Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 12 - Evidence - May 2, 2007
OTTAWA, Wednesday, May 2, 2007
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-11, to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other acts, met this day at 6:15 p.m. to give consideration to the bill.
Senator David Tkachuk (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: Welcome, honourable senators and gentlemen, and thank you for coming today. We have with us today Bob Ballantyne from the Canadian Industrial Transportation Association; Ian May of the Western Canadian Shippers' Coalition; and Cam Dahl, Director of Government Relations for the Western Grain Elevator Association. I believe we are also expecting Avrim Lazar, President and CEO of the Forest Products Association of Canada.
We will start with Mr. Ballantyne and then go from there.
Bob Ballantyne, President, Canadian Industrial Transportation Association: We appreciate the opportunity to discuss Bill C-11 with you today. I do not propose to read my submission, which was sent to the clerk on Monday, and I understand it has been distributed in both official languages.
First, I want to say a brief word about the Canadian Industrial Transportation Association, CITA. It was founded in 1916 to represent the concerns of Canadian industry with regard to freight transportation issues by all modes. Our 116 member companies are from most major industrial groups, from mining to retail, and are from all regions of Canada. Many of our companies are household names, and you will see our membership list attached to our written submission.
CITA was founded in 1916 and, despite appearances, I was not there at the first meeting of CITA in that year. I also note that CITA and the other associations appearing before you today are members of the Coalition of Rail Shippers, which is a coalition of 17 industry associations whose members, conservatively, account for over 80 per cent of the revenues of Canadian National and Canadian Pacific railways.
This coalition has many concerns about the rail freight provisions of the Canada Transportation Act. As the Minister of Transport mentioned to you last week at this committee, shippers are looking for changes to the act to rebalance the bargaining power between shippers and railways. That subject will be for another day.
We also work closely with many other industry associations, and I want to mention that the Canadian Fertilizer Institute, CFI, and the Canadian Chemical Producers' Association have both indicated to me that they support the CITA brief that was given to you earlier this week.
I want to summarize briefly the four points that we raised in our brief with regard to Bill C-11. In the written CITA brief, so there is no confusion, when I mention section numbers, these are section numbers of Bill C-11, not the section numbers of the act.
First, in the policy statement, the revised wording in clause 2 of Bill C-11, which amends section 5 of the act, achieves the goals of updating and simplifying the wording, but at the same time retaining the intent consistent with the policy statement of the Canada Transportation Act of 1996. This intent is of fundamental importance in protecting the jurisprudence that has evolved since the National Transportation Act, 1967. CITA supports that policy statement as proposed in clause 2 of Bill C-11.
Clause 7 of Bill C-11 to amend section 36 of the act deals with mediation and arbitration. Clause 7 was introduced without consultation with the shipper community during the committee stage in front of the House of Commons Standing Committee on Transport, Infrastructure and Communities. The shipper community does not support the inclusion of clause 7 for five reasons mentioned in the CITA brief.
In addition, the Canadian Fertilizer Institute has provided additional comments. I have given copies of those comments to the clerk and he will circulate them when they are translated into French. I will read those comments from the Canadian Fertilizer Institute now.
They say, in regard to the commercial dispute resolution, CDR, and the implications for the clause 7 of the bill:
In particular, as the lead association on the CDR discussions between shippers and railways, CFI would state that the amendment is an attempt to push shipper associations into accepting a CDR regime that would restrict application to the minority of their members' rail freight movements, i.e. is Canadian domestic traffic only. CFI was very clear from the beginning that inclusion of all Canadian-originated traffic —
that is, whether it ends in Canada, ends at a port or ends in the United States —
is essential, and —
this fundamental principle —
is supported by Canadian and international law. The railways initially agreed, then pulled back, then came back with partial responses; this amendment has the effect of limiting shippers' negotiating ability to secure this critical element for the CDR, and needs to be withdrawn.
CFI is very disappointed that Transport Canada has taken this role in what was supposed to be commercial negotiations. We would express the concern that the Agency could be drawn in to establishing similar regulatory policy making decisions whenever they make decisions under the auspices of the so-called ``commercial'' arbitration. This is a significant change in the balance between shipper-carrier interests, and needs full discussion by all parties.
The bill was not discussed when the bill was before the House of Commons. We certainly would prefer to see clause 7, amending section 36 of the act, withdrawn.
Clause 12 of the bill, amending subsections 53(1) and 53(2) of the act, deals with a statutory review of the act. With the current four-year statutory review report having been tabled in 2001, as required by the 1996 act, amendments to the act still have not been made and we are now in mid-year 2007. The proposal to change the statutory review to an eight-year starting period from four years we think is a significant step backwards.
CITA does not support the revision proposed in clause 12 of Bill C-11, amending and recommends that the provisions that are in the act now should remain. CITA recommends that clause 12 be deleted from Bill C-11.
Finally, I want to talk about review of railway service quality. There has been a serious deterioration of rail freight service quality by the Class I railways over the past number of years, probably going back at least seven years. In their submission today, the Western Grain Elevator Association, WGEA, will make recommendations regarding the inclusion of an independent review to be included in this bill. CITA endorses and supports the WGEA recommendation.
That is the end of my remarks. At the appropriate time, we are prepared to deal with any questions the members wish to ask.
The Deputy Chairman: Are there any parts of the bill you liked?
Mr. Ballantyne: We said we liked the policy statement as it is written. The provisions of this bill as they relate to freight transportation are the significant issues of concern to us. The other issues regarding, for example, aviation matters, the issue of the way rates are advertised, the way that the commuter operators would have access to railway property and so on, we have no comments on those clauses of the bill.
These clauses are the ones we wanted to stress, and we have no particular comments to make on the remainder of the bill.
Avrim Lazar, President and CEO, Forest Products Association of Canada: My apologies for being tardy. I was told I should blame security, but that would be cowardly; it was my own fault.
I can say right off the forest industry of Canada has little to say about commuter traffic, seeing as one cannot commute to our mills. They are a long way from downtown, and we ship little product by air, so we will deal with the freight shipment parts of the bill.
I will divide my remarks into two parts. The first is general remarks about the materiality of this industry; what does it mean to Canadians? The second part is remarks specific to the bill.
On materiality, the forest industry employs 300,000 people and another 600,000 jobs depend upon it. These jobs are in rural areas, which are irreplaceable.
As everyone in this room knows, we sell 60 per cent of our products in the global marketplace, which means we compete with the likes of Indonesia, China and Brazil. It is a hard business. The only way we succeed is by innovating and reducing costs. We have done that year after year, and we are the most successful forest products exporting nation in the world.
Rail transportation is 20 per cent of our fixed costs. We are far away from town; we must put our stuff — the two- by-four lumber, the newsprint rolls and the pulp rolls — on a train to deliver it to market. Ninety per cent of our mills are captive to a single railway.
Monopolies are bad things. They are bullies; they overcharge and they can destroy the economies of towns. The railways are good. CN is great and CP is great. Giving them a monopoly is a big mistake because they do what every monopoly does — they overcharge.
We would not mind being overcharged if we could pass it on to our customers and let them worry about it, but we cannot; we sell in the global marketplace. We conducted an objective, arm's length study to determine to what extent we were overcharged. The answer was, for our industry only, $280 million a year. That amount is over and above the normal rate of return. In addition to a healthy profit, the railways are taking an extra $280 million because there is no competition.
We cannot afford this rate. It is killing rural towns. Rural towns depend upon the cheapest possible transportation. We want the railways to make money. We want them to invest money. We want them to continue to be exceptionally good, as they are, but they cannot pocket the extra money. They can only take what they would take if they had competition.
This problem is not a railways problem; it is a government problem because successive governments have failed to put into place measures to force some sort of market discipline on rail transportation costs.
At this point, I will bang the table: done. I was told I should stomp my feet and bang the table, so I want the record to show I did not actually stamp my feet.
Going to the bill itself, the eight-year period is a profound mistake. Global commerce changes quickly. Thomas Friedman said in one of his most recent books that we have moved from a world in which the big eat the small to a world in which the fast eat the slow. If we make this provision a critical part of our competitiveness as a country — if we put it in concrete and only review something as important as this act every eight years — we are saying we will be slow, clumsy and incapable of adjusting to changes in global reality. I think four years is a maximum period to review this act.
Two, like all our colleagues, we object to clause 7 of the bill being introduced without any consultation with the shippers. Clause 7 sends things to the agency. It is shocking that you would ignore the uses of the railways, but had we been consulted we would have said ``bad idea.''
Three, we want to see — and it is not in this bill so we hope to see it in successive bills — the expansion of final offer arbitration because that seems to be the only competitive mechanism that has some influence.
Four, we would love to see a legislated service quality review.
I will talk now about service. We have a mill. People chop down trees, the trees go to the mill and out comes rolls of pulp. We must put them on a car or send everyone from the mill home. We have no place to put this stuff out in the bush. Unless we know that we will receive quality service and good cars when we need them, we cannot do our business. Because we deal with a monopoly and because 90 per cent of our mills are captive to a single rail line, we take whatever they give us. If we complain they say, see if you get a car next week. We want to see a service review.
We are not criticizing the railway. They are doing their job well. However, they behave like every other economic monopoly in the world. They exploit their customers.
Cam Dahl, Director of Government Relations, Agricore United, Western Grain Elevator Association: Thank you for inviting us to give our views on the bill.
I have a quick correction. I am not employed by the association. I work for one of the members of the association, Agricore United, in government relations.
The WGEA is an association of eight farmer-owned public and private grain businesses operating in Canada. Collectively, we handle in excess of 90 per cent of Western Canada's pulp grain exports. Our members account for approximately 20 per cent of railway revenues in Canada and pay a total freight bill in excess of $1 billion a year each year.
The WGEA has two specific recommendations for changes to Bill C-11: First, to add a section to enshrine a railway level-of-service review into law; and second, to reduce the statutory review period from eight to four years.
I will give you some background to put these recommendations into context. Farmers and grain companies have invested heavily in the western grain handling system in the last 20 years. In response to railway demands for consolidating shipping points, grain companies constructed high throughput elevators with the capability of loading up to 100 cars in 24 hours, and closed hundreds of small country elevators in the Prairies.
This was done with the promise of greater efficiency in the system and better rail service to the elevators. Unfortunately, more than ever, we find ourselves struggling to meet contractual commitments due to railway shortfalls, inefficiencies and failures.
The current federal legislation does little to assist in correcting these deficiencies. Transportation services result in extra costs. These extra costs are seen through additional country elevator staffing required to meet loading requirements when delayed cars finally arrive and staffing requirements put in place when cars do not arrive.
We also see increased costs at the terminals due to lack of reliability of arrival times, vessel demurrage and contract penalties when grain does not move into port to meet our contractual commitments.
There is also a cost, one that is difficult to measure, from lost sales opportunities or sales delayed beyond premium price periods. This cost is exacerbated as Canada's reputation as an unreliable supplier grows.
Canadian shippers face an accountability problem. For example, companies are required to load 100-car unit trains within 24 hours or 50-car unit trains in 10 hours to achieve efficiency-rate incentives from the railways. In addition, once cars arrive at terminal port positions, operators must unload cars within 24 hours or are subject to railcar demurrage.
We do not think these financial accountability measures are bad. They are a good thing as they increase and promote efficiency.
Unfortunately there is no corresponding accountability on the railway side for failure to spot cars or deliver cars to the terminals within a specified time. Simply put, there are no penalties for a railway if it fails to provide service.
As shippers we are captive. A grain company situated on a railway line has little choice but to ship on that railway. Service will be offered under terms that minimize railway costs, not necessarily to meet the transportation needs of the grain industry. The assumption is that the grain will move eventually. The negative impact of untimely movement on the operation of grain companies and farmers is not a factor in service decisions.
Again, as my friends said, the railways are not operating in an unpredictable manner. They are maximizing their returns in the current legislative environment and cannot be expected to change behaviour until federal transportation law is amended.
The WGEA is a member of the broad coalition of rail shippers. On May 5, 2006, an agreement was reached between the government and the coalition on the types of changes that should be made to the Canada Transportation Act. The changes were intended to address railway service problems before they occur, primarily by changing railway behaviour through greater accountability, and also to improve upon the shipper remedies once an incident occurs.
The May 5 agreement also included a commitment for a detailed review of the level-of-service and railway accountability concerns within 30 days after the passage of a rail bill.
While the government had initially signalled that it was prepared to take the legislative action outlined by shippers, we have grown concerned that our requirements for improvements are being pushed off the table. We are concerned that the rail bill may not be introduced or even worse, that it will not come close to reflecting the May 5 agreement. We are also concerned that the level-of-service review may not be considered.
How does this information relate to Bill C-11? It is important to state that Bill C-11 alone will not address the poor rail service and general lack of accountability. However, the two amendments we propose would help achieve a small portion of the necessary balance.
The May 5 agreement was a compromise, an agreement of what could have been brought into the Canada Transportation Act to begin to resolve problems such as the lack of accountability. No shippers around the May 5 table believed that the compromised solution would solve all the problems.
This is why the level-of-service review is so important. A rapid review would allow the industry and government to quantify the impact and service shortfalls, to cross all sectors in the economy, to identify roadblocks to reliable rail service and to identify legislative and non-legislative solutions to correct service shortfalls.
At the May 5 meeting, representatives of the minister's office agreed that a level-of-service review would begin 30 days after the passage of the rail bill. Given the elapsed time and given that a rail bill has yet to be introduced, let alone passed by Parliament, and given that the key elements of the May 5 agreement appear to have fallen off the table, we ask the Senate to amend Bill C-11 to make this review statutory.
We no longer have confidence that this critical element of the May 5 agreement will be carried out unless it is required by law. We believe that Bill C-11 is the appropriate legislative vehicle to introduce the statutory review into the Canada Transportation Act.
For example, Bill C-11 already anticipates changes to the review and parliamentary reporting processes of the Canada Transportation Act. Again, clause 11 of the bill amending section 52(1) of the act deals with the industry overview and industry review. Clause 12, amending subsections 53(1) and 53(2) of the act, deals with the amendments of the statutory review process.
Some might suggest that the requirement for this review be left to the railway bill. I am concerned that if this course of action is taken, the argument will be presented that this amendment should have been included in Bill C-11 and the initiative will be lost.
The WGEA believes that clause 11 of Bill C-11 is the appropriate section in which to insert the requirement for a level-of-service review. We have prepared a draft amendment to the bill for your consideration that would accomplish the goal. I will not read the amendment but it is included in our written brief, which I believe has been circulated.
My friends have already outlined why we believe that the statutory review period should not be extended and, given the current climate of rapid economic change in the global markets, it would make more sense perhaps to shorten the review.
I will not go through the reasons again, but, as has been pointed out, the last review was tabled in Parliament in 2001 and we have yet to see the required legislation presented to Parliament.
The WGEA therefore agrees with the other associations represented here that the statutory review period be initiated no later than four years after the coming into force of Bill C-11. In conclusion, our main objective is balanced accountability. The railway should be held accountable at the same level of performance to which they hold shippers. It is important to recognize that unless we have a railway accountability that results in significant improvements to the level of service that shippers receive we will continue to see an erosion of our competitive position in the international markets. I mentioned previously that Canada has developed a reputation as an unreliable supplier: that is the case in the grain market. We are not viewed as a country that can be relied upon to supply the product when we say it will be delivered. That reputation is costly to the grain industry and to farmers. Service shortfalls result in lost grain sales domestically and internationally. There is lost revenue because grain will be sold outside of peak price periods, and there is a large potential for significant vessel demurrage bills, lost confidence in Canada as a supplier and higher costs to farmers. All these costs will make Canadian grain, oilseeds and special crop production less viable. As a first step, a railway accountability level-of-service review is required to understand properly problems faced by shippers, and hopefully the review will include positive recommendations for change.
Ian May, Chair, Western Canadian Shippers' Coalition: Mr. Chairman, honourable senators and colleagues, thank you for taking the time to listen to us this evening as we comment on Bill C-11. I will not reiterate what you have heard. You can understand that the complaints of shippers will be similar. Unaccustomed as I am to doing this, I will read from my prepared text.
I want to mention that the Western Canadian Shippers' Coalition, WCSC, is a collage. It has forest products members and members that ship grain products but also coal and various other commodity products, sulphur included, to ports. We have a broader view and probably a broader exposure to railway monopoly behaviour than my two colleagues to the immediate right. Mr. Ballantyne's group is as diverse as ours. Our members account for 280,000 jobs in Western Canada and, two years ago, their products totalled $24.5 billion annually in sales, not an insignificant group.
As Mr. Lazar explained, there are costly ramifications to being subjected to the monopolistic behaviour of a rail carrier. While those costs have significant negative impacts on the bottom lines of commodity shippers, the damage goes further and deeper than that.
WCSC membership is comprised of a variety of shippers, and this broad spectrum of commodity products leads to interesting conversations around the board because it impacts different shippers in different ways. For shippers such as forest products shippers, when they expect and are contracted to receive 40 cars a week and those 40 cars are to be spread out from either Tuesday to Friday or Monday to Thursday and they all 40 arrive on a Friday, the railway puts a little checkmark, yes the cars arrived on time. Meanwhile, the shipper is forced to handle 40 cars that they have no capacity to handle. Their siding is probably equipped to handle 12. They have brought in extra shifts at the time to load these cars each of the expected nights, Tuesday, Wednesday and Thursday but finally on Friday, the cars arrive. Shippers have paid for overtime shifts because their contracts are constructed that way and finally all of them arrive on one night. They have no hope of loading those cars by the weekend and then they are charged the additional insult of a demurrage cost for those cars that sit unloaded over the weekend and into the next week. Meanwhile the railways have a checkmark noting the cars were delivered on time. This sort of behaviour has brought us to a state of frustration.
This group of shippers is utterly unique in that we compete with each other daily. We have different goals, aims and ambitions. We compete within and outside Canada, yet we have stuck together since May 5 and are still sticking together probably tighter than ever. There is only one thing that can bind us that way and it is the common abuse of a common enemy. I am not as kind to the railways as Mr. Lazar. They have taken a certain joy in their monopoly position. The phrase, ``we have been railroaded,'' comes from somewhere. They are not benevolent folks by nature and they do not act in benevolent ways. They not only hurt the shippers here, I would argue they hurt the national economy and the national reputation of Canada in more ways than grain shipments only. They are hurting in terms of lumber shipments and every commodity that our group represents.
I want to draw an analogy between a railway and a taxi cab. Railway people generally view it this way. If the railways are doing fine, we have a healthy economy and if the taxis are busy then the city is thriving, but railways and taxis do not drive the economy: they are barometers of the economy. For them to reap all the profit from the economy is damaging. The value of the goods being shipped by the railways is at issue here, and it is the volume and quantity of those goods that make Canada the robust trading nation it is today. It is historically true and it will be true for a long time. Anything that harms those commodity products harms Canada and I would argue we are sliding, as a nation, in terms of the backbone of this country, which is international trade. Unless that situation changes, we will continue to slide to the point where we cannot compete at all.
That is a serious accusation and a serious statement but it is not a false one. Unfortunately we cannot go up to railway managers, smack them across the head and tell them: ``Smarten up, you are hurting the country.'' They tend to respond to shareholder value and they do that because the Canada Transportation Act lets them do that. You have heard about two or three specific problems we have with Bill C-11 and you will hear more when the minister eventually introduces the changes designed to help shippers, but I will quote from an article that tells you what motivates railways and explains why they behave the way they do. The quote is from a 2006 analysis conducted by UBS, a private Zurich- based investment bank that does business in North America. They are commenting on the CSX Corporation, a railway that operates in the eastern United States:
Another aspect of operations that CXS now appears to understand is the operations vs. marketing trade-off and the fact that they need to be more inflexible with customers, in order to, ultimately, help them. This sounds counter-intuitive, but to use a simple example if we compare CSX with Norfolk Southern today, CSX provides customers with greater flexibility in terms of when and where it will pick up and deliver cars. Norfolk Southern, in contrast, will encourage/coerce customers into interacting with the railroad under its own terms and in a manner that benefits operations: i.e. fewer pick-ups and deliveries at times that maximize operating efficiencies. . . .
In brackets the telling phrase is:
Canadian National is the master at doing this and it's a key piece of its ``precision railroading'' culture.
Imagine ordering a cab and the drivers say they will show up when they bloody well feel like it or when they have another client to drop off in your neighbourhood so they can maximize their efficiency. That is the situation we face with railways.
I wanted to explain, in a little more detail, our concerns with clause 7 in Bill C-11, which enables the Canadian Transportation Agency to act as an arbitrator-mediator in disputes that involve the transportation of rail goods, and ancillary charges associated with transporting those goods. Mr. Lazar captured it well and Mr. Dahl also addressed it.
Clause 7 effectively imposes a regulatory regime on what is now a commercial dispute resolution process. One, it does not have the breadth to address disputes in the United States where most of our traffic goes, and two, it is re- regulation when we are supposed to be going the other way.
I do not know why it was introduced in the legislation at the eleventh hour, but if we had been given a chance to comment on it, we would have done our best to forestall it.
I will now talk about the May 5 agreement. Part of that agreement that has not been mentioned is shipper silence, in exchange for what was an arduous negotiation with Transport Canada officials and officials from the minister's office, which resulted in an agreement that is appended to our submission, and, I think, to other submissions.
As part of that agreement, shippers were to say nothing bad about Bill C-11: ``If you did not have something glowing to say about it, say nothing.'' We said nothing. We kept our part of the bargain and it went to the House of Commons standing committee unopposed and uncommented on. You are the only parliamentary committee that will hear the words we are saying about Bill C-11, because we gave up that opportunity when we were promised that the government would use the May 5 agreement as the basis of amendments to the act going forward. We have since been told there is a new reality and that will not be the case. Therefore, it is doubly important to us that we make our points with you today, and that you act on the points we make.
I will sum up my concerns. This information is almost redundant, but I will quote from our paper about the proposal to increase the statutory limit in terms of the review of the act. We said:
The proposal to increase the review period from four to eight years fails to take into account the speed at which domestic and international markets evolve, is clearly against the trend of current legislation and is more consistent with historic rather than progressive legislation.
Thank you for your attention, and like the others, I am ready to answer your questions.
The Deputy Chairman: I am from Saskatoon, and after your presentations, I have to say that I feel right at home.
Senator Zimmer: Gentlemen, thank you for your presentations. I will do the same and start from left to right, first to the Western Canadian Shippers' Coalition, Mr. Ballantyne. I want you to know I am a Scotch lover and I have always wanted to meet you. I am delighted to meet you tonight.
Your written submission recommends that a statutory review be initiated no later than four years after the coming into force of Bill C-11. Mr. May referred to the lack of consultation, but has your coalition been consulted in statutory reviews in the past? If so, in what capacity were you involved?
Mr. Ballantyne: Whenever there was a statutory review in the past, all stakeholders would have been consulted and would have had the opportunity to appear or provide briefs to whichever review panel was convened to conduct those reviews. In terms of the shipper community, it would have been largely either individual associations, as you see here today, or individual companies that wanted to make presentations.
One thing that my colleagues have alluded to is that, in the past year, partly at the urging of our friends at Transport Canada, we have come together as a much larger coalition of shipper groups, so that in the future, in any statutory review, I would expect we would make our briefs as individual associations but also as part of a much larger coalition.
Senator Zimmer: Mr. Lazar, Forest Products Association of Canada, your written submission states that section 7 will likely restrict the commercial dispute resolution process that is currently available by introducing unnecessary mechanism, with no consultation with shippers. However, the wording of the proposed section 36.1 and 36.2 states that the agency may mediate or arbitrate a dispute if requested to do so by all parties to the dispute.
Transport Canada stated that the bill gives the agency formal legal authority to conduct mediation, as they have done on a pilot basis for several years. The department has also said that shippers have full flexibility in determining whether and when they will use regulated remedies available to them.
I can appreciate the vulnerability of your members, given that most of them are faced with a monopolistic situation with respect to rail shipments. However, can you clarify why you take issue with the inclusion of these sections if they are meant to formalize an additional option for dispute resolution?
Mr. Lazar: Our experience is that when handling a commercial dispute and dealing with a much more powerful opponent, the opponent will obviously try to find any which way to stall, bully, et cetera. If they know that if they dig their heels in and the dispute can then go to the agency, then the temptation would be for things to happen that way. We see this commercial dispute resolution process as a clear signal from Parliament that we are headed in the wrong direction.
In contrast, final offer arbitration, in which both parties are on an equal footing because both parties hand in what they think is most sensible, takes away the excessive power of one party in trying to solve a dispute. Reason has power as opposed to economic might. We would much rather see it move in the direction of expanded access to final offer arbitration than sending it to the agency.
Senator Zimmer: Mr. Ballantyne, Western Grain Elevator Association, Transport Canada has said that Bill C-11's statutory review provision does not preclude a more limited review of the specific elements of the act prior to the eighth anniversary. The department cited reviews of grain handling and transportation policies in 1998 and 1999 that led to a number of grain-related changes to the Canadian Industrial Transportation Association in the year 2000.
Was your association involved in those reviews? If so, can you please comment on your perception of their effectiveness in addressing the issues at hand.
Mr. Dahl: First, to the point of consultation, I think the most famous review is the one that was conducted by Justice Estey. That process resulted in concrete recommendations that were brought forward, some of which have been implemented. That is a much longer discussion on which of the other reviews need to be referenced. Some recommendations that Justice Estey brought forward were to deal with issues relating to the use of monopoly power by the railways. Moving forward with some of those recommendations is important.
We feel strongly that it would be beneficial if this act were to include a statutory requirement for a level-of-service review. While this act does not preclude such a review, I suggest that because of the importance of this review to the economy in general, we should not leave it to chance.
Senator Zimmer: Mr. May, it is nice to see you again. In your view, what are the advantages of final-offer arbitration relative to remedies offered by the Canadian Transportation Agency? What do you consider are the advantages of final arbitration?
Mr. May: I am glad you asked that, because I wanted to give a supplementary answer to Mr. Lazar's response when you asked the question about clause 7 and our objection to it.
The advantages of final-offer arbitration are that it is a clean process that has a clear-cut winner and a clear-cut loser, which tends to send a chill through the participants to the point that serious offers are placed on the table, as opposed to standard arbitration, where one anticipates a movement to the middle by a mediator or arbitrator, and so one tends to take an extreme position. As a result, it cuts through of the nonsense and parties put their best offer on the table. In that sense, the process is much cleaner.
In regard to final-offer arbitration, many items up for final offer arbitration that can be settled that way, are included in the clause 7 empowerment in Bill C-11. The problem, in addition to what Mr. Lazar has pointed out, is if a member of the agency makes the decision on a rate or an ancillary charge, as an arbitrator between two opponents, a shipper and a rail carrier, that number will become public. Now, when an arbitrator looks through a final offer from a shipper and a final offer from a railway, they tend to go to other sources for their information and they tend to seek what would be reasonable.
If the agency has made a determination on an ancillary charge in a previous case, the chances are good that they will take that number, and that number will become enshrined. Unfortunately, that number may have nothing to do with the circumstances of the shipper and we have no doubt that the railways will use that number, particularly if it is lower than the number that the shipper has offered. That is a serious concern with that bit of legislation also.
Senator Zimmer: Can final-offer arbitration be used for disputes involving transborder shipments?
Mr. May: Yes; certainly.
Senator Zimmer: Thank you, gentlemen, for your candour.
Senator Eyton: All four of you seem much in accord. As I hear you and listen to your submissions, I think you are trying to make four or five points, all of which are important.
Bill C-11 is the second bill; Bill C-3, the first bill, was passed; and there is yet another one to come along, Bill C- something. Altogether, these bills will replace the act. The third part is loosely described as looking after freight rail provisions, whatever that may mean.
To what extent can the points you have made now be accommodated, as you imagine, in the third bill? It seems to me that you are covering the same track. You are close enough together that I think one response would do.
Mr. Ballantyne: I will take a shot at it. There has been some discussion by my colleagues about a meeting that was held on May 5, 2006. We are coming up to the first anniversary. At that meeting, a number of provisions were discussed, for example, the extension of final-offer arbitration to groups of shippers, which would be new; and covering other issues besides only freight rates. There was the issue also of being able to go to the agency on level-of-service disputes, which can be done now, but, again, this would extend the mechanism to groups of shippers.
Those issues were a couple we had discussed with Transport Canada and with officials from the minister's office. Our understanding from that meeting — and some of the Transport Canada people are in the room tonight — was that essentially those provisions would go ahead in a bill that would be introduced by the minister. We are almost coming up to the point of having a birthday cake with one candle on it because we have not seen that bill yet. We have been promised that bill within a few weeks, within a few weeks, and it is now going on to a year.
We expected those issues to be included. They were probably the main ones in terms of bringing back some balance to the bargaining power between the buyer and the seller in this market. The fundamental problem is that the rail freight market is not a normally functioning commercial market. There are not enough sellers in the marketplace. It tends to be what we characterize as a dual monopoly as opposed to duopoly. As Mr. Lazar said, most of his members have one railway serving their plants. Given enough time, and so on, there might be some competition, but not in any short- to medium-term. I hope that answers the question, senator.
Senator Eyton: It helps. Would you be reassured if you had assurances in one form or another that some of these issues would be dealt with in the third bill?
Mr. Lazar: We have had reassurances in some form or another for a year now, and our confidence in them has been shaken. That is our first point. However, we would be delighted and grateful to be surprised and realize that the minister had intended it and it is only the normal delays of business.
The four-year-versus-eight-year review is intrinsic to this bill, and we think it must be dealt with. We think that ossifying the system by saying it will stay the way it is for eight years is a big mistake.
Also clause 7 is pointing in the wrong direction. If the right stuff will be in the next bill, I do not know why we would point in the wrong direction with clause 7. If you are wondering whether clause 7 is fair and balanced, why were the shippers not consulted? Why do all the shippers and users of Canada's rail lines unanimously say, ``We do not want it?'' We must assume that the railways asked for it and this is a pre-emptive move for the next bill. Our confidence has been shaken, but we are hoping to be proven wrong.
Mr. May: If I may add to that point, the promise of a bill coming forward, while encouraging, is a fool me once, fool me twice situation. The Einstein definition of insanity, which is doing things the same way and expecting a different result, comes to mind.
It is not unusual to see legislation that has the appearance of being beneficial for shippers but has a poison pill embedded within it. I will give you a classic example and one we think is forthcoming in the bill. Competitive line rates, CLRs, were supposed to be the bane of railways when they were introduced, and it was thought they would ruin all railway profit. I think there has been only one or two in the history of the act since CLRs were introduced. The way the CLR amendment was phrased, it required agreement from a connecting railway. They had to bid on the traffic to apply for a special rate from the agency. Railways refused to bid; ergo, the remedy never worked.
In the upcoming group of amendments that includes multi-party final-offer arbitration, we are concerned with a phrase that we asked Transport Canada to remove, and they steadfastly refused to do so, namely, that the remedy must apply to all shippers equally. Whatever the remedy is for this group of shippers, it must apply to all of them equally. The remedy cannot possibly do that. They have different points of origin, traffic, and so on. It would be easy for the railways to take that issue to court. That is our concern about what is coming.
Senator Eyton: I have a comment. I do not need any discussion. Your objection to the statutory review going from four years to eight years in the circumstance where the act now says four years — it is now six years and we do not have a statutory review yet — I translate the change to eight years to mean another 50 per cent, so they are really talking 12 years. I think that is wrong.
Mr. Lazar: Would you indulge a comment on that?
Senator Eyton: Yes.
Mr. Lazar: About 20 years from now, when they look back at this Parliament, they will ask: Did we prepare Canada to compete in the new globalized economy? Did we prepare Canada for the flat economic global reality? Did we do stuff so that we could compete with Brazil, China and Indonesia?
This feels like an old discussion. The grain guys, the lumberjacks and the coal miners talk about the big, bad railways and the railways say, those guys are always whining.
It seems like a discussion as old as this building, but it is not. About 20 years from now, will we earn a living in this country or not?
When we object to four years, it is not a theoretical worry. This country is under stress. We need our railways to be competitive and subject to competitive pressures.
Senator Eyton: You got the sale.
Mr. Lazar: I thank you for that.
Senator Johnson: You give the impression that you think mediation favours the more powerful partner in this process. However, the brief to us by Mr. Lazar says that the commercial dispute resolution by private sector mediators has functioned well for years, so why would the result be different if the agency was the mediator?
Mr. Lazar: I will turn this over to a gentleman with more experience on this subject.
Mr. Ballantyne: Again, in a normally functioning commercial market where there is a reasonable balance between the buyers and the sellers, mediation and arbitration would take place as a normal course of events. However, if we have a situation where one party really is dominant, if they stonewall and decide they do not want to go to mediation or arbitration, they do not do it.
We can live with arbitration and mediation that can take place under normal commercial circumstances. We do not feel this is a place for the agency to be involved. Other comments that my colleagues have made as to what our fears are about this come into play. That is probably the best I can answer.
Senator Johnson: Does anybody else have a comment?
Mr. May: Senator Johnson, the commercial dispute resolution process that the railway has proposed that was spoken about earlier — it is on their websites now — includes the agency's participation. Our concern is that once the agency makes a ruling, even though it is stepping out of its agency role per se, the ruling will still be taken by commercial arbitrators. The agency does not do final-offer arbitrations. They will look to the agency to see what settlements have occurred in terms of ancillary charges and rates, and take those as the bible and the standard, even though they would not consider the circumstances of the participants in the new final-offer arbitration. We are worried about that situation.
Frankly, we are worried about more government involvement in what we are trying to make a more commercial relationship. Indeed, the minister has written us a letter saying he is seeking more commercial solutions to the difficulties that plague shippers and railways. Our response to him is to level the playing field and that is exactly what he will get. We do not regard clause 7 as levelling the playing field.
Senator Johnson: Given that, how much do private sector mediation services cost?
Mr. May: The cost of the service is not the back-breaker. The back-breaker is the cost of the litigation around the service, the continuous motions, the need to go to court and so forth. The mediation process that will be enabled by Bill C-11 would not act as a substitute for final-offer arbitration. It would act as a precursor to it, so it would add time and difficulty.
Senator Johnson: Do you think the agency's services would be more costly or of a lower quality than that of the private sector mediator?
Mr. May: I think they would add process, which for us means money. We cannot do this on our own so we pay attorneys to do it. They add to the process. Frankly, we are not disappointed with final-offer arbitration save for the fact that it is expensive. It is expensive because the railways make it expensive. They will contest absolutely every issue in a final-offer arbitration that is contestable, including whether or not we even have the right to take them there because we have effective competition.
Senator Johnson: What do you do with the railroad?
Mr. May: We have been railroaded. What can I tell you? It also reveals our position early, which is a strategic advantage to the railways that we would rather not give them.
Mr. Dahl: Your focus on cost is something to keep in mind as you go forward to look at mediation processes, dispute resolution processes. I know we hear frequently that we can take a level-of-service complaint to the CTA. Nobody does that. It is a sign that things are not as bad as we say they are. I have heard that comment more than once.
In reply, I would say that those services are, first, not terribly effective at resolving the dispute, and second, they are extremely costly. That is why they are not utilized: not because there are not problems, but because the remedies currently available under the act are not effective and they are extremely costly.
Senator Adams: Where I live, we do not have a railway. We have no trees, living in the Arctic. Maybe some of you guys handle shipping in the North.
We went to visit the port of Vancouver about a month ago. We heard exactly the same thing you people spoke of tonight from the truckers about the containers from the port. They say every time they talk to CN, it is like talking to the wall. There is no answer, nothing, which is what you are saying.
Last week, the minister came over and he wanted a quick passage through the Senate of Bill C-11. You people are talking about amendment of clause 7. Every time we must amend something from the House of Commons, the minister says the bill will die because of an amendment in the Senate.
The minister should hear from you people tomorrow. You should tell the minister he made a mistake in not inviting the shippers. It leaves our chairman with the feeling that we have a problem in the Senate when the committee sometimes proposes an amendment. What will the ministry say to us? We can tell them about your concerns about clause 7 and other sections that need amendment.
I want to know if the minister says it can be amended. I do not know. Perhaps the chair can explain further. He is on the government side. I do not know how urgent it is. There is only a month before we adjourn for the summer.
You want an amendment. You were not consulted. Perhaps it could have been changed in the House of Commons before it came to the Senate.
Mr. Ballantyne: We were perplexed as to why the government would introduce that new clause 7 to the bill at such a late stage without having significant discussion with the shipper community before they did that. There was a breach of consultation on that particular issue as it went forward.
Mr. Dahl: If I could address that partly, I understand that we are not as interested in some sections of Bill C-11 that are important. I agree that those sections should be passed. However, a bit of time spent on ensuring that this piece of legislation is correct may save a great deal of concern later. Some additions we are asking for, specifically, the level-of- service review, may generate the changes that we all know are needed.
Senator, you mentioned the trip you took to Vancouver, and one things that you heard about and talked about significantly is the Pacific Gateway concept and its value to the Canadian economy. Unfortunately, the exercise will not be that successful if there is no accountability on rail freight and if that bottleneck is not corrected.
Mr. May mentioned the uniqueness of this coalition. It is not held together because we share common interests on everything. It is held together because we share a common, serious problem about railway accountability and railway service that fundamentally impacts our ability to carry out business. The groups that are represented here are the business of the nation.
The Deputy Chairman: If you can clarify something, in clause 7, was proposed section 36.2 in the old Bill C-44? Clause 36.1 was added to the bill by committee. What part of clause 7 do I not get and what do you want changed precisely? Are you against the House amendment?
Mr. Ballantyne: Yes, I am.
The Deputy Chairman: You are against the House amendment.
Mr. Ballantyne: Yes, the House amendment added clause 7 to Bill C-11, which I have to find.
Mr. Ballantyne: Clause 7 says, ``The Act is amended by adding the following,'' meaning proposed sections 36.1 and 36.2. We would prefer if clause 7 of the bill was withdrawn, leaving the act as currently written.
The Deputy Chairman: Proposed section 36.1 was in the bill at first reading, right? Was that proposed section in Bill C-44?
Mr. Ballantyne: I do not remember. There was Bill C-26 and Bill C-44, and I do not have them with me, so I do not remember whether they were or not. My guess is they probably were not.
Mr. May: I do not recall them being there.
The Deputy Chairman: You must know whether the proposed section was there or not.
Mr. May: People here from Transport Canada could answer that question.
The Deputy Chairman: What I do not understand is whether you were opposed to that proposed section before.
Mr. May: I do not believe it was there. I could be wrong. I do not believe the proposed sections were.
Mr. Dahl: I do not believe the section was included.
The Deputy Chairman: I do not either, but we will find out.
Mr. May: Yes.
The Deputy Chairman: Outside of that, is there anything that you want changed in this bill that is not there because you are afraid it will not be in the next bill?
Mr. May: No.
Mr. Ballantyne: Yes, we would like to see the statutory review period remain as it is in the act, which is that it must start within four years and be completed within a year. The way the bill is written, it changes the time to eight years after this legislation receives Royal Assent or is proclaimed. Then the review panel has 18 months to report. As we said, given that even with a four-year statutory review period, we are now at 11 years since the act of 1996 was reviewed. Our feeling is, as Senator Eyton mentioned, that we would look at a long period of time before we saw some legislation if there was an eight-year review instead of the current four-year review. We would like to see the act remain as it currently is, with a four-year review and a 12-month period for any review committee to report.
Senator Johnson: Why do not you tell this to the House committee, which you did not appear before?
Mr. May: That was part of our arrangement with Transport Canada and the minister's office as a result of the May 5 agreement. They wanted speedy passage with no waves and no ripples: ``you folks go ahead.''
The answer to your question, senator, is the service review. Is there something we do not think will come along in the next wave, in the rail freight amendment package? It is the service review.
Mr. Dahl: To add to that comment — I was about to make the same remark as Mr. May — Bill C-11 amends the review processes of the Canada Transportation Act. It is this act that deals with those particular provisions of the Canada Transportation Act. Therefore, we feel it is appropriate that Bill C-11 is amended to include the requirement for a statutory level-of-service review.
The Deputy Chairman: I have a good feel for your frustration because in the Senate we have a two-page bill, which is two pages in both official languages, and that includes the cover page. On May 30, it will have been in the Senate for one year. That bill is ready and not yet passed. Do not lose heart.
You talked about competition and the railroads. Does anybody have any bright ideas how we do that, outside of mandating something by law, which to me is not really competition? We might as well nationalize the guys. That is still a monopoly.
Mr. May: We almost need to think of them as a utility because that is, in effect, what they are. They are essential; nobody will compete with them.
The Deputy Chairman: Do you come from Regina, or what?
Mr. May: Attila the Hun sits on my left, believe me. It is in my submission and I am sure it is in other submissions. The May 5 agreement tweaks the act. Nothing is new there. We are not introducing any new measures. It is already contained in the act. All we are doing is taking away the little poison pills that have been slipped in to defeat the remedies already in existence in the act.
I understand your frustration and question, but I do not have an answer. No one will build a new railway. That will not happen.
Mr. Dahl: To partly address the question, I have, and the grain industry has, focused a long time on the issue of accountability. That would go a long way. Perhaps it is not the final answer, but it would go a long way to solving some of the service issues that we face.
If we, as a grain industry or grain company, are obligated to load 100 cars in 24 hours and then face financial penalty if that does not occur, it is reasonable, in my mind, to expect the railway to face reciprocal financial penalty if those cars do not show up when we expect them.
Let me give you a practical example of that. It occurred over the Easter long weekend. As a company, at a number of our facilities across Western Canada, we brought in crews to work over the Easter long weekend to load unit trains to make it to the port. None of those cars showed up. We would have faced financial penalty as a company if we had not loaded those unit trains in 24 hours, so we brought in staff on the long weekend to load those cars. The cars did not arrive. When they do not arrive, is there any way of recovering that cost from the railway? The answer is no.
Perhaps a partial solution is to bring in some financial accountability.
Mr. Lazar: I have lots to say, but I will keep it brief. I sense a desire to go home for supper.
Mr. Ballantyne: The hockey game is starting.
Mr. Lazar: The solution that the forest industry members often talk about is running rights. I have heard various versions of whether that can be made to work. I take the virulent opposition of the railways to be an indication it might well work. If they thought they would win under it, they would accept it. However, I have heard expert opinion saying it would be hard to make it work.
We have spent much time with the lawyers representing us and other shippers over the years and asked what, short of a revolution, would introduce market discipline into the system. The answer came back clearly: Make final-offer arbitration more accessible.
Why does it work? The standard is reasonableness. They cannot bully. They must put something forward and explain why it is a reasonable thing. That is the expert advice we have received. If we do not want to rewrite history completely and confiscate private property and all the other horrors, if all we wanted to do was a simple measure to introduce market discipline, make final-offer arbitration more accessible.
I have been involved with transportation issues only for a couple of years, unlike my colleagues, and everyone thinks it cannot be done. Officials in Transport Canada take me aside for a beer and say: Come on now, it is railways. Parliamentarians sigh and wonder when CN will ever behave itself. Everyone acts as though this issue were a problem of evil.
It is not a problem of evil but a problem of bad legislation. It should be the responsibility of parliamentarians to fix the legislation and the rules under which they operate. It is not CN's problem. They are rude bullies who are avaricious, but that is not the problem. The problem is that they have the power to be that way from bad legislation. Parliamentarians can fix this.
Senator Zimmer: The chair asked a good question: What is the solution with the monopoly? Not to compound your problem any further, but in my travels I do not fly to Winnipeg or Vancouver anymore. I take the train, so I have done research by talking to the conductors.
To compound the problem further, they say VIA Rail is trying to stay on the tracks to take tourists from the east out to the west to go North on tours. They must have them in Vancouver at a certain time. The problem is, freight trains come through, which are up to 100 and 180 cars. No siding will handle 180 cars. They are pulled to the railing and they sit there for six to 10 hours. By the time they arrive in Vancouver, they cannot connect and they lose the business.
I hate to compound the problem further, but VIA Rail is not doing well. CN is doing extremely well. That is another issue that must be dealt with. That is more of a comment than a question.
The Deputy Chairman: If there are no further questions, gentlemen, this has been an interesting hour and 15 minutes. I thank you for appearing today. We have all enjoyed your testimony immensely, and it was a good intellectual discourse. We will see what happens.
The committee adjourned.