Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 18 - Evidence, June 11, 2013
OTTAWA, Tuesday, June 11, 2013
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration), met this day at 9:31 a.m. to give consideration to the bill.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: Honourable senators, this morning we are continuing our study of Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration).
In our first hour we will hear from Catherine Cobden, Executive Vice-President, Forest Products Association of Canada; Robert Godfrey, Director, Policy and Government Relations, Canadian Fertilizer Institute; Ian MacKay, Legal Counsel for the Canadian Fertilizer Institute; and Richard Phillips, Executive Director of the Grain Growers of Canada.
Ms. Cobden will speak first. Following the presentation we will hear from Mr. Godfrey and Mr. Phillips. We have a time limit, and I will be hammering.
Catherine Cobden, Executive Vice-President, Forest Products Association of Canada: Thank you for having us here. I represent the forest product shippers from coast to coast. Our industry has 230,000 employees, mostly in rural Canada, across the country and in about 200 rural communities. We appreciate the chance to be here today.
Forest product companies produce lumber, pulp, paper, a wide variety of products. We represent a very significant slice of the rural economy and are an important portion of the railway's business; we estimate about 20 per cent.
We are export heavy, so while we are rurally based, we ship our products to every point across the globe. Eighty-five per cent of what we produce ends up in another nation. Our view is whether we are shipping to China, India, Europe or the U.S., we require a reliable, cost-effective transportation system to succeed in this incredibly competitive global marketplace.
Bill C-52 is an important first step in the long journey to addressing the market power imbalance that shippers face on a daily basis in the country. This market power dominance of the railways was adeptly documented by the Rail Freight Service Review Panel in 2011, and I am sure senators are familiar with that report. It establishes the critical facts of why actions like Bill C-52 are important for Canada's future economic prosperity.
FPAC members believe that Bill C-52 moves us forward by providing an additional tool in our tool box to help provide leverage in our commercial relationships with the railways. FPAC members believe in a free market economy, but unfortunately we do not enjoy that experience. We live with a key economic component of our business, the railway transportation modality, that is not free market based. It is for this reason only that FPAC members believe we need to call for and receive strong legislative responses to address this commercial imbalance.
To that end, we believe there is significant need to continue to improve Bill C-52 to meet the government's intentions for a practical bill that supports commercial relations. We need to help improve the efficiency and reliability of the rail system and this bill, with the amendments we are about to flag, would improve that.
We also believe there is a risk that without the type of amendments we are proposing, Bill C-52 has the potential to harm shippers on a going forward basis. It is critical. We are not suggesting complex, difficult or massive amounts of change, but we think it will significantly improve them.
I believe that tomorrow night you will hear from the Coalition of Rail Shippers. They have six amendments to propose. We agree with those, but we prioritize three of them. I will go through them now.
First, where the use of the term "operational'' is within the bill, it creates complexities, uncertainties and challenges for shippers. We would highly recommend that the word "operational'' be deleted throughout. We think it will undermine our attempt, or the government's attempt, to rebalance commercial relations.
Second is deleting the requirement that the arbitrator have regard for the network issues. Removing this reference will ensure that we do not dilute the arbitration away from the true objective, which is addressing the inadequate service experienced by the shippers. Again, keeping that construct in there takes away from the definition of the scope. It creates uncertainty, and we would even question the fairness of such as we do not have information across the entire network.
Third, we suggest that we insert a stand-alone section that defines what "adequate and suitable accommodation'' and "service obligations'' are. This one should be easy, senators, because it was agreed to already between railways and shippers through the previous processes that we have been involved in, for example, the Rail Freight Service Review and the dinning process. We have full agreement with the railways and shippers on the elements that should be included to define service obligations.
We argue that if this is not clearly spelled out in the legislation, we run the risk of cumbersome legal processes eroding definitions. A detailed description of these three recommendations is being officially submitted to you in writing and there is a lot more detail. In the interest of time I am glossing over the three areas that we think are critical. However, please refer to the paperwork.
Beyond this critical task of amending and passing this legislation, we remain vigilant that we must also ensure that the enabling rules and regulations be made available to shippers as soon as possible. These rules and regulations give us the assurance and the necessary instruments we need to ensure that the bill is fulfilled and implemented effectively. An example of this would be the rules for the dispute resolution process. We need to have clarity on that, as well as the administrative monetary penalties. We were pleased to see that in the bill, but we have no idea how they will work. As you know, for implementation of such a complicated bill, details do matter. We urge the government to release those as soon as possible.
Given the unreliability of service that we have been experiencing — by the way this is not just a three-month experience, but something that has been going on in the shipper community and in FPAC member companies for years — we are calling for improved tracking, public reporting and for accountabilities to be put in place on all sides. We are talking about the shipper community as well as the railways to ensure that we achieve progress on better service for railways.
The days are long gone and quite frankly from our perspective the economic stakes are too high to allow the railways to hide poor service behind excuses. We believe it is legitimate for Transport Canada to take a leadership role in ensuring this transparency, and we will be working and calling for that to happen.
In summary, we believe the bill is better than no legislation at all, but we are trying to identify some key recommendations that we feel should be adopted and some amendments that should be made. While they are simple in nature, they are significant in scope. We think that with those amendments, there will be workable, practical success in this bill.
Thank you for your attention.
Robert Godfrey, Director, Policy and Government Relations, Canadian Fertilizer Institute: I am Director of Policy and Government Relations at the Canadian Fertilizer Institute. With me today is Ian MacKay, CFI's transportation counsel.
CFI represents the basic manufacturers of nitrogen, phosphate, potash and sulphur fertilizers, as well as the major wholesale and retail distributors in Canada. Our members produce over 25 million metric tonnes of fertilizers annually, over 75 per cent of which is exported. We are a resource-based industry, heavily dependent on the railways to move our goods to domestic, U.S. and offshore markets. Our ultimate customers are farmers. Delivering our products to them in a timely and effective manner is critical to maintaining North America's and the word's food supply.
CFI wants Bill C-52 to pass without delay. While we stand united with our partners in the Coalition of Rail Shippers who have put forward six amendments to the house standing committee, and feel the cooperation of our coalition has provided a clear practical view of what rail freight customers are seeking in this legislation, we need the legislation to proceed.
We were optimistic through the debate in the house that at least one of the six amendments would find a way into the bill. Unfortunately, that did not happen and now we feel we are out of time. CFI members are looking to see this legislation in place and are eager to test its provisions. It is up to this committee to get this legislation through before rising for summer recess. We do not want to lose what we have.
We believe the bill as it currently reads is a step in the right direction and is better than no bill at all. We have viewed it as a crucial step toward a commercial balance in the transportation system between railways and their freight customers. It will give our members the right to a service agreement with the railways and will create a process to establish an agreement when commercial negotiations fail. This is the backstop that CFI was asking for.
CFI has been encouraged by Bill C-52, the Fair Rail Freight Service Bill. We commended the government when the bill was brought forward. Having said this, there are areas that have given us cause for concern — areas we will monitor. These concerns were outlined in our comments to the house standing committee, but I want to emphasize two right now for the record.
While there is no limit to what can be resolved through commercial negotiations, there is a major limitation on what can be arbitrated under this bill. The bill limits the scope of service agreements to "operational terms and does not cover all aspects of the commercial relationship between a shipper and a railway. Limiting service agreements to operational terms excludes from consideration by the arbitrator a number of important terms and conditions that one routinely sees in commercial agreements. This makes little sense in practice and will result in the shipper only being able to arbitrate some of the issues that they might otherwise choose to take to arbitration. The separation of operational terms from non-operational terms does not exist in commercial agreements.
Further, there is a need for a right to dispute resolution within the life of a service agreement. The bill does not allow the arbitrator to include a process for resolving disputes during the life of a service agreement. The concept of balanced accountability between shippers and rail carriers could have been achieved with amendments to proposed section 169.31. Without this, CFI fears the legislation may be only treating half the ailment.
As this bill is implemented, CFI will be monitoring its effectiveness and providing real change to the service problems that brought about the Rail Freight Service Review in the first place. More specifically, we will be looking for two key things that matter most to our members: First, are the railways living up to the commitments — the service terms — that have been negotiated or arbitrated or do we need to include dispute resolution within the life of a service agreement; and, second, do these service level agreements extend to traffic destined for cross-border, as much of our fertilizer shipments are?
We will bring our findings to the CTA review in 2015, if not before. However, today, CFI wants this bill to pass without delay. I urge this committee and all members of the Senate to pass this bill so we may begin using it and testing its provisions as soon as we can.
Thank you. I would be pleased to answer your questions.
Richard Phillips, Executive Director, Grain Growers of Canada: Good morning. I will refer senators to a handout here, and there are a number of photos in there. I will base my presentation on those photos, so if you could follow that with me, it would be appreciated.
I am Executive Director of the Grain Growers of Canada. We represent over 50,000 grain farmers in Canada — or as we like to say 50,000 successful grain farmers, because we have been doing fairly well in agriculture over the last several years. Over 90 per cent of our grain farmers are dependent on either exports or export pricing, and we export well over 60 per cent of all of our major grain crops in Canada.
I would say almost all farmers live too far from tide water or the major U.S. markets to use trucking, so rail is an important and critical part of the infrastructure farmers need.
I will tell you what it means on the farm when we get poor service. The first picture shows grain bins in a snow bank. The next one is of clearing snow away. What has happened is that the grain companies called to say, "There will be a train in next Wednesday; can you clear out your bins and bring grain to the elevator?'' In the wintertime, you have to move all the snow away from your bin yards to get out there.
You will see another photo of a farmer in the red tractor clearing snow to even get out to his truck.
The next photo shows us loading grain in the wintertime, and you can see the grain vac loading the semi. It is not just a matter of starting stuff up; sometimes, if it is minus 20 or 30, you have to go out the day before and warm up all the machinery and oil pans, and get everything running properly so you can haul the grain. You push all the snow and get ready to deliver the grain.
The next photo is of a combine harvesting. It can also happen that at harvest time you get a call saying, "Could you please deliver grain; the train is coming.'' A lot of farmers may not have enough trucks — in fact, almost all farmers do not — to be harvesting and hauling grain from the combines and also delivering grain to the grain elevator at the same time. Therefore, a farmer has to make a choice as to whether to deliver grain to the elevator or continue harvesting. That is a decision they make.
The next photo is of a truck loading an air seeder. If you get a call in the spring, the question is: Do I haul grain to the elevator or do I keep seeding? Again, you do not have enough infrastructure to do both, or often you do not have enough staff to do both.
The next photo shows what can happen: You see a big lineup of trucks parked at a grain elevator. We have seen this happen at our farm several times where they call and say, "The train will be here on Wednesday, so get everything geared up — you are trucking grain into the elevator.'' However, the train does not show up. The elevator is there and what do you do? You are parked in this lineup, and if it is seeding time or harvest time, you to make a decision whether to sit there and hope the train is coming, or to go back home, unload that truck and go back to harvesting or seeding again. These are decisions you have to make.
Sometimes you have to arrange for a hired man. If you have livestock at all, you have someone at home to feed cattle while you are trucking grain.
These are all costs that happen when the rail service is poor for farmers. We are the grassroots producers. Mr. Godfrey's people ship the fertilizer to us, we produce the crops, and we export them around the world.
I wanted to bring it back to the farm gate so you can see the effects it has on the actual farmers here in Canada.
This is what we would like to see. There is a picture of a big line of railcars right full. What we want to see is good service. The railcars are full 100-car-unit trains heading out to our key customers.
In summary, we are looking for the amendments, as Ms. Cobden outlined; and we are looking for dispute resolution, as Mr. Godfrey mentioned. We are also looking for another piece, and we can talk more about that in questions and answers: effective monitoring from this point in time. It will be important to measure whether the service improves with the legislation.
We at this table all strongly believe that if we had those six amendments, we would have a much stronger and better bill. It will be critical to measure to see whether this bill does what we hope it will do or what we suspect it might do. Then we can come back and say we were right or we were wrong — that service has improved and the railways are doing a good job.
One line I have used before is that you can phone Canada Post and they can tell you where your parcel is at any time. I wonder why it is the railway cannot find a train, if Canada Post can find a parcel. Why can they not tell you that the train will be another four hours before it arrives, so I have some idea as to whether I should load the truck or not?
With that, quality service equals more money for farmers, which equals happy farmers. I look forward to your questions.
The Chair: I am quite sure one senator will ask that of the train companies tomorrow.
There are 40 minutes left and six senators on the list. I will ask senators to have short questions, and I would appreciate concise answers from the witnesses.
Senator Mercer: I move that we ask Canada Post to take over this operation. That is a very good point.
You have given us a bit of a dilemma. If all of us sat here and said, "We like your six amendments and want to proceed with them'' — we may not agree to that, but let us assume — then, Mr. Godfrey, you say that you want the bill passed and out of here before we rise for the summer, then you have given us mission impossible. If we were to accept the amendments, we will not report the bill back to the chamber until some point next week, most likely. That means we will have to go through the process of the amendments there. If we accept them and they are passed by the Senate, guess what? The bill has to go back to the House of Commons. They will be long gone. That means you get nothing. I just wanted to put forward a little reality check.
There is a general agreement among the shippers — and I have another document that I understand we will be receiving tomorrow or maybe later today, with some others — regarding these recommended amendments. It is puzzling. Since everyone is in agreement and we did not ask the railroads this specific question about these amendments, but we can, why are we at this stage and we do not have these amendments? Do you have an answer or should I go to the House of Commons and ask them?
Okay. I do not want to get you into political problems. I will move on to Mr. Phillips.
I also sit on the Standing Senate Committee on Agriculture and Forestry, so I know a little — and I mean a little — about the issues. You talked about the lack of trucks to deliver grain at the time you need to deliver it, when it is requested. If I understand the situation, it is complicated by the fact that a fair number of people who drive trucks in Western Canada are only driving them in northern Alberta, in the oil sands. We did a labour study, and we found that we lost a lot of capable truck drivers in the southern part of the Prairies to northern Alberta because of the prices. Is that still the case?
Mr. Phillips: Yes, that is still the case. There is a big sucking sound there and they are pulling labour from everywhere across Canada, including Atlantic Canada. Many people go there. It is a matter of finding enough staff on your farm with the appropriate licences to drive the trucks nowadays, or if you are going to drive the truck yourself, you need someone who can actually run the combines. These are a-third-of-a-million-dollar machines and you cannot just put anyone on them without some training. Finding skilled staff is always a challenge.
Senator Mercer: Finally, you talked about a review of the process. Something I have been critical of with the bill is that there is not an automatic review. I know the act itself will be reviewed in 2015, and I will talk to the government of the day in 2015 about some of those things. However, I would have thought that we should have had a review built into this in a shorter period.
You talked about monitoring it. How do you see that happening and how do you see the feedback coming back to the department on that monitoring?
Mr. Godfrey: CFI has about 46 members, and it is the entire supply chain. It is your manufacturers who are pulling product — either potash, pulling it out of the ground; nitrogen, where they are actually manufacturing it; or they are bringing it offshore and distributing it to agri-retailers, who then sell it to Mr. Phillips' farmers.
They are using the railway supply network all the time, every day. They are the boots on the ground that would be able to report back to me and my association. Then we will compile that data and take it to the department ourselves. When the Canadian Transportation Agency review comes, we feel this will be on the table. That is half the reason we are asking for this to proceed now, because we want to be able to test provisions in the bill. We want it to be implemented fully so we can fully test the legislation in the real world, on the ground, and then be able to come back to the department in 2015 as a part of the CTA review, part of the act review you referred to, and give them some factual data.
[Translation]
Senator Boisvenu: Thank you for your very informative and instructive testimony.
We were told that this bill took years to reach a consensus among large companies and providers. Did you participate in the consultations that were held during that period?
[English]
Ms. Cobden: I would like to say that we were consulted for years, and in fact we have documentation of that consultation. I made reference to it in my remarks in the Rail Freight Service Review Panel work of 2011, as well as some areas of consensus in the Dinning report.
I recognize that we did not get agreement in every place, but where there were areas of agreement, we wonder why that does not get reflected in this bill. I made a specific reference, for example, to the fact that we had agreement on some key metrics like dwell times, car supply, condition of cars, and the list goes on and on, yet we do not see the articulation of the specificity that we agreed to in this bill. We are very worried about that because over time that will get eroded more and more.
[Translation]
Senator Boisvenu: Do you not agree that we have come a long way when it comes to the amount of control large companies have over railway management? Do you think this is a good step forward that will help us make another such step in three or four years? The industry reality is a reality of power. Has the industry not taken an important step that will help it take another step in line with your recommendations in three or four years? Is the current agreement between providers and owners not a sign that we are moving forward?
[English]
Ms. Cobden: I am not sure who you are directing the question to. I can start.
Senator Boisvenu: Mr. Godfrey.
Mr. Godfrey: I am not sure I understand the specificity of your question.
[Translation]
Senator Boisvenu: Is the bill not a good step forward that will help us take another such step in three or four years? It is often impossible to have it all. We are trying to make some progress, so that next time we move forward, we would have some elements that meet the expectations. My question is clear. Is this not a good step forward that will help reduce your transportation costs?
[English]
Mr. Godfrey: As I said in my remarks, we believe this is a step in the right direction. We do not think it cures everything. It is why we all worked together in the shipping community to come forward with six amendments, which we brought to the house standing committee. Unfortunately, not one of them made it into the bill. Now, the CFI membership feels that we are out of time, unfortunately. We are going to take this step forward and monitor it carefully.
Senator Greene: Could you please tell me what the word "operational'' does for you or does not? What terms are important outside of the word "operational,'' just so that I have a complete understanding.
Ian MacKay, Legal Counsel, Canadian Fertilizer Institute: The use of the words "operational terms'' in the bill we believe will limit the discussion between the railway and the shipper to only the actual service that is to be provided. Typically, in a commercial arrangement, you will have all kinds of other terms and conditions that govern the rest of the commercial information — credit, billing, force majeure and so on. These are typical terms you would find in a commercial agreement, which we believe will be excluded by the use of the words "operational terms.''
Senator Greene: However, the operational issues are the most important issues, are they not?
Mr. MacKay: That is the subject matter of any relationship between the shipper and the railway, but these other elements are important as well.
Ms. Cobden: May I add to that? I think that once you get within the legal construct, so once you are in, for example, the dispute resolution process, if we could only get one wish, it would be our top priority to remove the term "operational.'' I do not think in clause-by-clause consideration that that would be too difficult. Wherever you see it, take it out.
The reason for that is that you are going to start creating a burdensome legal process, and I thought the idea of this bill was to get out of burdensome regulatory legal processes. It will create motion after motion, before you even get started with the good part of the tools that are now being provided.
Senator Greene: In terms of the issues that you have with the CN Rail, et cetera, are not most of them operational issues?
Ms. Cobden: Here is how this plays out in practice: If the cars do not come in, we cannot, for example, report back to our shareholders the best economic performance we can because of car supply availability. It is that bad in some cases.
Senator Greene: Is that not an operational issue?
Ms. Cobden: Yes. However, once you get into the legal construct, you decide to go for a dispute resolution process. They are not meeting the nature of —
When you get into "operational term,'' what you will have created — and this is what I ask you to think about — is an overly burdensome legal process. Is this what you want to create? Once you are within the legislation, that is what you are causing: It will be preceded by motion after motion. Before you can get into solving the problem and getting back on track, it will be lawyer base after lawyer base.
Why? The word "operational'' adds uncertainty: There is no definition and there is no legal precedence anywhere in this statute to give lawyers something to fall back on. It is a wide-open field that will create a very costly process. I thought we wanted — "we'' as in the collective shippers, governments and railways — something that was not so costly.
Senator Greene: I will be argumentative: I am trying to understand it. I would have thought that the word "operational'' confines the dispute resolution process to those particular issues which are of most importance.
Ms. Cobden: My advice is if you want to keep the word "operational,'' then more amendments are needed. You will need to define it and put specific parameters around it, because without that it is uncertain and will be a burdensome legal process. I guess you have options.
Senator Greene: That is interesting, thank you.
Senator Unger: If the bill passes, an arbitrator would be expected to establish a commercially fair and reasonable service agreement between the shipper and the railway by considering the interests of both parties, of course.
Do you have confidence in the arbitrator's ability to achieve a commercially fair and reasonable service agreement? If not, why not?
Mr. MacKay: I have a comment on the bill. There are many hoops, loops, bells and whistles in here that the arbitrator will have to take into account. The thing that surprised the shippers, when we first saw Bill C-52, was the extent of the detail. Every one of those details will have to be interpreted and applied by the arbitrator in the course of the arbitration. We are trying to address some of the complicated detail that we find in the six amendments proposed through the Coalition of Rail Shippers.
Yes, the arbitrators will do that, but it will not be an easy road to hoe.
Senator Unger: Do you agree that the $100,000 fine for each situation to be levied against the railways will be sufficient? Is it too much or too little?
Ms. Cobden: I can certainly take that question. We do appreciate the introduction of the AMPS processes in the bill, the monetary penalties. However, the one thing we are lacking so far, and I hope this will follow soon, is clarity on how the AMPS will work.
Our perspective as forest products shippers is that we do not have a position on the value. It sounds significant. The bigger issue for us is the degree to which we hold the railways accountable for that. We would like to see a transparent process that tells the world, or Canadians who care, how many the AMPS get.
It is no different in environmental legislation when you have penalties applied to a bad actor that is polluting. We would like to see a commitment on the part of the government to give us the big picture of how often AMPS is used. That is another signal as to whether this is working, and another signal to the degree of the problem. It helps with transparency. Our issue is not so much on the value: It is more on the process of making that information public.
Senator Unger: How difficult was it and how many times would you have to try to negotiate a service agreement with a railway? How many times did it not work out?
Ms. Cobden: I can speak with some personal experience on this. I led the negotiations and I will say, with all respect, that we tried and tried to do what we could for service agreements before calling for legislation up to and including the FPAC, which had a process with one of the railways. I think I am allowed to name them, but I will not just in case.
We had a commercial-based process where I led a negotiation team of six FPAC member companies negotiating with the railways for a forest industry service agreement, hoping to avoid this legislative process.
As I mentioned in my remarks, the private sector is not always looking for legislative activities, as you well know. However, in this case, that was a dismal failure. We had agreements which fell apart, and it was extraordinarily difficult and complex. It actually further eroded the relationships, which was really unfortunate. It made us stand firm on our resolve, our realization that we need this legislation. It is very difficult.
Mr. Godfrey: CFI also tried negotiating since 2006, specifically with the two major Class 1 railways to come forward with a commercial dispute resolution because we honestly did not want to see legislation. We thought we could find a commercial based solution to get a backstop to bring them to the table to negotiate commercial terms. We were unsuccessful. They felt they could deal with our members.
Our members do have good relations with many of these railways, especially some of our larger members, but a lot of medium and captive shippers are finding it difficult and have been experiencing service problems in the last number of years. This is why we joined the Coalition of Rail Shippers and why I am sitting here today.
To reiterate, now is the time for the committee to pass the bill so we can test these provisions.
Senator Eggleton: Mr. Godfrey, I think you have made it clear that you want this bill to pass now and get it into implementation to see how it goes. You would have liked to see amendments, but maybe later on.
I would like to test this practical implementation problem on the other two witnesses. If this committee recommends an amendment to the bill, for example dropping the word "operational,'' and the Senate also recommends it, that means it goes back to the House of Commons. By the time the Senate deals with this, the House of Commons will be in recess for the summer. It could be in recess sometime this week, for example, and we will be going one or two weeks after, maybe more, maybe into the summer.
In any event, the house will be in recess and this bill will have to go back to the house if we amend it, which means mid-September if there is not a prorogation, because there is rumour of possible prorogation in the fall, which could mean even later. The question then becomes is it best to go with what is here now, test it out and maybe come back at a later time, if necessary, to make amendments? That could be a couple of years or so down the road. Alternatively, is it better to get it right at the start?
Ms. Cobden: If there were a commitment to move this bill forward when the house resumes, I think shippers, who have suffered for years and years with bad service — without having the opportunity to ask my members about this, but this is my gut instinct — we could wait two or three months, relative to the years and years we have been dealing with this, and see significant improvement, like the dropping of the word "operational,'' as long as it is partnered with a commitment to get the bill through.
As I mentioned, we would rather have this bill than to see it die. If it is partnered with a commitment to get this bill done, I think we would take the time, two or three months, to get changes as significant as that, and the other two or four being proposed by the coalition, for sure.
Mr. Phillips: Most of the grain companies would prefer to see the amendments in as well. There are rumours of a cabinet shuffle, and the reality is that we might see a proroguing of the house in the fall and risk losing it. If we are going to lose it, it is better than nothing. If we can get it through, as Ms. Cobden says, then we prefer the amendments.
Mr. Godfrey: Obviously you have outlined the concerns my members have brought to me. We support those six amendments, make no mistake, and we would rather have seen those six amendments in the bill in the house standing committee. It did not happen, and now we are scared we are going to lose it, so we are asking you to pass it.
[Translation]
Senator Fortin-Duplessis: Welcome, everyone. Today, I am replacing my colleague, Senator Leo Housakos.
My question is for Mr. Philips. I was flabbergasted to learn that the railcars were not arriving on time to transport your products — grain and such.
Have you figured out why the railcars are not arriving on time? What excuse are railway companies giving for the lateness? Imposing a fine would be a good idea in the case of a breach, but do you know why they are not arriving on time?
[English]
Mr. Phillips: That is a question we have asked them many times as well, and a lot of excuses come up. Some of them are valid. In fairness to the railways, sometimes there can be avalanches in the wintertime that will slow the trains down coming through the mountains. We suspect it is more likely that they have simply diverted the locomotives and crews to go haul another product that perhaps someone has offered a bit more money than what the grain people are offering. I think there is some of that and they allocate the resources to other commodities from time to time. If the grain companies were here, they would tell you they get every excuse in the book, and none of them are very good.
To go further, this means that if you are the grain company and selling your grain to a flour mill in Japan, there is a big penalty if you do not deliver that grain on time. If the grain companies are getting poor service, then they say, "Well, if we have to pay $1 a bushel penalty, then I have to pay $1 a bushel less to the farmer to allow for that risk.'' That comes right back down to the farm gate. The farmers actually take all those railway problems out of our bottom line. It is unfortunate, and we have never had really good excuses.
Senator Mercer: I am curious. Your reference earlier in your statement about Canada Post is resonating with me. They do not know where the train is, and they also do not know where most of their container cars are. I am having difficulty with this argument. I like the amendments. I would like to move the amendments and I would like to get the amendments in there to make it a better bill, but I am struggling with doing that. I see the whole Coalition of Rail Shippers saying, "Yes, we want all of that but, if we cannot have that, we will take this poor bill rather than wait for a good bill with a chance that we have to start all over again in the fall if there is prorogation.'' Can you help me with that, Mr. Phillips?
Mr. Phillips: Yes. I think we are afraid of losing it.
The other point we want to leave with you by mentioning these amendments over and over again is that if we have to come back in three years but it did not work, we want you to remember that we were here and said we needed those amendments. That is one of the key points we want everyone to remember in the house and the Senate and the opposition. We want you to remember those points.
I wanted to mention one other fact. You can put together coalitions, but trying to keep everyone together and focused on one point of view is not easy. Our coalition has been in existence for years, and we represent around 90 per cent of the rail freight revenue of CN and CP. If 90 per cent of your customers are unhappy, guess where the problem is? It is not with the shippers.
Mr. MacKay: You have to keep in mind the big picture. What shippers sought was the right to have a commercial agreement with the railway with commercial accountability for service failure, and we will decide between us what we are able to do and not do moving forward, and then the ability, taking into account the monopolistic nature of the market, to get an agreement where you cannot get one with the railway by way arbitration. We have those two things in this legislation in the big picture. It is the details that have kind of tripped things up.
Senator Mercer: The devil is in the details, as you know. Unlike our colleagues in the House of Commons, we can guarantee we will be here for a certain number of years. Most of us around the table will be here in 2015. I certainly would appreciate, assuming we do not amend it and assuming we do pass the bill, that the coalition actively communicates with us on the committee, telling us how it is going, even though there is no provision for that in the bill. It would be helpful, so that when you come back and say, "I told you so,'' we will not be surprised.
Mr. Godfrey: I will say that this process has made the coalition stronger than it has ever been and more in line than it ever has been. We will be here, trust me.
The Chair: Thank you, Ms. Cobden, Mr. Godfrey, Mr. MacKay and Mr. Phillips. We will likely be hearing more of your message since our second panel is part of your coalition.
In the second hour we are pleased to welcome Greg Cherewyk, Executive Director of Pulse Canada; and from the Western Canadian Shippers' Coalition, Ian May, Chair, and Allan Foran, legal counsel.
Greg Cherewyk, Executive Director, Pulse Canada: Thank you for having me here today. I am Executive Director at Pulse Canada.
Pulse Canada represents the growers of pulse crops across Canada, about 30,000, and over 130 different members of the trade, those who process and export pulse crops to over 180 countries around the world. We are the big kid on the block in terms of world trade. In many of our crops, we have 40 per cent of world trade. It is a rather large industry within the agriculture sector.
You heard from my colleagues within the Coalition of Rail Shippers today and the importance of six amendments that we collectively put forward. I will not reiterate what has already been said, but stress what Pulse Canada has said since the beginning of this process. In order to encourage agreements that raise the bar and allow Canadian base businesses to drive our export-driven economy to maximize their production and marketing capacity without having to work through costly legal proceedings, this bill must provide sufficient clarity, definition and guidance so that railways and shippers understand the framework within which they should negotiate agreements. If they cannot reach agreements in the commercial environment, this bill must provide clarity and guidance to the parties and arbitrator so that the legislative backstop is fair and cost-effective.
If this committee and the house believes the bill goes far enough to satisfy those criteria and creates the condition that Pierre Lemieux, the Parliamentary Secretary to the Minister of Agriculture said in the house on May 30 — "will ensure that shippers can negotiate agreements that bring greater clarity and predictability on service'' — then our attention must turn to ensuring we are making progress toward that goal. How will we know, and what can and will be done if we are not reaching our goals?
At the latest Export Development Industry Stakeholder Panel meeting, the importance of predictability and reliability in the supply chain and the need to have good measures to assess performance took up quite a bit of air time. At one point, Warren Everson of the Canadian Chamber of Commerce remarked that tariff reduction and trade agreements alone are not a market development strategy. That sentiment was echoed recently by Peter Hall, chief economist with the EDC, when he spoke to members of the Saskatchewan Trade and Export Partnership on May 29. He said that key economic indicators are pointing to strong economic growth, increasing consumer confidence and generally good times ahead for the global economy. However, picking up on the discussion at the EDC Industry Stakeholder Panel session, he asked if we have enough warm bodies in the province to do the work that is actually coming our way, and even if we can do all those things, do we have enough transportation infrastructure to take the stuff we have generated inside the province and get it to market?
The question of whether or not there is sufficient physical infrastructure capacity is one concern, but the other question more relevant to our discussion is whether there will be rail capacity to provide the level of service required to keep pace with growth. As one of our members constantly reminds us, "It's about increasing the size of the pie — not simply slicing it up a different way.''
We cannot look ahead and accept that what happened during the first quarter of this year is "good enough'' or, in the parlance of our act, "adequate and suitable.'' Again, winter struck Canada, and one railway in particular explained away poor performance in some areas while reporting record movements in others. Was it simply winter that caused performance failures and a lack of capacity for agriculture and forestry, or was it in part a redeployment of locomotives, crews and cars to satisfy huge volumes of crude oil movement by rail?
Crude-by-rail revenue was up 300 per cent in that quarter for that railway. During the house committee railway meeting, Shauntelle Paul of CN reminded everyone that it takes nine months to train someone to be a conductor on the railway, but six months if not longer to get railcars. In that kind of environment, having adequate surge capacity clearly has to be part of the plan because it should never be about crude oil or ag or forestry. It must be about crude oil, ag, forestry, mining, fertilizer, automotive, et cetera.
All of this is to say that service agreements can play an important role in ensuring there is adequate capacity in place to encourage growth and to service it. In fact, further investment into productive capacity is very much dependent on consistent and reliable rail freight service. The six amendments that the CRS proposed aimed to ensure those outcomes will be delivered. The response thus far has been that Bill C-52 will deliver as is. However, in order for us to know if the bill went far enough, we will need to know if agreements are being signed, implemented and executed, but more importantly that they are resulting in measurable and continuous improvement for companies that drive Canada's economy. Again, how will we know, and what can and will be done if we are not reaching our goals? I would like to answer that question.
We will only know if we are reaching goals if we obtain objective, accurate and credible information on system performance and key performance indicators for the companies that produce and market what Canada has to offer. Are railcar orders being planned and fulfilled weekly according to schedule? Are railcars in suitable condition to move product to port? Are changes to plans being communicated in advance? Are transit times consistent or wildly variable? Are we performing well in all of these areas and increasing unloads at the port? Finally, are meaningful commitments in each one of these areas being locked into service agreements that provide companies with predictable and reliable rail freight service?
If those who voted unanimously in support of this bill in the house believe it should pass without the proposed amendments, then they believe it will result in effective agreements and measurable improvements in all areas. If the Senate believes this bill should pass as is, you are saying it creates the conditions for measurable change that Canadian businesses seek. If the government believes this bill is a tool that will help provide shippers with improved levels of service that enhance their competitiveness in the global marketplace, then it will be prepared to measure progress and make adjustments, if necessary, as early as 2015 under the Canada Transportation Act review.
Pulse Canada will work with its counterparts across the agriculture industry and shipping community through the CRS to encourage the development and implementation of the measurement system. We will be well prepared to encourage swift, regulatory and/or legislative action to strengthen this act when the measures tell us it is time.
Just as members and players across the logistical supply chain focus on continuous improvement in their businesses, so too must we as we look at ensuring the right mix of commercial and legislative solutions are in place to support Canadian businesses that are demanding greater predictability and reliability from their freight system.
Thank you.
Ian May, Chair, Western Canadian Shippers' Coalition: Mr. Chair, members of the committee, today I am joined by my colleague Allan Foran of the law firm Aikins Law in Winnipeg.
The Western Canadian Shippers' Coalition members are bulk commodity shippers for whom rail freight service is one of the most important components of their business. They are typically captive to one railway or the other and collectively spend in excess of $2 billion annually on rail freight. WCSC members, because of that captivity, value the shipper protection measures contained in the Canada Transportation Act more than most and are known to have considerable experience in the use of those measures. That includes level-of-service complaints and final-offer arbitrations. Accordingly, they are keenly interested in the efficacy of the measures set out in Bill C-52 and any potential impacts those measures may have on current provisions.
As Mr. Cherewyk has already done so, I will not bore you with a repetition of what you have already heard in terms of our six amendments. It is enough that you know we support them, and I will leave that discussion to them. We believe that the bill, with those amendments, would be of much more value than it is now.
I think you are owed an explanation as to why it is we are willing to accept a bill we do not like. You have heard some explanations; I will give you an added explanation later on as to why.
Since we are a diverse group, you will find that each one of our colleagues has a different point of view as to which one of the proposals you have heard is most relevant. You will also find that each member the coalition supports all six; you have heard that and you will hear it again. Those amendments were developed over the course of months with the advice of the most experienced shipper transportation lawyers in the country. I am sitting beside one of them. One of our member companies provided their corporate lawyer who is also very experienced in these measures. That will get to the heart of a concern that we have over the way this process was handled by the house committee.
I will repeat that those amendments were developed over the course of six months with the advice of the most experienced shipper transportation lawyers in the country. They were conceived of, examined, and debated exhaustively, and they represent the minimum change required to render this bill effectual. The lawyers who worked on these amendments are not theorists; they are experienced veterans of final-offer arbitration and level-of-service complaints who understand how these things play out in the real world with millions of dollars at stake.
It is important to understand how railways respond to federal legislation. Our national carriers are not in the practice of honouring the spirit of the law; rather, their focus is on exploitation of the letter of the law. Shipper legal counsel brought that perspective to the house standing committee, but it did not prevail. For example, the discussion about the cost potential of a service level agreement degenerated into a jocular dialogue about excessive lawyers' fees.
This issue is extremely relevant to the shipper community because the cost of pursuing remedies to railway monopoly behaviour is a significant impediment to adequate service levels in this country. The point in question at the time was the use by the drafters of new and undefined terminology in Bill C-52 that would provide a green light for railway lawyers to submit motions, contest decisions, prompt appeals and generally prolong the process, thereby driving up the cost.
In order for this legislation to be effective, it must be timely, affordable and uncomplicated. The inclusion of undefined new language will produce the opposite effect.
Mr. Foran has data concerning the litigious nature of CN and CP, as well as insights into how this legislation will adversely impact shipper protection measures. The railways have been very litigious in their efforts to mitigate against legislative remedies. Since 1966, there have been over 50 court challenges involving CTA remedies. They have seen taken the Governor-in-Council to the Supreme Court with respect to directions given as to the operation of certain remedies.
In particular, the notion that other obligations railways owe to shippers must be considered is a dramatic departure from the current state of CTA obligations. Not only does the shipper require the service that it needs, but the knowledge of the railways and their operations will be difficult for shippers to challenge.
We are trying to say there that we need to re-establish the pre-eminence of shipper needs over those of the railway in terms of service delivery.
When the rail charters were first granted in this country, the deal was very simple and very clear. In sections 113 to 116 of the act — the level of service provisions — it is very clearly set out. Put briefly, the railways have to carry the goods that are offered, and they get to charge what is reasonable to do that. Those are the two factors and they have been there for over 100 years. Over time, the litigious nature of the railways has eroded those particular sections of the act, and that is why we find ourselves in the situation we are in today where we need this service level agreement legislation.
We realize that it will be unreasonable to ask you to dig deeper into a bill that passed the house with unanimous consent. We are on record, however, as saying that we will support Bill C-52 even without amendments, but that was not intended to give licence to ignore those amendments. Our support for the bill is rooted in what it represents, and that is a recognition that there is a market imbalance in the area of rail freight service. It is important that this acknowledgment stay on the books so we can use it as a lever to get genuinely effective legislation should this fail.
That being said, there is no reason to proceed with this bill without first being assured that everything possible has been done to ensure it will accomplish the purpose for which it was intended.
You may have noticed recent Government of Canada TV ads pointing out that resource-based industries are the backbone of the Canadian economy. Given that critical role, it is imperative that hurdles to the success of those industries be removed. Railway market dominance is one of those hurdles.
In the hearing conducted by the House of Commons Standing Committee on Transportation, Infrastructure and Communities, the majority of members found Transport Canada staff testimony more credible than that of shippers. It is customary in arbitration cases in the event of credibility issues for witnesses to be called and cross-examined.
Given the stakes for the Canadian economy represented by Bill C-52, with respect, we ask you to borrow a page from the arbiters' playbook and recall Transport Canada staff to appear at the same time as legal counsel who provided advice to shippers on this legislation. That way you will be able to ask questions that should prove determinative in deciding whether there is any merit to shippers' claims. Both parties cannot be correct.
Thank you for your attention. We look forward to answering your questions.
Senator Eggleton: I am curious as to why these six recommendations were not recommended by the committee. You are right, Mr. May: We should get the officials back in here to answer that. However, can you shed any light on why they did not seem to be acceptable to the minister, the government or the committee?
Mr. Cherewyk: I will try to answer why one amendment may not have been included.
One that was widely supported across the coalition was an amendment that would add more clarity and definition to the service obligations of the railway. Ms. Cobden spoke about this. This defined currently under section 113 that we commonly refer to as "to furnish adequate and suitable accommodation.'' The shipping community sought added clarity and definition around that rather antiquated definition to bring it into the 21st century, to modernize the language of the act and to codify the actual service obligations of the railway — the things they already do, but to include it within the definition of service obligations of the act.
We feel that those who opposed that modernizing of the act — that clarity and definition — misapplied a concept of implied exclusion. This was brought out in front of us a number of times. It says that the expression of one thing implies the exclusion of the unsaid things. Therefore, the concern was that by listing the service obligations of the railway, it would somehow prevent a shipper from at some point in the future coming back with an additional service obligation that was not on the list developed in 2013.
However, in law today, and within this legislation, we have ways of dealing with implied exclusion. In lay terms, we have ways of saying that the things on this list are not the only things that may be on this list. The language we used, which is also present in this act and other legislation, is "without restricting the generality of the term.''
That is one answer as to why one of our proposed amendments was defeated: It was because of that opposition and that legal advice to the department that they were somehow protecting shippers from themselves.
Mr. May: I have something somewhat more Machiavellian, if you are interested.
Senator Eggleton: Go ahead.
Mr. May: In the run-up to the drafting of the bill, the President and Chief Executive Officer of CN was particularly active in his opposition to the bill. He was active in newspapers, in articles and certainly in public-speaking engagements. He was very clear in what he wanted. I took the trouble to go over the copies I had of his various pronouncements, both verbal and written, and found that, without exception, everything he asked for appeared in the bill.
This bill, conceptually, is a bit of a square pill for Transport Canada. They are used to doing balanced things, and when one is correcting an imbalance, you need an imbalance to correct it. They did not see it that way and do not see it that way. This is all speculation now, but I think they believe that the mere presence of this bill was enough to offset the things that the railway was granted within the context of it. We do not share that belief.
In fact, if you squeezed us hard enough, we would tell you this bill is more favourable to the railways in its detail than it is to shippers.
Senator Eggleton: I do not know if you heard the question I asked the last panel, but we are now in a position where we either proceed now with this bill unamended, or if we attempt to amend it, we are into a delay process that could take us into the fall sometime. Is it better to get on with something at this point or better to get it right and give it more time?
Mr. May: My daddy taught me to get it right. We are not willing to do that at the sacrifice of the bill, per se, because it is such a significant marker for us. I do not know how you predict that future. If we think the bill will disappear, then we will grab it and hang on tight, but if it is just a matter of delay, you have my answer.
Mr. Cherewyk: As someone much smarter than me once said — someone regarded as one of those who revolutionized the Toyota production system — those who are never dissatisfied never see any progress. Perhaps it is our job to continue to be dissatisfied with things, but it is also our job, as I said in my comments, to remain focused on continuous improvement. I do not think that is any different when you look at the elements of this bill that we see as requiring some improvement.
While we would all like to say "get it right the first time,'' we will have to put something through, and that something will have to reflect the needs of all stakeholders in the supply chain. What we must do, as I said earlier, is be vigilant and focus on whether that bill helped us achieve the desired outcomes. We can only do that if we have the appropriate measures in place and if we are watching and monitoring to determine whether or not effective agreements have been implemented, executed and are moving the yardsticks further down the field.
Senator Mercer: In the end, it is only the lawyers who make money in this deal anyway when they start arguing, with all due respect to Mr. Foran, but that is the business you are in.
I will not repeat questions I asked earlier, but I want to talk about one thing. We will have 9 billion people on this planet in 2050. One thing this country has the ability to do is help feed them, but we cannot do that if we cannot get the products from the fields to their plates, wherever they may be in the world. This is a real issue.
I want to talk about pulse products, and we had someone from the grain industry earlier. The difficulty with shipping pulse products is that if deadlines are not met by railways and ships — mainly from Vancouver, although I hope more would move to Halifax — the quality deteriorates, the price decreases and our ability to participate in helping to feed 9 billion people decreases.
Can you comment on what is happening with Pulse Canada and your analysis of the risk that is involved here if we do not get good agreements? It is a risk, obviously, for farmers. There is a risk for the shippers, a risk for the brokers who sell the products overseas, but it is also a risk for the people who need the food at the end of the day.
Mr. Cherewyk: I will answer that from two perspectives.
Here and now, the challenges we face are getting the product today into the hands of our buyers consistently and reliably. We have all heard this before: We do not have that brand; it is not our brand promise today in terms of consistent and reliable supply. In fact, we rank very low in terms of our customer satisfaction on supply. That has changed over the years. We have not always been the lowest, but we have changed over the course of the last 10, 15 years. We are now servicing our customers further out into the future, and we are offering them wider terms in relation to the delivery window.
In terms of competitiveness, that makes us less competitive relative to some of the exporters who are in a position to offer shorter transit times and narrower windows of delivery.
Everything, from the time a sale is made through to the time a product hits the port, is at risk today in our supply chain. Our supply chain is not one that is singular in that we load stuff into a unit train and move it to the port. Our supply chains are bulk-unit trains, carload shipments, intermodal shipments, stuffed in bags on the prairies and moved in containers to the port and stuffed at the port into marine containers. We are truly a multi-modal business. For a multi-modal business that has the railway at the centre, there are a lot of variables beyond your control.
What we sought through an SLA, and are seeking through effective SLAs, is to take that central piece to our logistical supply chain and inject predictability and reliability into it. When we order cars, we will then know that they will show up when they have been committed and that they will move in a predictable and consistent fashion from point A to point B when they are released to the railways. We can then better manage all of those relationships downstream, all of those relationships with supply-chain partners that are not regulated and certainly not within the control of our shipper members.
There is a penalty every time we do not hit a contractual obligation, but the risk mitigation across Canada also has a great impact. For example, labour-load mismatches at origin, when you call people in and trains do not show up, that is a cost to the shipper. Railcar demurrage, container detention, missing vessels, overbooking vessels and incurring costs associated with your service providers, adding risk premiums to the fees they charge you, all of that adds to what Mr. Phillips called the bottom-line effect for agriculture. It is borne by the supply chain, but it trickles down to the producer. That is the here and now effect.
We did some cost-effective analyses, lost-earnings analyses, a few years ago that showed that on lentil shipments alone we were, on average, incurring about $14 million in losses in Canada due to lack of reliability in the rail freight system.
In terms of the future when you look at major multinational companies looking to expand processing capacity in Canada, one of the major decisions they will make is around whether they can get consistent and reliable rail freight service looking forward. Most recently many of them have looked at the opportunity of a service level agreement to help them determine whether it was feasible to locate massive manufacturing facilities in Western Canada. They are looking to these agreements to help make decisions about future plans with respect to added processing capacity.
[Translation]
Senator Boisvenu: I think that everyone agrees with you that additional amendments could have been made to improve the bill. I think that the bill is headed in the right direction and will create a new balance of power between rail shippers and owners.
Will this new power relationship between you and rail owners help lower your costs for the transportation of goods?
[English]
Mr. Foran: Senator, I can tell you from practice that I know that there was some commentary about lawyers, but really, two things: One, this bill was designed to allow small shippers, average-size shippers, to be able to implement a commercial relationship with the railways with some leverage behind it. The amendments being proposed give effect to that. Without that, there will be an increased cost, and the increased cost is a result of the process. There have been discussions: Can we get the lawyers out? Can we get the consultants out? Can we make this less procedural? The kinds of things being proposed here are designed to do that so the little shipper can actually succeed. Without that, I fear the costs will increase.
On a system-wide basis as well, the way the railways work, they look at what they want to garner in terms of revenue and, to the extent that there is going to be leverage and the implementation of some agreements in some sectors, we are worried that the costs will be passed off to other shippers in different areas. As a result, we are looking for effective, strong legislation that would allow all shippers to say, "No, that is not going to work.''
[Translation]
Senator Boisvenu: Railways are old. They were built several decades ago, and there are no major Canada-wide projects to improve them. If we look at how western Canada has developed when it comes to raw material production and all the goods produced in the west, do we not have a fundamental problem with railways in terms of the economic and infrastructural evolution? Is there not also some imbalance in that area?
[English]
Mr. May: Senator, with some reluctance, I would disagree. Certainly in the port of the metro Vancouver area, significant dollars have been spent by all three levels of government.
[Translation]
Senator Boisvenu: I am mostly talking about railways. I am not talking about port infrastructure, where investments have been made. I am talking about railways, which are used to transport our natural resources to ports. So I am talking more about railways.
[English]
Mr. May: I understand that. I am referring to rail infrastructure connecting to the port. Yes, it was part of the government's plan to get through the financial doldrums, the recession. I do not see the maintenance of infrastructure as being an issue. I see the fact that the routing does not change and there is not going to be a new railway come in and provide competition as being an issue. On the whole, I think the railways do a good job of maintaining their assets. It is one of the reasons they claim they need to extract the rents they do from shippers for delivery of the goods, because it is very costly to maintain a railway, but my sense is that they do a pretty good job of that.
Mr. Cherewyk: I will turn to CN's quarter one 2003 earnings results transcript where they say that their free cash flow guidance remains in the $800 million to $900 million range. Our free cash flow guidance however now assumes a capital investment program, increased by about $100 million to the tune of $2 billion for the full year as we put in place more infrastructure in order to increase the resiliency of our network in the busy western corridor.
I think the earnings are there and investment and reinvestment in infrastructure appears to be there as well.
Senator Unger: I have a question similar to that of Senator Boisvenu. Would the building of new pipelines to carry crude petroleum products lessen the demand on the railways by these shippers to allow more capacity for agricultural and forestry products? Will that take some of this pressure off?
Mr. Cherewyk: As I said, I do not think we want to make this about agricultural movement versus crude oil movement versus forestry product movement versus fertilizer movement. The vision for Canada has to be what it is about all. It is "and,'' not "or.''
Yes, there has been a large surge in demand terms for crude oil movement. As I mentioned, the ability of the railway to react to surges in demand really is not there. They do not maintain that level of surge capacity. In the very short- term, our sense is that you see the diversion of resources and allocation of resources to service an emerging demand like that, but over the long term the plan has to be to service all of the commodities and do it in an effective way.
Senator Unger: This is not a normal business relationship. There are two railways and many shippers. I wonder about their ability to meet your needs. You have mentioned CN a fair bit. I would also like to hear a comment about CP. Are they a smaller carrier? What sort of service do they provide?
Mr. Cherewyk: We measure performance in our sector and the bulk of that performance measurement is of CP, so I can speak about CP's performance particularly over last year.
We are all aware of what has happened with respect to the change at the senior management level at CP. The headlines today are dominated by efforts to control costs and to focus on greater asset utilization. You do not hear too much about customer service in those discussions. That is, in fact, starting to play out in terms of performance.
One of the measures that I would like to talk about is something that we watch quite closely, and that is their plan to fulfill demand. Every week, when cars are ordered, a plan is issued saying that if you have ordered ten cars, you will get, let us say, eight cars on Tuesday. That plan is essential because, in an industry like ours, the plan helps you determine what has to happen across your entire supply chain. You are booking ocean vessel capacity. You are booking slots on a vessel, on a container ship. You are booking transload capacity at the port. You are communicating with freight forwarders and multiple partners downstream. That plan is essential.
What we saw happen from the first quarter of the year in 2012 is the plan at CP go from 90 per cent of what was ordered to, within this last quarter, from January through to March, down to 23 per cent of what was ordered. Imagine trying to conduct your business when you are being told you will get 23 per cent of what you ordered.
From a logistical planning perspective, that plan and visibility are essential. That is one key change that we have seen at CP over the course of the last year. To be fair to them, they have under-promised and over-delivered, but it still creates havoc in a supply chain when you have no confidence in what you will get and you have to mitigate that risk by making a number of other plans across the supply chain.
To the extent that CN and CP are able to handle the business that we have brought to them and will continue to bring to them, we need only to look at the last year's performance. It is performance across 2012 where some would say that in an effort to stave off regulation they really ramped up their efforts in terms of service effectiveness. They even reported quarterly on their earnings calls how effective their service was at CN, in particular, and they were able to do it in our industry. They were able to fulfill 90-plus per cent of demand. We saw record unloads at the ports. Are they able to do it by focusing their resources and dedicating to delivering on the metrics related to service? They have demonstrated that they can over that one short period of time. We would expect to see that going forward, and we would expect to see it locked in through SLAs.
Senator Unger: How good are they at communicating with their shippers? Is that an issue?
Mr. Foran: Before you move to that, could I follow up on your last question? That relates to one of the six things you have heard about through the course of this morning, and that is one of the amendments to the legislation. You asked about demand and the ability of the railway to fulfill it. Currently, in the legislation, the Canadian Transportation Agency has the ability to order the railway to build infrastructure and buy new assets and expand the program. Under the current bill, there is no such thing; in fact, it does the opposite. It appears to ration the service.
One proposal is that there be an amendment so that the operational requirements of other shippers are not considered when you take a look at your need. Mr. May's members and Mr. Cherewyk's members would not be competing with each other but, rather, would be in a position to say, "Look, I need what I need; I am captive; it has to go by rail.'' That would enhance the Canadian economy, we suggest. Deleting the obligations to take a look at other shippers' requirements is one of the six amendments.
I wanted to follow up on that point before the question you asked of Mr. May.
Senator Unger: That was about communications. How well do they communicate with shippers generally?
Mr. May: That comes and goes. As Mr. Cherewyk pointed out, during the run-up to possible legislation they were on their best behaviour. Shippers got to actually meet their representatives and meaningful talks were held. I am not sure that much service improvement resulted, but the communications certainly improved. It has now, certainly with CP, gone the other way and CN is now kind of drifting back to old habits.
Incidentally, during the time Mr. Cherewyk was referring to, when pulse and other grain producers, agri-producers were doing well, the forest industry was getting shorted. It is important that you understand the way the railways work. They size their fleets so they do not have 100 per cent capacity. They size it below 100 per cent capacity and I am not sure exactly where. It could be 90 per cent, 85 per cent or it could be 95 per cent, but the point of doing that is it is a very effective way to make money. It ensures utilization of all their equipment because it is always in demand. Unfortunately, the price to pay for that falls on the shoulders of the shipper. The last time I checked this country was driven by the resource-based industries, not by the taxicab driver who takes the goods down to the ships.
We have it backwards here. We have the power in the wrong hands and this bill is designed to help mitigate that. Is it perfect? No.
However, there is another aspect and I will ask Mr. Foran to speak to it, if I could. I know I am intruding here a bit, but there is an aspect to this bill that could have the impact of making things even worse for shippers. I am thinking in terms of final-offer arbitration where they point to the provisions of this bill as being the latest thinking of Parliament.
Mr. Foran: The concern is that the specifics of this new remedy may stray into the very broad scope of the remedies that the Canadian Transportation Agency currently has. It is a fear that there is an unintended consequence by putting in the word "operational,'' that by keeping in the reference to the requirements of another shipper, you may inadvertently influence what the agency currently does, which is, from my perspective, to look at the specific needs of the shipper that has made a complaint before it for their service requirements. That is a concern, senator.
[Translation]
Senator Fortin-Duplessis: Gentlemen, thank you for appearing before our committee and sharing your views.
My question is for Mr. Cherewyk. If I have understood correctly, you believe that we do not currently have the required infrastructure in transportation to meet the needs of a thriving economy.
I have a question about one of the bill's clauses. My understanding is that you support the bill, but somewhat reluctantly. If the bill passes, one of the clauses stipulates that an arbitrator would establish a commercially fair and reasonable service agreement between a shipper and a railway company while taking into account both parties' interests.
Do you think that an arbitrator can establish a commercially fair and reasonable service agreement? If not, could you explain why?
[English]
Mr. Cherewyk: I want to go back to one of the very first comments I made about the importance of adding clarity and definition with respect to the service obligations of a railway. One of our shippers has continuously reminded us that when you are holding someone accountable, you want clarity and definition in the terms and conditions of your contract. When you are being held to account, you want things as vague and general as possible.
The shippers obviously wanted clarity and definition because they saw it as very important that we restore some balance with respect to the manner in which both parties are held accountable for their performance. Right now, today, the railways have the unilateral right to establish tariffs that I have here in front of me. This one is called "Passport 2013 - Optional Services.'' It is pages and pages of definition as to what a shipper must do day-to-day when working with the railway in ordering equipment, in cancelling the orders of their equipment and in communicating with the railway. In every instance there is a penalty. There is a fee charged if you do not do it. There is clarity and definition in the tariffs that the railways establish that manage their relationship with the shipper. The shippers were seeking that clarity and definition in terms of their terms and conditions in their relationship with the railway.
Can an arbitrator establish a commercially reasonable and fair agreement? Well, we would hope so, and we felt we needed to create the conditions that would support the development of a commercially fair and reasonable agreement by giving that arbitrator clarity and guidance with respect to definition in the act. Without that clarity and definition, we run the risk of the decisions not meeting the expectations of potentially both parties.
While I do support the bill as is, I want to stress the point that I think the emphasis we all have is on creating clarity and definition in a bill that encourages agreements to happen in the commercial context. We do not want to pave a wider road to the CTA. We want to encourage two parties to sit down and hammer out details of an agreement in a commercial environment.
The Chair: Mr. Cherewyk, Mr. May and Mr. Foran, I want to thank you on behalf of the committee.
I would inform the members of the committee that tomorrow night we will be receiving two panels: One panel will have witnesses based in the Port of Halifax, the Canadian Industrial Transportation Association and a coalition of rail shippers; and the second panel will be witnesses from the Canadian Pacific Railway, the Canadian National Railway and the Railway Association of Canada.
Thank you and see you tomorrow night.
(The committee adjourned.)