TRANSPORT COMMITTEE REPORTS RAIL TRANSPORT BILL BACK TO HOUSE, STAKEHOLDERS UNHAPPY WITH CHANGESThe Hill Times / April. 19, 2103 by Daniel Leon Rodriguez

After more than a decade of battle between rail shippers and rail companies to create a fairer rail freight environment, the two industries are still at odds over the government’s move to address the issues under Bill C52.

“This is a bill shippers have asked for a long time,” Conservative MP Larry Miller (Bruce Grey Owen

Sound, Ont.), chair of the House Transport Committee that studied the bill, told The Hill Times. “It’s fair to say that neither side is totally happy with the bill.”

Bill C52, the Fair Rail Freight Service Act, which was first introduced in the House in December and is now in the House at report stage, addresses years of complaints that Canada’s shipping industry had against the monopoly the railway industry has on transporting goods. The bill forces both parties to enter into service agreements to clearly spell out what each can expect from the service. For example, how many number of train cars will be used to ship the goods, when it will arrive and for how much. This was not the case previously, said Robert Ballantyne, chair of the Coalition of Rail Shippers. “The shippers’ only option is to live with whatever the railway is prepared to provide them,” he said.

Transport Minister Denis Lebel (Roberval Lac Saint Jean, Que.) explained on Feb. 12 at the Transport Committee that the bill will provide a framework for shippers and railways at the moment of negotiating a service level agreement and creates an arbitration system in case negotiations are unsuccessful through the Canadian Transportation Agency (CTA).

“We are not dealing with the normal free market,” said Mr. Lebel. “It is therefore necessary to use the law to give shippers more leverage to negotiate service agreements with the railways.”

Mr. Ballantyne, whose coalition represents 18 industry associations, told The Hill Times that the bill is moving in the right direction, but can be improved.

Liberal MP Ralph Goodale (Wascana, Sask.), who has attended most of the committee hearings, told The Hill Times that the fine print needs to be looked at in the bill. Mr. Goodale explained that without amendments the legislation would be “weak” and “the whole thing would fall down.”

For example, Mr. Goodale said, the bill doesn’t specify what services the railways would be obligated to negotiate with shippers.

“Without specifying the elements of service that a shipper needs, an arbitrator will have no direction in a process,” Pierre Gratton, president of the Mining Association of Canada, told The Hill Times.

Mr. Ballantyne introduced the CRS’ amendments to address that issue to the House Transportation Committee at the end of February.

NDP MP Olivia Chow (Trinity Spadina, Ont.), her party’s transport critic, told The Hill Times in an email that if changes are not made, there would be “loopholes in favour of the rail companies.”

The Transport Committee reported the bill back last Thursday with no amendments. Representatives from the mining, forestry, grain, and chemical industries said they were “captive customers” of the railways because they have to move tonnes of commodities and their only viable way is through rail. According to Transport Canada up to 70 per cent of freight moved on land is by rail.

“They impose conditions on their customers that wouldn’t exist if there was a more balanced marketplace,” said Mr. Ballantyne.

Ron Bonnett, president of the Canadian Federation of Agriculture agreed. “There is not much of a negotiation,” he said. “They can decide whenever or not to sit down, and when they do they hold all the cards in terms of what service level agreements might consist of. They can agree to certain things or not at all and walk away.”

David Lindsay, president of the Forest Products Association of Canada, told The Hill Times recently that the industry is not asking the federal government to interfere in private negotiations, but rather to make the environment fairer.

Michael Bourque, president of the Railway Association of Canada, said that the shippers’ coalition is “spinning” the situation. “They try to characterize us as big and unfeeling companies and it is just inaccurate.”

Claude Mongeau, president of CN, told the Transport Committee that shippers are ignoring the “network” nature of the business which has to balance its service to be able to provide services to all shippers in an area.

“Railroads are not a taxi service. We cannot switch every customer who is first on the rail line. If we don’t take into account the operational and the

network nature of our business, we might just create a very slippery slope that will not be good for Canada,” said Mr. Mongeau.

Mr. Bourque explained that “there has been a renaissance of railways” in the last couple of years thanks to the deregulation of the industry 25 years ago, and create new regulations would be a “back step” that could “threaten” railways’ ability to continue making improvements.

Among the changes he pointed out are the shift from an only North American market to a global one, the implementation of “precision railroading” strategies, the investment in infrastructure, and the continuous adaptation of the railway business of the deregulation process. He explained that today railways are “fully focused” on improving the relationship with their customers. “It is unfortunate that [for shippers] to make their case they’re citing the two per cent of the cases where there was a shortfall in [service level] fulfillment,” said Mr. Bourque. “You can’t create a piece of legislation with the three to five per cent of the cases.”

However, Mr. Gratton said the railways made the changes because “there was a gun up to their head.”

Mr. Lebel explained that the bill would create an administrative penalty system for railways for not providing the agreed levels of service with shippers.

Under the new legislation, railways could face penalties up to $100,000 per violation to the operational terms agreed with shippers.

The penalty regime will be, according to Mr. Lebel, “fast, efficient, and inexpensive.” This would be “a strong financial consequence to ensure railways are held accountable without creating unnecessary legal risk,” said Mr. Lebel.

According to an independent report produced for the Rail Freight Service Review Panel there are more than 5,000 shippers using CN and CP from which 4,239 of them are listed as “small” or “very small.”

Because the majority of shippers are “small” companies, Western Canadian Shippers’ Coalition chair Ian May told the Transport Committee it makes it hard for them to face the railways in the courts.

NDP MP Mike Sullivan (York South Weston, Ont.) said that the bill will try to provide a method of dispute resolution between shippers and railways without having to go through court all the time.

“Without this bill the shippers have virtually no power, and they are completely overmatched by a very deep pocket set of railways that are unafraid of going to court and spending years in litigation,” said Mr. Sullivan who is a member of the House Transportation Committee. Mr. Ballantyne said that it’s in the government’s interest to “impose discipline”

on the situation. “The shippers would much prefer much to have a consistent service than having to sue for them for damages,” he said.

Fiona Cook, business director of the Chemistry Industry Association of Canada, said the fine system would bring more reciprocity between shippers and railways. At the moment “the railway can put penalties on shippers for not making up their obligation but not the shippers to the railways,” she said. “There is no similar stick, a similar penalty to say you have to pay this if you don’t show up on time.”

Michael Murphy, vice-president of government affairs of CP, said to the House Transport Committee that railways have been able to improve their relationship in the last few years with shippers without regulations. Therefore, he said, this bill shouldn’t be passed.

Mr. Murphy cited a survey by Supply Chain Surveys Inc. last year that found 72.5 per cent of shippers reported 95 per cent or better on time departures and on time arrivals performance from their carriers, and a survey by RBC Capital Markets this year which found that 69 per cent of rail customers rated rail service as being “good” or “excellent”—up from 58 per cent in the previous year.

“We are doing really well into a commercial context. The legislation which goes from the commercial context to a legislated solution is a backward step and we don’t know what impact that would have in the business but it is potentially negative,” said Mr. Bourque.

The bill is scheduled to be debated in the House on Thursday, April 25.

drodriguez@hilltimes.comTwitter: @DL_RodThe Hill Times