerk, which I gather will be subsequently distributed once it is translated.
Thank you for your attention.
Good afternoon, Madam Chair and members of this committee.
I am Jack Froese, the president of the Canadian Canola Growers Association. I farm at Winkler, Manitoba. Thank you for inviting me here today to speak with you about Bill , the transportation modernization act.
CCGA is a national association governed by a board of farmer directors who represent the voice of Canada's 43,000 canola farmers from Ontario west to British Columbia. In any given year, over 90% of Canadian canola, in the form of raw seed or the processed products of canola oil or canola meal, is ultimately destined for export markets in more than 50 countries. We are the world's largest exporter of this highly valued oilseed.
Canola farmers critically rely on rail transportation to move our products to customers and keep those products price-competitive within the global oilseed market. Farmers occupy a unique position in this grain supply chain, and that is what fundamentally differentiates this supply chain from other commodities. Farmers are not the legal shippers, but we bear the cost of transport as it is reflected in the price we are offered for our products from the buyers of our grains and oilseeds, who are the shippers.
Simply put, farmers do not book the train or the boat, but they pay for it. Transportation and logistics costs, whatever they might be at a point in time, are passed back and paid for by the farmer.
Farmers independently strive to maximize both the quantity and quality of their production each year. Once harvested, they sell their grain into the system, based on their particular marketing plan, with the overall goal of capturing the highest possible prices at a given time in a dynamic and ever-fluctuating global commodity market.
Transportation of grain is one of several commercial elements that directly affect the price offered to farmers in the country. When issues arise in the supply chain, the price that farmers receive for their grain can drop even at times when commodity prices might be high in the global marketplace.
In periods of prolonged disruptions, space in grain elevators becomes full and grain companies stop buying grain and accepting deliveries. This can occur even when the farmer has an existing contract for delivery, seriously affecting farmers' ability to cash flow their operations. This is a major reason that western Canadian farmers have such an interest in transportation. It directly affects personal farmer income, and beyond that, they critically rely on the service of Canada's railways to move grain to export position. We have no alternative.
It is a complex system, transporting western Canadian grains an average distance of 1,520 kilometres from the Prairies to tidewater, but we need to make it work to the benefit of all parties and the broader national economy as a whole.
The competitiveness and reliability of the canola industry, which currently contributes over $26 billion annually to the Canadian economy, is highly dependent on this supply chain providing timely, efficient, and reliable service. In terms of direct impact on Canadian farmers, canola has been the number one source of farm revenue from crops every year for over a decade. It is a major contributor to grain farmers' profitability.
The 2016-17 crop year that just passed at the end of July set new record levels of canola exports and domestic value-added processing. Strong performance by the railways absolutely supported this achievement. Overall, it was a banner year for railway movement of grain and its products.
That stated, we need to remain future-oriented when we consider public policy changes. The last several years of reasonably good overall total movement and relative fluidity of the supply chain should not lessen our focus on seeking to improve, as fundamental issues still exist beneath the short-term positive headlines.
Spring 2017 saw a record level of canola planted in Canada, the largest single field crop in the country, for the first time surpassing wheat. The most recent, late August, government estimates of production for this fall is 18.2 million tonnes, down slightly from last year due to challenging weather, but still surpassing the five-year average by over one million tonnes.
We are an optimistic and goal-oriented industry with a record of achieving success. When we look forward to 2025, we see demand for our products rising further, both domestically and internationally. In this future, rail transportation will be even more important as our industry strives to reach our strategic goal of Canadian farmers sustainably producing 26 million tonnes of canola every year.
To support this, Canadian farmers and the industry will need an effective and responsive rail transportation system, not just for transportation of the current crop sizes but for those of the future. Moreover, farmers will not be able to capitalize on the opportunities from Canada's existing and future trade agreements without a reliable and efficient rail system that grain shippers and our global customers have confidence in. That is a key point: with such a strong reliance on exports, we do need to remain cognizant of the customer service aspect of our export orientation in the agricultural sector.
Canadian canola and other grains are well known for their quality characteristics and sustainable supply, which are market differentiators. But at the end of the day, they remain fungible commodities, and alternatives exist. The reliability of our transportation system affects buyers' confidence in the global Canadian brand. We know, because we hear directly about it.
For the remaining comments, I'll defer to Steve Pratte.
Just very briefly, Bill attempts to address several long-standing issues in the rail transportation marketplace. You've heard from grain sector representatives, including grain shippers and farm groups, yesterday and this morning, regarding their perspectives on various commercial and legal aspects of the bill, including around reciprocal penalties, long-haul interswitching, and other elements. You've clearly heard from witnesses in other sectors that Canadian class I railways are in monopoly positions. Most grain shippers are served by only one carrier and are subject to monopolistic pricing and service strategies.
The grain sector, from farm groups through the value chain to exporters, has been consistent in its discussions with government since the 2013-14 transportation crisis, and there's been a consistent message. Canada must address the fundamental problem of railway market power and the resulting lack of competitive forces in the rail marketplace. In our view, the government has a clear role to establish a regulatory structure that strikes a measured and appropriate balance and, to the greatest extent possible, creates the market-like forces that do not exist, which in theory should create more market-responsive behaviours of all participants.
This is the reality, a long-standing fact that has led to over a century of government intervention to varying degrees in this sector. Bill is the current approach before us to bring a more commercially oriented accountability into this historically imbalanced relationship. Bill C-49 appears to make progress in several areas towards this goal, and does reflect a consideration of what Canadian rail shippers and the grain industry have been telling successive governments for years about the core imbalanced relationship between shipper and railway. For that, we thank you.
In our view, the true impact and success of this bill and the measure of its intended public policy outcomes will only really become apparent and known once the shipping community attempts to access and use the remedies and processes this bill will initiate. As Bill was designed to balance two competing interests—that of the shipper and that of the rail service provider—a true measure of success will likely take several years to fully gauge and appreciate.
In closing, two areas that CCGA would like to briefly highlight, from a farmer's perspective, are the themes of transparency and long-term investment, specifically as they relate to data disclosure and the economic regulatory environment of grain transport in Canada.
One element of Bill that is of particular importance to farmers is the issue of transparency.
The publication of new railway service data, received by the minister of transport or the Canadian Transportation Agency, is important not only for stakeholders and analysts monitoring the functioning of the grain handling and transportation system but also for government itself—for the twin functions of on-going monitoring and assessment of the system, and when required, the ability to develop prudent public policy and advice to the minister in times of need.
This new information, in conjunction with the comprehensive reporting of the existing grain monitor program, will provide farmers with valuable insights into the performance of the system. As the bill currently reads, clauses 51.1, 77(5), and 98(7) specify timelines associated with this reporting. CCGA would respectfully submit that these timelines are too lengthy and that consideration should be given to shortening them.
In addition, the new proposed annual railway reports to the minister at the beginning of each crop year, contained in clause 151.01, are very positive. CCGA would respectfully submit that the minister of transport consult with the minister of agriculture as to what those reports could specifically contain to be of greatest utility to both government and grain stakeholders.
Lastly, modernizing the economic regulatory environment to stimulate investment, such as the suite of actions aimed at the maximum revenue entitlement, is well intentioned.
One of these policy objectives is to spur investment in grain hopper car replacement by the railways through the calculation of the annual volume related composite price index, as effected by clause 151(4).
CCGA would submit that consideration should be given to having the Canadian Transportation Agency closely monitor these actions and, during its annual administration of the MRE, include a summary comment within its determination.
We appreciate being here to address the committee this afternoon, and we do look forward to the question period.
Thank you for the invitation to appear before the committee today.
I should start by commending the members for their non-partisan approach to this bill, as well as for their fortitude, doing this all week long, and the hours that you're maintaining.
I'm here in my capacity as counsel to shippers, railways, governments, intermediaries, and investors in the areas of rail law and policy. My credentials are attached to my formal submissions.
I should say also that my comments today are informed by more than 60 negotiations and processes with the Canadian National Railway Company and Canadian Pacific. I'm speaking from the position of having seen these negotiations and processes among different categories of commodities as well as railways. Transport Canada consulted with me extensively in the run-up to Bill . Unfortunately, Bill C-49 leaves many shippers without access to a viable remedy. While I have many things to say about the act and the bill, I'm going to confine my remarks today to two areas in particular on data disclosure and rail service, and I'm also going to try to address some points that have arisen since the beginning of the week.
My first point is on costing data. Bill looks to gather some data similar to that available in the United States. However, the bill will not change the fact that data about CN and CP is much more readily available to shippers in the States than to shippers in Canada. Shippers in the States have access to detailed rail costing data to calculate a carrier's costs of transporting goods, without invoking a proceeding before the U.S. Surface Transportation Board.
Rail carriers in the States are required to report detailed financial and statistical data, which is available publicly on the STB website. CN and CP must provide these reports to the STB too, but Canada does not require it, so shippers in Canada are at a considerable disadvantage in relation to their U.S. counterparts. The STB established the uniform rail costing system, URCS, to “provide the railroad industry and shipper community with a standardized costing model [that can be] used by parties to submit cost evidence before the Board.” Shippers can, by this and yet other means, assess the freight rate competitiveness of CP's and CN's American operations, but not their Canadian operations.
In Canada, the only situation in which a shipper can get rail cost data is in the confidential final offer arbitration, FOA, process. FOA has become increasingly difficult to use for a number of reasons. As you've heard already from other witnesses, an FOA arbitrator has the right, under the act as it presently stands, to get information from the agency but generally will not do so without first getting that class I rail carrier's consent. That's the problem that I think you have an opportunity to fix. CN and CP can merely refuse to consent, leaving the arbitrator in such cases without a critical piece of evidence to make a final offer selection between the shipper's offer and a carrier's offer. In this manner, CN and CP can neuter the FOA process, making it less available and less viable.
While shippers in Canada should have access to the same quantity and quality of information available to the shippers using CN and CP services in the States, for now, I'm advocating something simpler; just require CN and CP to co-operate with the agency in providing the cost of shipments that are submitted to final offer arbitration. I have some recommended language there before you. This committee is already amending subsection 161(2), so this would be the addition of a paragraph (f). It would just add one more item to the list of items that a shipper has to submit to start a final offer arbitration. With this amendment to the act, the FOA process has a better chance of avoiding disputes, reaching good conclusions, and satisfying the parties.
I'll move on to performance data. Railway performance data is also not available in Canada. Bill proposes to compel the disclosure of a subset of certain U.S. information. As a result, U.S. shippers will end up with more data about CN's and CP's operations than shippers in Canada. Ideally, each class I rail carrier would submit all data from every waybill, including the information required by proposed subsection 76(2), which is dedicated right now just to the LHI remedy.
This information is readily accessible to the rail carriers in real time and is easily transferable. That would allow any so-inclined shipper in Canada to assess the extent to which a rail carrier is providing adequate and suitable accommodation for its traffic without having to resort to a legal process, which is what is required right now.
Currently the agency and arbitrators must determine service cases in the absence of performance data. The creation of a database and publication of all waybill and clause 76 information would settle or eliminate many disputes. However, I propose something more modest. I propose three things. First, give the agency the authority and the obligation, as it has for other parts of the act, to make regulations in this area, given its wide-ranging expertise. Second, require service performance information for publication for each rail line or subdivision. System-wide data as presently contemplated by Bill will do nothing to identify service failures in any region or corridor, much less those faced by any shipper. Third, Bill C-49 seeks to limit commodity information. I've added paragraph (11) to current subclause 77(2)—you can see the language before you—to require each class I rail carrier to report their service performance in respect of 23 commodity groups, just as is required by the STB of CN and CP in the United States—no difference.
Moving on to service levels, both the level of service complaint remedy and the SLA process were designed, along with the statutory service obligations, to compel railways to do things they would not otherwise do. The agency has done an admirable job of determining the circumstances in which it will determine whether a rail carrier has fulfilled its statutory service obligations. This is not a system that needs any further inclination toward rail carriers, which have been performing very, very well financially. Only the most egregious rail carrier conduct gets attention from shippers, which are otherwise prone to sole-service providers and very reluctant to bring proceedings.
Personally, I would not have amended the LOS provisions, but if it must be done, I'd make a few changes—three of them, in fact.
First, I'd change the opening words of proposed subsection 116(1.2), as presently contemplated in Bill , to reverse the logic. Right now, it doesn't say what happens if a rail carrier doesn't provide the highest level of service they can provide. I would reverse the finding requirement so that the level of service is no less than the highest that can be reasonably provided in the circumstances.
Second, Bill would require the agency, in both the LOS and the SLA process, to consider the rail carrier's requirements and restrictions, which are all outside the control of the shipper and well within the control of the rail carrier. For example, a rail carrier decides how many locomotives to acquire, whether to terminate thousands of employees, eliminate or reduce service, limit infrastructure, or invest in technologies. It is entirely inappropriate for the agency to have to determine whether a shipper should receive a portion of the capacity that has been restricted by decisions of a rail carrier. I would strike the offending provisions entirely, just as you have it before you there.
Third, Bill imposes an obligation on an arbitrator to render decisions in a balanced way. Now, I would have thought they were already doing that. They enjoy a reputation for fairness and impartiality, and they have enjoyed deference from the appellate courts. Arbitrators are rarely appealed. There's no need for such a provision. The SLA process exists precisely because a rail carrier will not provide what the shipper requires. If it turns out, upon examination, that a shipper doesn't require the service it seeks, the shipper won't get it. That's what the agency will decide. I would strike that proposal altogether.
I've been asked a few times, and contemplated that this would arise, which one of these I would take if I could only take one. Well, it may be that the LHI provisions, if they're amended in accordance with the requests of various parties who've appeared before you, will be helpful to some people. But for sure I would make sure that my priority one amendment is made—that is, demand and require of a railway that it provide its consent to a rail carrier costing demand by the shipper in the FOA process.
Finally, we should return to a periodic review of the act. I would recommend at least every four years. I heard Mr. Emerson say two, and I'd be content with that too.
Thank you very much.
Let me answer you by posing a question to you, which is, why aren't the remedies used? I know some of you have asked that question. If you approach it from that perspective, you can see what's going to happen to industry over time.
If we look at the Canada Transportation Act as a constant work in progress—which I think we have to admit has been going on for about 100 years or more—then the process that we're in now is really an opportunity to try to get further ahead than where we were. What's actually happening is that the remedies are being eroded, and that's why I'm talking about the things that I'm talking about today.
This can't be surprising. We have a market structure that lends itself to a natural monopoly occupied by the two railways. I wouldn't blame it on their conduct; it's a market structure problem. We address that with remedies in the act. When those remedies are weakened, when they do not do the job that they were intended to do, it makes it hard for those shippers to deliver on their production. That's the simple point I would make.
I know some of you also asked, is it this reason or that reason that this remedy is being used or not being used? On Monday I heard the railways talk about this subject. The reason why the remedies aren't being used is that it gets harder and harder to use each one of those remedies. The shippers are primarily scared of retribution from the carriers for exercising those remedies, and they're expensive. I'm part of the problem, right? I'm a lawyer, and lawyers are people, too, but it costs a lot of money to engage counsel. The harder the process is, the more money it's going to take to solve the problem.
You heard testimony this morning about how much it might cost to do an FOA process for one shipper. Other shippers can exercise some of the remedies for cheaper, but very few shippers have access to a lot of remedies. Most shippers have access to one, sometimes two remedies. You have to make them usable. That's really the point I would emphasize, and I would make that point about LHI as well.
Sorry to go on so long.
The just-in-time delivery aspect takes place at the milling and beyond stage. Before that stage there is some latitude in milling establishments, provided that the pipeline or the flow of grain is continuous and as anticipated. The milling industry can't deliver just-in-time if the milling industry is allowed to run out of grain.
Eastern Canadian grain—Ontario, Quebec, and Atlantic grain—is not generally substitutable for grain of western Canadian classes and quality. You can't make the same products. In addition to that, to operate a mill efficiently you need different grades and classes and protein levels of western Canadian wheat. In the case of oatmeal, you need specific varieties that have to be declared and delivered.
If you have your inventories drawn down to a level, like we experienced three years ago, where you can't do the blending that is required and you can't achieve the end-use performance required, you can't do just-in-time delivery of the end-use performance that a large further processor would wish.
Mills in Canada would have anywhere from four weeks to, perhaps, a few months of storage, but if your rail service is interrupted for weeks on end, which is what happened—and we would never want anyone to experience that again—that's where you would get into the disruption of just-in-time delivery. The people who are trying to do that just-in-time work and put those products with short shelf life out there in the marketplace don't have the luxury of going to other suppliers on that kind of turnaround time.
That's the way it has become. It requires an adequate supply of raw materials and, beyond the primary manufacturer, an adequate and continuous supply of those products.
I hope that answers your question.
Yes, certainly that has to be one of the objectives. I would have said that by the nature of the exclusion zones the main thing that's happening is eliminating competition that might be possible between CN and CP.
Really, the LHI is dedicated to the idea of what the rate is going to be for the origin portion to connect to that connecting carrier. In those zones.... Let's just take Kamloops again. If you're heading west, you could be coming in on CN into Kamloops, or you could be coming in on CP into Kamloops. If you're trying to switch to the other one, that would be the connecting carrier. There's only one connecting carrier there that's not the same as the origin carrier.
In Quebec, in the Quebec-Windsor corridor, you have the same two railways that are essentially vying for business, but if you're in the Maritimes or you're in northern Quebec, it's CN, CN, or CN. Those are the choices.
To the extent that the American railways can get into the LHI system, I actually think that's a positive. I don't go for the fearmongering about how much business BN is going to get out of this. You've heard the answer already. How many cars actually moved under extended interswitching? It's a tiny number. CN's own witness admitted it, right? It's not a big number at all, so I just don't buy into this “it's a catastrophic kind of problem”.
On top of it, if it is going to be a problem, that's the good part, right? If there's actually going to be competition that gets created out of the system, that's a win, not a loss.
On the last one as to whether we should prioritize transportation in NAFTA, the systems are very different. I don't think that the goal, or even an important goal of NAFTA would be to harmonize our rail transportation policy and systems. They are very, very different. I think that would be a pretty darned tall order to try to do, particularly in the current environment. I think we have enough troubles at home that I would make a priority dealing with the domestic issues that we're facing in rail transportation. There are plenty of those to go around. My whole career is built on it. I depend on these problems, so do my kids.
On the first question, whether the remedies exist for U.S. carriers, I think you would hear from American shippers that they would love to have final offer arbitration and don't. They're looking at it. They've been looking at it seriously for a number of years. They don't have it. They have a completely different system. You do have access to a rate reasonableness mechanism before the Surface Transportation Board, and it's used. It's more rule-oriented down there, not surprisingly, than our system is, but they have access to that.
They have all that data, and they have another thing. The Mississippi is a brilliant of example of this. I heard the rail carriers on Monday talking about all this alleged other competition that we have in Canada. By the way, in case they missed it, there's no river in the west that goes to Vancouver from the Prairies, so there is no river competition, but in the Mississippi you have all seven class I railways touching it, or going down that spine. You have the river traffic and you have truck traffic. That's a competitive environment. That's what it looks like when you have a bunch of players. Welcome to reality. In Canada, with a very diverse geography—and by diverse I mean topographically and by the remoteness of our industries—we just need to have a system that deals with the remedies.
If you take just LHI by way of example again, if you want to make that remedy work for people who are remote—and this is where our production facilities are, particularly in the bulk resource sector—in the grain sector these are so remote that they need a remedy, because we're not building any new railways. That is not going to happen. We cannot do that in North America, so we have to rely on the systems that we have now.
Going back to the short-line point earlier, infrastructure is very hard to come by. Giving that up, I think, is a huge mistake. Whenever we have an ability to maintain infrastructure, I think we should. I don't know that we should go to the extent of subsidizing all that activity. Somebody smarter than me is going to have to figure that out. I would definitely make the remedies that we have available for our infrastructure work in a way that makes it accessible and viable for shippers to use in those circumstances. You also heard earlier that nobody's lining up to do this stuff. We don't have hordes of shippers trying to get access to the remedies, waiting for their turn. This is the most reluctant thing they do in their business, so when they use it, it's because it's a last resort and it has to be viable.
Thank you very much, Madam Chair. Thank you for having us here today, members of the committee.
My name is Jim Given. I am the president of Seafarers' International Union, and I'm also chair of the Cabotage Task Force worldwide for the International Transport Workers' Federation. .
The SIU is concerned about the proposed amendments to the Coasting Trade Act that build upon amendments to the act put forward through the CETA implementation bill, Bill C-30. They will allow, for the first time, foreign vessels to engage in maritime cabotage without first having to obtain a coasting trade waiver.
The Coasting Trade Act requires that no foreign ship or non-duty ship engage in cabotage without a licence. The broad definition of coasting trade under the act means that maritime activity of a commercial nature in Canadian waters is restricted to Canadian-flagged vessels, including the carriage of goods and passengers by ship from one place in Canada to another. Under the current system, a foreign ship may be imported into Canada to engage in coasting trade if the Canadian Transportation Agency, on application, determines that no available or suitable Canadian-flagged or Canadian-crewed vessel can be used for the required operation.
Changes to the Coasting Trade Act by Bill C-30 will now allow foreign ships owned by European Union citizens or flagged by a European Union member state to engage in the following cabotage activities without a coasting trade waiver: transporting empty containers between two Canadian ports, dredging activities, and the carriage of goods between the ports of Halifax and Montreal as one leg of the importation or exportation of goods to or from Canada.
In addition, subclause 70(1) of Bill would further amend the Coasting Trade Act to allow any foreign vessel, regardless of flag, to perform the repositioning of empty containers between Canadian ports without obtaining a coasting trade licence.
As a labour union that represents Canadian seafarers working in the Canadian seafaring industry, the SIU cannot support these amendments, because they actively undermine legislation in place to support the domestic Canadian maritime industry and Canadian shipowners.
We strongly support maintaining the current coasting trade waiver system, which already includes a waiver system for foreign vessels. This method ensures the fair practice of giving Canadian shipowners who employ Canadian seafarers the first right of refusal for any available work.
The SIU has previously stated that giving away cabotage rights to the European Union through CETA was an unnecessary concession that has the potential to cause harm to the Canadian seafaring industry.
Canada already has a liberalized version of maritime cabotage, and further relaxation of these restrictions, specifically those involving dredging and feeder services between Canadian ports, does not benefit Canadian shipowners or Canadian seafarers who depend on competitive Canadian labour and domestic market trade for their livelihoods.
Further to these issues are the specific concessions allowing both first and second registry vessels to gain access to the Canadian market. As announced by , the proposed amendment to allow the movement of empty containers by any vessel, regardless of flag, was done at the request of one shipping federation in Canada, which represents very few or no Canadian-flagged shipping operators. While the SIU does not speak on behalf of Canadian shipowners, it is troublesome to us and our membership that the majority of proposals and concerns from Canadian shipowners and Canadian seafarers appear to have been ignored in favour of one organization representing global shipping agents in Canada.
The domestic maritime industry is a source of direct and indirect employment for over 100,000 Canadians. When discussing global shipping, it is important to distinguish that the Canadian vessel registry, or Canadian first registry, is much more advanced in terms of working conditions and requirements than the majority of global maritime flag states. Global shipping is a highly unregulated industry and one that has seen deteriorating labour and wage conditions define it increasingly over the years. For example, some first registries, and many second registries, are qualified by the ITF, the International Transport Workers' Federation, as being flag of convenience vessels. What this translates to is an underpaid and under-represented work force of mostly third world seafarers who work in an unsafe and unregulated industry with few to no working regulations in place.
In Canada, a maritime accident involving an FOC vessel could lead to months or even years of trying to track down the true owner just to begin the process of seeking compensation, which we know, through experience, is never actually achieved.
Second vessel registries are so under-regulated that a vessel registered in a second registry of an EU country is not even permitted to operate cabotage inside its own flag state. Allowing second registered vessels to operate cabotage inside another country's domestic market is not a common practice and not one Canada should be responsible for initiating.
This is a major global issue that has yet to be dealt with in a sufficient and acceptable way to secure the safety and well-being of all seafarers. To allow this sort of shipping to take place, unrestricted, inside Canada’s domestic maritime industry would be unprecedented. The SIU of Canada is actively involved in securing the rights of all seafarers working in Canada. We will work diligently to ensure that any foreign vessel brought into Canada to operate in Canadian cabotage is in compliance with federal standards of labour, and ensure that foreign crews are being paid the prevailing industry wage and being protected as stipulated by the temporary foreign worker program.
We remain concerned about oversight when it comes to foreign vessels operating in Canada. Establishing an effective monitoring and enforcement regime will be essential to ensure full compliance with the conditions and requirements of the new market access provisions of the Coasting Trade Act. In order for Canadian domestic stakeholders to remain competitive, there must be a system to ensure that foreign operators are strictly adhering to Canadian rules and standards, including labour standards and prevailing wage conditions for the crew, and not flag state law.
Again, the SIU's priority is to ensure that Canadian workers have opportunities for employment in the Canadian maritime industy. We believe the proposed amendments to the Coasting Trade Act contained in Bill undermine the importance of maintaining cabotage restrictions in place to protect Canadian maritime transportation, strengthen commercial trade, and maintain a qualified pool of domestic maritime workers. While securing employment opportunities for Canadian seafarers remains the primary mandate for the SIU, we also have a responsibility to ensure that all seafarers, both domestic and foreign, are properly treated. Canadian seafarers have an international reputation for being the most well-trained and highly qualified maritime workers in the world. As such, Canadian seafarers and Canadian vessel operators should reserve the right to retain the first opportunity to engage in any domestic maritime operations prior to permitting access to foreign operators.
We remain committed to working with our partners in government in order to establish a workable and acceptable solution to the growing amount of trade in Canadian ports. We believe Canada’s international trade ambitions can be achieved while supporting a strong domestic shipping policy that does not facilitate unrestricted market access to foreign vessel operators. Without a strong Canadian domestic fleet crewed and operated by Canadians, our country would be dependent on foreign shipping companies to move goods to, from, and within Canada, with no commitment to uninterrupted service.
On behalf of the Seafarers’ International Union, we once again thank the committee for having us here. I will close by saying that this is a very welcome change to be sitting at this table in front of the committee. We thank you for that.
Good afternoon. My name is Sarah Clark, and I serve as president and chief executive officer of Fraser River Pile & Dredge, located in Vancouver, British Columbia. Our company proudly conducts dredging operations in B.C. and across the country. I would like to thank the chair and the honourable members of the committee for hearing us today.
I'm actually here to speak to you on behalf of a coalition of dredging companies that operate from coast to coast. I'm going to share my time today with my friend and colleague Jean-Philippe Brunet, the executive vice-president of corporate and legal affairs for Ocean group of Quebec. We sincerely thank you for the opportunity to present our views on the consequences of amending the Coasting Trade Act as outlined in Bill . For us, this is a fresh opportunity to be heard on the impacts of the amendments to the Coasting Trade Act, an opportunity we previously had in respect to amendments to the same act, under Bill , the Canada-E.U. comprehensive economic trade agreement implementation act.
To be very clear from the onset, the Canadian dredgers are eager to compete in a marketplace fuelled by healthy trade relationships. We simply ask that we continue to compete on a level playing field, where risks and opportunities are equal for all. Unfortunately, CETA was a bad deal for Canadian dredgers. There's no reciprocity for us in the European market, but there's streamlined access for Europeans in the Canadian market. We therefore submit that Bill represents an ideal opportunity to address this inequity and provide workable policy solutions.
Let me say a few words about the dredging industry in Canada and the critical role it plays for Canada as a maritime and trading nation. Ours is a geographically expansive country that relies on a complex transportation network to move people and goods. As stated by on May 16 of this year, Canadians rely on the economically viable modes of transportation to travel and move commodities within the country, across the border, and to our ports for overseas shipments. At his announcement regarding the trade and transportation corridors initiative on July 4, Minister Garneau highlighted the digging of deepwater ports as being critical to the development of Canada's north, underscoring the essential role dredging plays in the creation and maintenance of our transportation network and, as a result, our national and economic sovereignty.
Opening routes to Canadian and international shipping vessels brings consumer goods to Canadian markets and takes our export products around the world. Without dredging, ports in major cities across the country would be inaccessible to global trade and transportation. Industry operations, both coastal and inland, would not be able to function. The companies that comprise our coalition actively comply with rigorous government regulations concerning labour, environmental protection, safety, and operating standards while regularly submitting to routine major inspections that are amongst the most rigorous in the world. Canadian dredging companies also provide well-paid, middle-class salaries, which in turn fuel local economies across the country.
We are here with you today to do our part to ensure that the Canadian dredging industry is provided a level playing field on which to compete sustainably and responsibly, to create more jobs, and to continue to contribute practically to Canada's economic success. Unfortunately, these important goals have been put at some risk by the effect of the proposed amendments to the Coasting Trade Act contained in Bill . Proposals in Bill C-49 are of course contingent upon the coming into force of elements of Bill on September 21, 2017. We understand that the spirit of CETA reflects the wishes of both governing bodies and peoples to create better economic ties and a more prosperous future. We support the government's effort to expand trade and to make our economy as vibrant as possible. At the same time, we wish again to express our concerns about the negative impact. We believe the amendments to the Coasting Trade Act contained in Bill C-30 unfairly advantage foreign dredging companies at the expense of Canadian firms, Canadian workers, and ultimately, Canada's transportation infrastructure. Bill C-49 builds on a foundation laid by Bill C-30 that is highly problematic for Canadian dredgers.
As I've said, we are fully prepared to compete. We do so every day in our industry, both in Canada and abroad. Under CETA, there was no negotiated reciprocity for our industry.
CETA opens up the Canadian market to European firms while keeping the European market closed to Canadian dredging firms. This would normally be considered an unpleasant by-product of doing business in the global market, but several factors intervene to create a situation where non-Canadian firms could gain a structural and market advantage over Canadian firms. If a level playing field is not created and maintained, Canadian dredging companies will face structural disadvantages when bidding on contracts, as we pay market rates and benefits that reflect the skills of our crew members in Canada.
For example, foreign crews are typically compensated at about a third or less of the rates we pay. In 2015, the average monthly salary for a chief engineer on a Canadian vessel was $15,000 U.S., while the same position on a Dutch crew was about $7,000 U.S. As salaries represent about one-third of our vessel's operating costs, non-Canadian companies will operate at a significant advantage over Canadian companies, leaving Canadian seafarers out of work. In this scenario, the playing field is inherently uneven, to the detriment of Canadian companies, and, ultimately, to our employees and their families.
Prior to Bill , foreign-flagged vessels were required via the Coasting Trade Act to obtain a coasting trade licence. Jim outlined that process very well in his presentation, which would include paying duties, and following shipping conventions, worker visa requirements, and employment standards. However, even that structure faced monitoring and enforcement challenges. Under CETA, non-Canadian dredgers will have greater access to our waters, and therefore greater opportunity for non-compliance.
Before making our key recommendations, I will now ask my colleague, Jean-Philippe Brunet, to say a few words about Quebec in particular.
Today, we've highlighted a number of issues associated with the proposed and recently enacted amendments to the Coasting Trade Act. However, we would not come to you with problems were we not also prepared to recommend solutions we believe are reasonable and fair to all.
First, we ask that this committee recommend to the government the establishment of an operational enforcement protocol, led by Transport Canada, binding on the deputy ministers of all relevant departments and agencies. I wish to be clear that we are not seeking the establishment of a new enforcement arm of government. To do so would not be fiscally prudent or organizationally necessary. We simply ask that the government take note of the number and seriousness of the enforcement issues at play where foreign crews on foreign-flagged vessels are concerned. These include temporary foreign workers through IRCC and CBSA, a labour market impact assessment through ESDC, tax administration through CRA, safety inspections through Transport Canada, labour practices through ESDC, and workplace health and safety issues through ESDC, to say nothing of wage disparity and pressure.
Departments must speak to each other, and they must co-operate rapidly and meaningfully in order to enforce an intersecting group of important laws. It's not enough just to have done that inspection of the vessel or to check for its basic safety. We are assured that many of the positions on our vessels would be subject to visas for temporary foreign workers, and to be able to fully police that will take an effort of coordination across departments. After two years of engagement with the government, we have yet to see a concrete plan of action for enforcement. Right now, interdepartmental coordination is not governed by a clear process. It is under-resourced and puts the onus on the industry and workers to help police our waters. To us, this seems unacceptable for Canada as a modern maritime trading nation.
Second, we ask the committee to seek from the Government of Canada a firm commitment that enforcement will be funded appropriately and meaningfully, to ensure that Canadian dredgers can compete on a fair and level playing field with non-Canadian vessels, whether it be with respect to—
Madam Chair, ladies and gentlemen members of the committee, thank you for giving us an opportunity to share our comments and concerns with respect to Bill , and more specifically the amendments proposed to the Coasting Trade Act.
I will introduce myself. I am Martin Fournier, Executive Director of St. Lawrence Shipoperators, an association whose mission is to represent and promote the interests of Canadian ship operators in order to support their growth and ensure the development of shipping on the St. Lawrence River.
St. Lawrence Shipoperators consists of 15 members—15 Canadian ship operators that have a fleet of more than 130 vessels that employ Canadian sailors. The fleet navigates the St. Lawrence River, the Great Lakes and the east coast, in addition to serving the Atlantic and Arctic provinces. Our members provide thousands of people with quality jobs and generate significant economic spinoffs in Canada.
According to a study carried out by the Council of Canadian Academies, the Canadian shipping industry employs between 78,000 and 99,000 individuals and generates between $3.7 billion and $4.6 billion in employment income. Just the activities of the inland fleet, which operates on the St. Lawrence River and in the Great Lakes—the area generally covered by our members—create more than 44,000 direct jobs and generate more than $2 billion in provincial and federal revenues. Therefore, the domestic marine industry plays a a key role in the competitiveness and prosperity of Canada and of the entire North American economy.
It is important to point out that marine transport operations between various Canadian ports are covered under the Coasting Trade Act, whose aims include supporting domestic marine interests by reserving the coasting trade of Canada to Canadian registered vessels. That information comes directly from Transport Canada's website. Among other things, the act stipulates that transportation between two Canadian ports must be provided by Canadian-flagged vessels with Canadian crews.
In the United States, since 1920, the Merchant Marine Act, better known as the Jones Act, has been protecting the U.S. domestic marine industry by ensuring that coasting trade is handled by U.S.-built vessels that are U.S.-flagged and U.S.-owned, and are operated by U.S. crews. Many other countries around the world, including European countries, have laws that protect their market.
It should be noted that, during the negotiations that led to the economic agreement with Europe, countries of the European Union did not open their market to Canadian ship operators. Only Canada agreed to concede a portion of its market, with no reciprocity.
When a country opens its market to foreign partners that do not operate based on the same rules and are not subject to the same requirements as Canadian ship operators with Canadian-flagged vessels, that favours foreign ship operators at the expense of the very competitiveness of our ship operators and domestic interests.
According to a study carried out in 2015 by Ernst & Young and Innovation maritime, the crew costs for European vessels authorized to operate in Canadian waters under the economic agreement represent only 30% of the costs of a Canadian crew. The wage gap between Canadian crews and crews from other countries, including those provided for under Bill , will be even larger.
This is the second time in less than a year that amendments have been proposed to the Coasting Trade Act. The first time was under Bill , which concerns the implementation of the economic agreement with Europe. The second time was through this bill, which makes certain concessions for the European Union that are criticized by the domestic marine industry.
Canada must also take action to protect its marine industry and refuse to give up its market to foreign companies. This is a matter of the vitality and sustainability of Canada's domestic shipping industry.
I want to mention that, during the latest electoral campaign, the Liberal Party wrote to us that it had no intention of amending the Coasting Trade Act and even recognized the importance of the act for the market. St. Lawrence Shipoperators feels that free trade agreements generally benefit the Canadian economy and supports Canada's efforts to increase trade and the competitiveness of its economy. However, we are concerned about the consequences of loopholes in the Coasting Trade Act and concessions made in trade agreement negotiations that affect the domestic marine sector.
St. Lawrence Shipoperators and its members, as well as a number of stakeholders and industry representatives that participated in the work of the industry-government working group on the implementation of the economic agreement, have repeatedly expressed their concern with regard to the system's effectiveness and the measures currently in place to monitor and effectively control foreign vessels' coasting trade activities. Many examples and situations justify those concerns. The addition of new coasting trade activities in the economic agreement or any further opening of the Coasting Trade Act is of little comfort in that regard.
We have requested the establishment of an oversight system on a number of occasions. The request was also made to the Standing Senate Committee on Foreign Affairs and International Trade, which studied Bill . There was even a recommendation to that effect.
So it is essential that an oversight system be established and that it include all the government departments and agencies involved, meaning Transport Canada, the Canada Border Services Agency, the Canadian Transportation Agency, Immigration, Refugees and Citizenship Canada, and Employment and Social Development Canada.
St. Lawrence Shipoperators has always been opposed to any opening of the Coasting Trade Act that would allow foreign vessels to transport cargo between two Canadian ports. Unfortunately, we are witnessing a gradual erosion of the act.
This market is reserved for Canadian vessels that, pursuant to regulatory requirements and Canadian standards, are designed, built and refined to handle the numerous challenges of navigation in Canadian waters and waterways. With their adherence to those standards, some of the highest in the world, Canadian vessels are making navigation safe and protecting the environment. These national vessels are operated by crews that are solely and exclusively composed of Canadian mariners, who are among the best qualified and best trained in the world. They are knowledgeable of and experienced in navigation in Canadian waters and they are aware of the challenges inherent in sailing here. Reaching those high standards ensures greater safety and respect for the environment. But that comes with significant operating costs that Canadian shipowners must bear, unlike many other foreign owners.
The particular circumstances of the Great Lakes and the St. Lawrence Seaway, economically and in terms of both maritime and environmental safety, requires that the protection measures, of which the Coasting Trade Act is part, must be maintained.
So it is important to preserve maritime jobs and the expertise that has been built in Canada over centuries. Opening the Coasting Trade Act is risking the loss of priceless knowledge and economic wealth that is of direct benefit to companies and workers here.
For those reasons, St. Lawrence Shipoperators and its members oppose any opening of the Coasting Trade Act and any change to it. We are asking for a single body to control and oversee cabotage activities to be conducted in Canadian waters by foreign vessels.
When you look at the industry as a whole and you start opening up cabotage to foreign carriers, it has a snowball effect. The rates conditions and working conditions on board foreign-flag vessels, and some of these are actually first registry European vessels, second registry European vessels, and especially Ethos sea vessels, are far below what the standard is in Canada.
We have vessels that are currently... There's one in Vancouver where the wage rates on board are as little as $2.50 per hour. We have other scenarios where we go from $1.75 an hour and up. When you look at the working conditions, the safety conditions, the environmental standards, and everything else on board these vessels, it's very lax.
There is no international control on flag of convenience vessels. That's why they're called flag of convenience. The owner of the vessel is in one country. The beneficial owner, the registered owner, is in another country. Their crew could be from three or four different countries. The insurance agent is from another country. There are layers and layers in order not to get to that real beneficial owner.
I'll keep this brief. We've had situations where people have been hanged on board ships, on flag of convenience ships, in order for them to avoid Canadian standards or any other standards. There is a huge discrepancy and there is no control over what goes on aboard those ships, because a lot of it is left to flag state control.
When you look at the flag of convenience countries, the flag state control does not exist. A seafarer who is injured, a seafarer who is cheated wages, a seafarer who has anything on board that ship, who lacks food, who lacks anything, has to look at an outside resource such as the ITF in order to try and get that fixed, and it's a long difficult process because it's the Wild West in shipping.
Shipping was the first globalization industry, and we certainly understand trade. We understand everything else. Our industry is built on trade, but you cannot compare Canadian flag and Canadian conditions, which thank God we're in Canada, to an FOC or a foreign-flag vessel.
Thank you, Madam Chair.
I have to say as well, thank you, folks, for coming out today. You represent the “how” of executing trade quota strategies. I again want to thank you for that, for being here, but as well for the future efforts you guys are going to participate in to really ensure that those strategies are put in place and executed.
Mr. Given, you answered the first question I was going to ask, and that was on labour conditions. I've always looked at things under a triple bottom line lens: economic, environmental, and social. In your opening dialogue you talked about the economics of this issue. You talked about, to some extent, the environmental side of it as it relates to an integrated transportation network that includes shipping, which of course is the most environmentally friendly mode of transport. The last part was social and labour, and of course you touched on that.
The next part I want to touch on, the question to all of you, is how then the dollars follow the strategy. Currently, as part of Bill , we are looking at positioning Canadian ports to be allowed to access the Canada infrastructure bank, which includes financial instruments to help fund expansion, sustainable infrastructure projects—somewhat the business you're in, Ms. Clark—to ensure that dredging occurs in those areas that need to be expanded upon for bigger vessels with a lot more draught needed. Do you feel that this will be of assistance to Canadian ports being more competitive? That's my first question.
I want to expand my question to also include, not just Canadian ports, but the world of ports. There's an anomaly that we call the St. Lawrence Seaway. I say anomaly because, at least in my part of the world, the Welland Canal, albeit a port, is not technically considered a port.
To some extent, when it comes to its management of asset, in my opinion, it's not up to par, not being abided by. Therefore my question is, when you take all of that into consideration as part of the whole network, do you think, firstly, that under Bill it is appropriate to have those dollars available to the Canada infrastructure bank? Secondly, is it appropriate to have investment dollars at the ready to expand the St. Lawrence as well as the Welland Canal?
If I may, I wanted to touch on what you talked about with regard to a Canadian owner who owns a foreign-flag ship who decides to flag his ship outside of Canada. There are many. They do it for many reasons, not just crew costs. They do it for taxation. To flag a ship outside of Canada, Liberia or Panama or somewhere, your taxation costs are minimal. You usually pay, like with the Marshall Islands, $1,000 to fly their flag, and thank you very much and have a nice day. They'll tax you a bit on something, but it's not much, not compared to Canada.
You also have safety standards. The International Labour Organization, ILO, and the International Maritime Organization set minimum standards. They're not maximum, they're minimum. Not all flag states participate or are signatory to the ILO conventions. Their wages may actually be below the ILO minimum.
When it comes to the IMO enforcing ballast water, emission treatments, sulphur, you have Canadians who are investing millions and billions of dollars to renew their fleets, to bring those environmental standards up. Whereas the norm is that on the international stage on the older ships, you burn the lowest, cheapest gas you can buy. It's the throwaway that you can't burn anywhere else, and the emissions are high.
If you take Canadian ships as the perfect example, with the new tonnage, the new scrubbers, and the new emission controls, you're taking 500 to 600 trucks off of the road and putting that cargo into a vessel, or dredging with Canadian dredges. Your environmental footprint is less. Your social impact, of course, is doing business in Canada, which we all expect. There are many, many things other than just wage rates. Taxation is a huge one when it comes to flagging the ships offshore.
As I said earlier, I was fortunate enough—and I still am—to be involved with the ITF and to inspect foreign-flagged vessels that come into Canada and travel around the world. There is absolutely no comparison. You have 5% of the owners who run foreign-flagged vessels who are good owners—I'll stretch it to 8%—and then you have that great big group who aren't, and there is no control.
You have a ship flagged Panama that never goes to Panama. Who's inspecting it? Who's making sure that the safety regimes and everything are in place? If the ship comes to Canada, port state will control for Canada, thank God. Transport Canada, which does a great job, will go down and inspect it under the international conventions. It may still not be up to the Canadian standard, but it may pass the international standard.
If you look at the database for Transport Canada on ship inspections, you will see a list hundreds of ships long and how they've been detained when they come to Canada for no firefighting, no pollution control, no food, no this, no that. They get caught when they come here, but flagged Panama, flagged everywhere, there's no inspection regime; the ship never goes there.
I'm not a geography major, but I know a ship flying the Marshall Islands flag has a heck of a time getting to Reston, Virginia. The controls aren't there. I make light of it and I shouldn't, because it's a very serious situation.
In Australia just recently, there was a foreign-flagged vessel running in their cabotage with two crew members dead, because they couldn't get medical care. It happens all the time, all around the world, and I don't think it's something we want to be a part of.
Thank you Madam Chair and members of the committee for the invitation to speak with you this evening.
My name is Mike McNaney and I am vice-president of Industry, Corporate and Airport Affairs at WestJet. Also with me this evening is my colleague, Lorne Mackenzie, senior manager, Regulatory Affairs.
On behalf of over 12,000 WestJetters, we are pleased to participate in your deliberations with respect to Bill and the critical role that companies such as WestJet play in connecting the economies and people of Canada to each other and the rest of the world.
Our investments and growth over the last 21-plus years have led to downward pressure on airfares, market stimulation, and incredible job creation in many sectors of the economy, including aerospace, tourism, and regional economic development.
Our success in a very tough, low-margin industry is a testament to our frontline employees who strive every day to provide our guests with quality service.
Our award-winning culture of care and guest service is a source of tremendous pride. It is not just what we do; it is who we are, and it influences our approach and our respect for the obligation we have to ensure our social and economic licence is strong.
In addition to various awards over the years, this year we were very pleased to be recognized by TripAdvisor as the best airline in Canada and a Travellers' Choice Award winner for mid-sized and low-cost airlines in North America. As members know, this award is based on authentic reviews by the travelling public.
Before providing you with an overview of our views on the legislation, I want to provide a broader context of WestJet operations today.
WestJet is in the midst of an extraordinary evolution from the carrier that launched in February 1996 with 200 employees, three aircraft, and five destinations, all in western Canada. In 2016, we carried over 20 million guests. Getting 20 million-plus guests where they need to be, safely and on time, is a logistical and operational challenge. Things will go wrong, and we do our best to get it right when they do.
We operate approximately 700-plus flights a day, carrying approximately 70,000 guests daily, with a WestJet plane departing approximately every two minutes. Our current fleet consists of 161 aircraft, including Bombardier Q400s, as well as narrow body and wide body aircraft from Boeing. This year we begin taking delivery of the newest version of the 737, the 737 MAX, and in 2019 we take delivery of our first 787 Dreamliner. With respect to the Toronto-manufactured Bombardier Q400, next year we will bec