Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 11 - Evidence - December 8, 2016
OTTAWA, Thursday, December 8, 2016
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:32 p.m., in public, to study and report on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade; and, in camera, for the consideration of a draft agenda (future business).
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Good morning and welcome to the Standing Senate Committee on Banking, Trade and Commerce. My name is David Tkachuk, and I am the chair of this committee. Today is our tenth meeting on the subject of our study on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade.
During the first part of our meeting I am pleased to welcome, from the Canadian International Freight Forwarders Association, Ruth Snowden, Executive Director.
Ms. Snowden, thank you for joining us today. Please proceed with your opening remarks, after which we'll go to a question and answer session.
Ruth Snowden, Executive Director, Canadian International Freight Forwarders Association: Thank you for inviting me to address you today from Toronto.
Federally incorporated in 1948 in Montreal as a not-for-profit association, today CIFFA represents some 260 global service logistics provider firms from Canadian branches of huge multinational organizations to small and local niche service providers, employing tens of thousands of highly skilled international trade and transportation specialists in Canada.
The other day I was looking at our incorporation documents, which state, in part, that among other things the association was formed to petition Parliament to promote improvement in the principles of trade in its relation to the business of the members of the association. So how appropriate is it that I am here today addressing the Senate standing committee on the subject of a national trade corridor, which is of great interest to our members?
Transportation capacity and capabilities are critical drivers of trade. Physical infrastructure impacts capacity, and an increasingly complex regulatory environment has the potential to hinder Canadian traders' capabilities to compete in global markets.
Considering the subject of this standing committee today, I'd like to expand somewhat on the need for a national Canadian intermodal transportation strategy, and I would like to link back briefly to the need to position Canada as a cargo transit hub.
A national trade corridor is only as good as the infrastructure and capacity at the ends of the pipeline and to the risk of failure at any single point. For example, to have a vulnerability in the Trans-Canada Highway, such as having only one bridge, albeit a new one, across the Nipigon River, is not a good national strategy, as we saw last January when travellers and cargo came to a standstill or were diverted to the United States.
As for infrastructure at the ends of any corridor, I'd like to give you another example. Our members manage upwards of 2.7 million 20-foot equivalent container units, what we call TEUs, through Canada's ports, many of which transit via Canada's largest port, Vancouver. Right now, and for the past several weeks, there have been delays through the container terminals at the Port of Vancouver's inner harbour on Burrard Inlet at the Centerm and Vanterm terminals caused by inefficient rail switching services on the dock. This has nothing do to with the long-haul rail, things Michael Bourque will speak with you about, but simply on-dock switching services. The impacts are significant.
Importers are facing two- to three-week delays in receiving their 2016 pre-Christmas merchandise. Vessels are parked at anchor waiting to discharge or to load, so exports are also delayed. Vessel rotations are affected and knocked off their schedules, which will have a carry-on effect as we prepare for an early Chinese New Year. Why? Because on-dock rail switching is not working efficiently. We have bottlenecks and vulnerabilities in our existing trade corridors which can and should be addressed.
In its submission to the Canada Transportation Act review in 2015, the association identified the need for port authorities — now I'm going to use a technical term — to have skin in the game and to be made more accountable for the performance of their lessees. We think this recent example at the Port of Vancouver is just one area where accountability and oversight could be improved.
In Canada, goods are not consumed at the port cities where they arrive and must be transported efficiently to Canada's consumers, wherever they live. Canadian exporters must have a reliable, cost-effective intermodal system to support their sales and expansion in global markets, and not just to the United States.
I believe you have heard from previous speakers about the explosive growth of containerized cargo in the past decades. National transportation corridors support this trade and are critical to our improved capabilities in global commerce.
This brings us to a discussion of a new national northern trade corridor. There are certainly benefits to building new pipelines, not the least of which is increased security and safety when compared with the movement of oil and any other petroleum or gas product by rail. Moving oil off the railroads also frees up rail equipment for grain, especially important in great production years. And for our membership, for the international freight forwarding and global logistics service provider community, the trickledown effect then means that we would have more equipment available to handle the spikes in our requirements for the movement of our international intermodal containers. Bulk oil or LNG carriers could call at the remote ports at the end of a pipeline, so pipelines, yes.
When we look at a map of the terminal ends of the proposed northern national corridor, at one end I believe we saw Prince Rupert, or a port like Prince Rupert, which has become a highly successful port built on cargo transiting Canada headed to or from, but primarily to, the United States from China and Asia, with a great competitive advantage to the U.S. Midwest. It is a prime example of the Canadian economy and Canadian jobs benefiting from creating a port as a transit hub. That transit hub, that competitive advantage, would not be enhanced by a new national corridor along a new northern corridor, for example.
We look at Churchill, Manitoba, realistically, from the perspective of the movement of goods. Even in 50 years, it is hard to imagine that a port at Churchill could ever create sufficient competitive advantage to attract enough cargo to attract ocean carriers and become a significant cargo port for containerized goods on a regularly scheduled service, such as we have at Halifax, Montreal, Vancouver and Prince Rupert.
International trade is integral to Canada's continued prosperity and to the prosperity of thousands of Canadians engaged in the global logistics sector, let alone to all of our consumers and normal Canadians. Investment in transportation infrastructure is integral to Canada's ability to compete and deliver on our international trading promises. Government must take a leadership role in improved technology, improved capacity in existing corridors and the development of new corridors, but new corridors that support our intermodal and containerized movement of goods.
Thank you.
The Chair: Thank you very much, Ms. Snowden.
Senator Tannas: Glad to have you, welcome, and thank you for your comments.
I would like to start by asking you to think about Canada at double the size of the economy, so twice as much as everything that you are doing today, with the efficiencies that we've heard about, switching, bottlenecks in existing corridors et cetera. If we ran those all perfectly, would we need a national corridor? Could the existing corridor of the Trans-Canada Highway and the CN and CP rail lines get us through the next 100 years? Because if we said in 50 years — and I think the projections are that by 2060 they expect Canada will be a market of 60 million or 70 million people, so it's easy to assume double the size of the economy. If we want to be serious about this corridor, it has to arrive in time for that, and this is something that's decades out if we start now. In those terms, I get the sense from you that you're thinking, "I don't think we need another set of rails running across the country to serve intermodal.'' But double everything, do you still think that?
Ms. Snowden: We definitely will need more capacity on our rails, but I'm not sure we're going to need them running north. I'm not sure we shouldn't simply double track our Prince Rupert line. For example, there is a single line serving Prince Rupert today to Edmonton, which is serving an existing port, so maybe we double the track on that; maybe we double the track in existing corridors.
Our point is that we have room to expand, for example, at Halifax, which is at one end of the transnational corridors and the train rail corridors, so we have room to expand. There is land to expand at the Port of Halifax.
There is the Deltaport additional terminal at Roberts Bank proposed for Vancouver, so if those things happen, there is no question that we would need to expand capacity on existing rail corridors, in our opinion. I think the problem with a northern corridor is that it would have to come back down and link at those ports.
Now it's possible that in a hundred years there would be enough cargo moving to entice vessels to call at a Labrador port or more vessels at a Prince Rupert port. But, no, at this time, I don't think that the northern corridor would serve containerized cargo even if our population doubles or our economy doubles or triples.
Senator Tannas: So do you think we could squeeze double the amount of capacity through downtown Calgary and through all of the other places?
Ms. Snowden: No, exactly. Of course we couldn't, but that doesn't mean we would have to build a whole separate rail connection across the country. What it might mean is you would have to build additional maybe 30 miles north of Calgary or 40 miles north of Calgary or midway between Edmonton and Calgary, maybe around Red Deer somewhere. We are going to need additional rail capacity. It's going to have to support because the corridor is only as strong as the ports at its end.
Senator Tannas: Exactly.
Ms. Snowden: If we build a corridor across the North and we have a port in the Beaufort Sea and at Churchill, I don't think any national carriers are going to call there.
Senator Tannas: I'm wondering, chair, are we giving witnesses lots of background on what we're talking about here?
We are talking about Halifax and Prince Rupert. The question is the middle part. How do you get there, and for all the things that are currently bottlenecking and will bottleneck even more in the next 50 years, coupled with the fact that global warming and all the other things will open up the North? In that context, you're still saying we should stick with the kind of southern corridors that we have, for rail, intermodal, which is your specialty, double the size of the economy. Don't need it, we're good.
Ms. Snowden: No, we will need more capacity on the rails. I got very little briefing background on this. I looked at a map, and the map shows a pipeline, a corridor, going from somewhere in Labrador to somewhere that appeared to be Prince Rupert to me with a spur up to Churchill and up to the Beaufort, probably. That's what I looked at. That seems a little far north to me, but it didn't show little spur lines coming back down to existing ports.
Senator Tannas: I get you.
Ms. Snowden: So the ports are here, the vessels will call at those ports. Those ports are bottlenecks today and will have to be expanded. There is no question over the next hundred years we will have to do something. I'm not a rail expert, but we will have to have more capacity on the rails.
Senator Tannas: For you, your skepticism, if I could use that term, is more around the idea that we need to create more ports. The existing ports are there. They're to be used and we should not be trying to tag on brand new ports for a national corridor idea. Is that right?
Ms. Snowden: Not for multi-modal containerized cargo. For LNG, for oil, for those very specialized terminal facilities where specialized vessels could call, sure, you can build those in Churchill or wherever it's required because those vessels will call there specifically to load.
Senator Tannas: Thank you.
The Chair: To follow up, we already have part of that corridor built in that we have rail lines running from Edmonton to Prince Rupert. It's a question of what else can we put along that corridor. Can we put pipelines or other items that can be cleared ahead of time? I think I'm right in how I interpret that.
Ms. Snowden: Exactly. Maybe the requirement would be to double rail, because there is only a single rail. Maybe it's a double rail, and use that corridor, which is previously existing, to run your pipelines and anything else that needs to go there, because that serves to build this transit. Prince Rupert is a trans hub, more serving that U.S. Midwest, which is very critical, and it's a wonderful thing to see Canadian jobs based on cargo moving to and from the United States.
The Chair: Just so it's clear, from Asia it's quicker to go to Prince Rupert than to go to Vancouver or Los Angeles because you can run it by rail all the way to Chicago, and it's a lot of business for us.
Ms. Snowden: Right. By the time a vessel gets to Long Beach or Seattle-Tacoma, we can already have those goods in Chicago, which is over Prince Rupert.
Senator Smith: Just to follow up on the conversation to this point, I think the thought that this group had, and from the witnesses we have heard from, is that for the northern corridor, we're talking about the fiftieth to sixtieth parallel, through the boreal forest. With climate change now, there is arable land which can be cultivated and used for agriculture.
If we follow where the focus of your business is with container movement in ports, if we can develop that northern corridor, link it to the southern corridor basically with, as you mentioned, oil, minerals and grains, et cetera, that we can move through the northern ports, and that would take pressure off the southern corridor.
A perfect example, the Transport Committee came here and talked about the work they've done on the Port of Vancouver. You mentioned bottlenecking and some of the problems that exist with some of the big ports.
Right now, with the super harvest we've had over the last three years, we have problems getting all that grain and wheat out to the port. A lot of the product is sitting in the grain elevators, not being able to get there.
If we had a concept of a northern corridor with the proper development, and this is where the new population will move, into that northern area, then ultimately, over time, your business would probably benefit. But your business would benefit from having more tonnage capability in the southern corridor, if I understand correctly, following Senator Tannas' point.
I'm wondering what your comments are. We need proponents of this concept. If it will be good for you if the southern corridor is expanded — when I say "expanded,'' the hubs are expanded, but we have something in the northern corridors that may not be the same product and carrier capabilities that you have because it's different, it's only going to enhance your ability to get more product out to the United States or Europe, with the new CETA deal, or Asia where they want to be the biggest consumers of our food products.
Ms. Snowden: That makes logical sense. If the coal, potash, grain and iron ore are moving on a northern corridor because it's closer to a northern corridor, or you can pull those specialized vessels into new northern ports, or if it's moving up north and then linking back down to existing terminals, that would free up capacity on the southern corridor. Maybe you would not need to expand around Calgary, for example, or build new lines on the southern corridor. It's is expensive land; it's populated.
Senator Smith: The word we should change in the vocabulary of this concept is "northern'' because it denotes cold. It denotes that maybe we will be in a place where it will not be nice to live. That's not necessarily the case anymore.
If you go up to Yellowknife and some of the places up north, they have beautiful summers. They have tremendous lifestyle capabilities. I'm just wondering what your comments are.
Ms. Snowden: This is me speaking; I'm a freight forwarder. I don't know about population movement, immigration policies or where people will live. That's just not my area of expertise.
I know that for today and the foreseeable future, we're moving manufactured goods out of the southern corridor, along the U.S. border, Montreal and Toronto, the manufacturing centres, and moving consumer goods into those population centres, and we will have to continue to support those population centres.
Senator Smith: Thank you.
The Chair: Any further questions?
Senator Day: Perhaps I could give you the opportunity to expand on your suggestion that we need a national intermodal strategy. Do we not have a strategy now, or are you contemplating something a little bit more specific?
Ms. Snowden: Today, we have a very siloed approach to intermodal movement of goods. We have steamship lines which call at ports. We have ports that are under the auspices of Transport Canada, and their land is leased to private terminal operators. Those private terminal operators conduct the business of the port, so all the movement of goods. We have the rail connection, and then we have importers and exporters. We have trucking capacity. But we don't have an umbrella strategy around intermodal. A number of areas, such as CentrePort in Winnipeg, are creating inland port strategies.
These are individual approaches by municipalities, for example, that are being created to encourage logistics parks and logistics centres to load and trans-load cargo. We have them in Winnipeg, Saskatchewan and Alberta, but we don't seem to have an overall strategy about where they should be located and how they should be served.
Our approach to intermodal movement of cargo and of the data is still very siloed.
I think Minister Garneau is looking at this, and he's held round tables. He conducted the Canada Transportation Act review. Through this, there is some interest in creating an intermodal strategy to support the movement of containerized cargo.
Senator Day: You would recognize that we need provincial cooperation and federal initiative combined. This committee did some work, and I can't resist asking you about freight forwarding across Canada, province to province, and the interprovincial trade aspect of that.
Ms. Snowden: As a Canadian, I find the number of our interprovincial restrictions silly or counterproductive. As a freight forwarder, if you want to move an oversized load from Quebec to Alberta, every single province has different requirements on permits, weights and clearances. Every province has a different requirement on the length of your trailer, the types of tires you can wear, whether you can have two trailers attached and the overall length of your vehicle.
Yes, we're moving goods across geographic barriers, borders and internationally, but those goods have to move within Canada too. All of these interprovincial restrictions and the lack of cohesion, drive incredible cost to the cost of trucking. It drives administrative burden to freight forwarders, trucking companies, importers, exporters and, ultimately, to the consumers who bear the cost.
Yes, we are faced with the interprovincial barriers, which are very real.
Senator Day: If we're talking about an east-west or west-east trade corridor, presumably the same challenges would exist in developing that as exist now and that we haven't been able to solve for 150 years. We've been trying to bring the minister in here to talk to us about this, and we can't even get the minister to come to talk to us.
Ms. Snowden: At some point, you have to sit up and ask what is best for Canadians, and who is taking the leadership on this.
The provinces have to have autonomy in a number of areas, and they do have autonomy in a number of areas, but at some point, you would think that international trade and the Canadian economy would trump that.
A national trade corridor, the whole thing, is pipelines and being able to move product to the terminals at the end. Everyone has to have their say.
I think it would be very frustrating to you to have to deal with this.
Senator Day: Thank you very much for your comments.
The Chair: When you talked about a national strategy, for the internal part of the country, when you talked about inland ports, do we need the government to have a strategy, or will supply and demand solve that problem?
That's why we have these inland ports, because business people are saying we can load this stuff here and ship it as a container to the port rather than loading it in Vancouver. They're figuring that out on their own.
Ms. Snowden: Anything you can move out of that immediate dock area and into the terminals or inland to do your transloading is a good thing.
The concept is that a lot of investment and communication are required in order to capitalize on this. The thought is that perhaps what we need is some sort of federal ombudsman creating a private sector focus group or a private sector government partnership on developing that overall strategy, saying, "Yes, these are reasonable places where we can do our investment.'' Private dollars will go where there's business. People will make that decision.
People come to me and say, "Ruth, why aren't the international freight forwarders building in our logistics park in the middle of Saskatchewan, in Regina?'' I say it's because there's neither customers, nor cargoes nor rail connectors there, so that's not where the freight forwarders are going to be. That's not where we need to build our transload. It needs to be within, I don't know, 100 kilometres of Vancouver, as an example.
The Chair: On your second page, you talked about inefficient rail switching services on the dock. You said the impacts are significant. Importers are facing two and three weeks' delay in receiving their 2016 pre-Christmas merchandise. What do you mean by "inefficient rail switching''? I'm not sure what that means.
Ms. Snowden: Actually, I have been at this desk since 2008, and this is the first time I've heard of the problem, too. The terminals at the ports hire a rail company to do the on-dock switching. Once the containers are on railcars, they move them out to CP, CN or BNSF Railway to move on the line haul.
It's a unique problem right now in Vancouver where there are issues with the on-dock switching. It's just their inability to get trains built. They have enough equipment. They have the railcars there. The railroads are doing their jobs. It's just this on-dock terminal. There have been backlogs at those two terminals. Unfortunately, it's very much top of my mind right now because at the other third terminal in Vancouver they've had storms and severe winds, so they've had to close their cranes. Now we have backlogs at the third terminal in Vancouver right before Christmas.
Senator Tannas: This is for maybe a future study, but does your association or your member base have any kind of a collective strategy — or is there one somewhere else — for an earthquake in Vancouver and what it would do? I've always heard that the first thing to go in an earthquake tsunami is all the port infrastructure. Is that right?
Ms. Snowden: First, we've seen it in the past in Asia and other places — the port infrastructure goes. Second, we don't have a strategy for that, and I don't know if one exists.
Senator Day: Following up on Senator Tkachuk's question. You're saying switching at the port is a bottleneck. Is any of that bottleneck being caused by the increased inspection and security requirements, running the containers through VACIS machines and radar detection — that kind of thing that has to be done?
Ms. Snowden: No, it's not at this time. Last spring it caused considerable delays, primarily to those containers that were being called by the Canada Border Services Agency for exam. We have been very active on that file.
The current problems are rail switching on the dock and weather at Vancouver. But the added security has added considerable cost to Canadian importers, primarily, but also to exporters. The cost of running a container through the VACIS machines — and now they have moved from VACIS to large-scale imaging, LSI, machines, but it's the same thing — that cost has gone in the past year and a half, since June 2015, I think, from about $200 to $600, for example.
The backlogs aren't caused by increased security, and the radiation security examinations are not causing additional delays ever or considerable costs, but the VACIS and LSI machines have increased costs on the docks.
The Chair: Any other questions? If not, thank you very much, Ms. Snowden. It's much appreciated.
For our next panel, it gives me pleasure to welcome, from the Railway Association of Canada, Michael Bourque, President and Chief Executive Officer. Thank you for joining us today. Please proceed with your opening remarks, and then we'll continue our questioning.
Michael Bourque, President and Chief Executive Officer, Railway Association of Canada: Thank you. I appreciate being here. I just want to say that I'm delighted this committee is looking at transportation. This is not a transportation committee, but it's obviously a recognition of the importance of transportation to our economy. In Canada, we're blessed with a lot of geography, and therefore if our producers and manufacturers are going to remain globally competitive, it's imperative that we have a very efficient supply chain. So I thank you for your interest in transportation.
I do have a slide deck. I will go through it very quickly and then save a number of remarks for questions. I am on slide 2, and I will just take this opportunity to say that the Railway Association of Canada will celebrate its one hundredth anniversary in 2017, so lots of history with railways. The first railway in Canada will be 180 years old next year, and our association will be 100.
Our membership consists of 60 railways in Canada, 50 of which carry freight. We also represent passenger, commuter and tourist railways, but today I'm going to focus on freight rail.
On slide 3 you'll see a map. I'll come back to it later, but this is just to say that Canada does have a substantial rail network operating within a North American system that extends into Mexico. It includes over 3,000 locomotives, 4 million railcars, 33,000 employees, 10,000 customers, all operating 24 hours a day 365 days a year in any weather from coast to coast to coast.
If you go to page 4, you'll see a bit of an illustration of the diversified portfolio of goods we carry, as well as a snapshot of the state of the economy. Keep in mind that this is a comparison of the first half of this year versus the first half of 2015. Since late summer, grain, for example, is on the positive side.
The next slide you'll see that while we've had soft demand, we are seeing solid performance. I'm going to take this opportunity to say a few words about the quality of the operators we have here in Canada.
This screen illustrates some of the key performance indicators of highly efficient railways. In Canada, we are very fortunate to have high-quality railways, and this goes beyond the big Class 1 railways to our passenger operations and smaller railways. The whole industry benefits from the training, investment and knowledge that we have here.
How have we built this tremendous infrastructure coupled with excellent operations? It's the story of a virtuous circle of precision railroading techniques that free up capital to make investments, which in turn improves service. Improved service leads to more customers, and by enabling the competitiveness of our customers, the economy grows. With better, more efficient and predictable service, we are able to compete with trucking, competing at shorter distances each year.
On slide 7 you can see how our investments have grown, and the vast majority of capital expenditures are directed towards safety, reliability, capacity and productivity-enhancing projects. You can see that railway investments have continued to grow even through the big recession in 2007-08.
I don't have a lot of time to talk about emissions, but I will say a few words. Some 28 per cent of CO2 equivalent generated in Canada was produced by the transportation sector. Railways emit 1 per cent of Canada's overall emissions and just 3.6 per cent of what is produced in the transportation sector alone, despite the fact that we move $280 billion worth of goods each year, which reflects 70 per cent of the intercity traffic and 50 per cent of the goods destined for export. Currently you can move 1 tonne of freight more than 200 kilometres on a single litre of fuel. The average train takes 300 trucks off the road. We also move 75 million people each year who elect to leave their cars at home and travel by train.
So 70 per cent of the intercity freight for 1 per cent of emissions. I think rail offers tremendous value when it comes to greenhouse gas emissions.
I'm going to speak about our strong safety record because I hope if there's just one thing that you will remember today it is our safety record.
Like pipelines, we deliver 99.99 per cent of dangerous commodities to their destination without incident. We are at least 10 times safer than truck. As this chart shows, Canada's railways, in addition to having the lowest freight rates in North America and the two most efficient railways in North America, also have the best safety record with fewer than two accidents per million train miles, but we are not content with this record. We are investing, working with communities and introducing new technologies, rules and improvements to continuously improve safety.
Let me turn to the northern corridor. I will be happy to elaborate during questions at the end. I'm going to follow the five benefits put forward by the formidable Jack Mintz during his presentation here.
First, I agree that regulatory costs and burdens are hurting Canada's economic development. The history of success in rail, both here and in the United States, was based on efforts to deregulate. Starting in 1961, there was a recognition that we needed to have more deregulation in the rail sector. Twenty-two years ago, the Government of Canada privatized CN. At that time, CN's operating ratio was over 100. They were spending more money than they were taking in, and they could not afford important investments in their infrastructure.
On the day that CN was listed on the New York Stock Exchange, the government pocketed $1 billion. Since that time, CN alone has paid about $1 billion per year in taxes. With a market cap of some $68 billion, they have created tremendous value for their shareholders, their employees and their pensioners.
Today their operating ratio is 55. They are the leader in North America, thanks to the re-engineering done by E. Hunter Harrison, an approach he has brought to CP, which is now a very close second. All railways have benefited from the government policies created by successive governments and by successive parties that moved away from a regulated structure toward a commercial approach. Short lines were created, and we are seeing many of them flourish, even if there is more that needs to be done to help them.
Two, the second benefit outlined by Dr. Mintz was the need for market diversification. I would say railways already reflect this: 18 per cent of our traffic is domestic: 28 per cent is to export west, 31 per cent export south and 6 per cent to the east. I expect the east to grow with our trade agreement with Europe. The rest of it is with the U.S.
Rail traffic destined for export has increased by 26 per cent since 2002, and imports have increased by more than 60 per cent. This need for market diversification is probably more applicable to pipelines.
Three, we need to maintain and enhance our bargaining power with the U.S. Again, this is probably more applicable to pipelines.
Four, connecting people from the North to the rest of Canada. As you can see with this map, we are doing that now in Alberta, Manitoba and Quebec. We even have rail operations in B.C. connecting to Yukon, but there are important decisions that need to be made as to the support government provides to some of these operations.
His final argument was that we must coexist with our urban populations. It can be tempting to suggest that if we build a northern route we can divert all the hazardous commodities away from cities. I'm not suggesting that is the proposal of this committee, but I have heard this in the past, even from former transport ministers.
But this is just not the reality. The reason we have these commodities is because people use propane for their barbecues. I worked in the chemical industry. Manufacturing plants use and produce hazardous commodities as part of their operations. Many of those operations are in the South. Cities use chlorine for their water supplies, and if not moved by rail, these goods will travel by truck.
A northern corridor is worth considering for the future. I hope the work that you are doing now will help pave the way for future transportation links that will further enable the global competitiveness of Canadian producers and manufacturers. Thank you very much for your time.
Senator Tannas: Thank you. Our job as legislators is to look at today; however, nobody will thank us if we missed something 50 years down the road that should have been started today. Fifty years from now, Canada will have twice the activity economically, twice the population, presumably much more up North. What's your view and your industry's view with respect to railway capacity that would be required if everything doubled? Hopefully we get better, more efficient and more in demand around the world. Let's start with double capacity.
Does that make the case for starting to look at a fresh new corridor now? Are you satisfied that even with doubling capacity we can rely on existing corridors? Can we continue to expand those to go to where they go now?
Mr. Bourque: Thank you. First of all I want to say that Ruth did a great job of answering the question. I wish I had spoken to her in advance because then I could take credit for having briefed her properly.
The truth is that most of the track in this country is single track, and there is lots of room to double-track and triple-track those corridors. As to the railway companies, one of the reasons I mentioned their success is the fact is that they — and I'm speaking from a railway perspective, obviously — are successful, financially successful, enjoy tremendous investor confidence and have the ability to invest where they see business. And the way they operate is to take a very deep and detailed look at their customer demand and opportunities. That's the business they're in, and they will make those investments. You've seen in the chart that I showed just how much investment they've put in.
My feeling is that I can say with confidence that they have the ability to make those investments to grow with the economy, whether it doubles or triples in the years ahead.
But on the other point that Ruth made, which I think is really worth considering, perhaps where I'm going to head today is to urge you to not be stuck on the idea of a northern corridor but on how you can help transportation and the supply chain. One of those keys is the first and last mile.
So, for example, today a short line originates 20 per cent of all rail traffic, and if a short line doesn't have the heavy gauge steel on their rail lines that allows them to fill railcars to capacity — and today this is the case in some areas where you might have 80 per cent of the capacity that they can use because of their physical rail line infrastructure — then those cars are moved on to the Class 1 network with a deficiency of 20 per cent. Another example would be grain cars. Currently, the maximum revenue entitlement is a discouragement to investment in the grain supply chain, including in the purchase of new grain cars. New grain cars are at least 20 per cent more productive than existing grain cars. They can carry more. They're not as long. You can put more of them on a train. Because there's a lack of incentive, we're not seeing as many of these new cars, and we're losing capacity there.
There are a lot of small pieces, many of them related to the regulatory framework. Again, we've had the benefit of a long-standing commercial framework over many years. There are still some holdouts, like the maximum revenue entitlement, and we argued and presented independent studies to the Canada Transportation Act review that showed that this is an area that needs to be modernized in order to free up investment.
So there are areas in the first and last mile and in existing policy where this committee could help to encourage government which will help the overall supply chain and the capacity of the supply chain now.
Senator Tannas: If we persisted and said, "Okay, northern corridor for pipelines; the need of the day is pipelines,'' we should not reserve any land? We should recommend no land for railways? Would that be fair?
Mr. Bourque: From the way I look at it, yes you're right, and this is why I ended my comments with encouraging words, because, if we're to look out 50 or 75 years, do we need more capacity? Will we need more rail relocation in some areas? The answer is that, probably, we will, but in the meantime, getting there, there's a lot of work that we have to do and that we can do to improve the system now.
I've distributed a better map so that you can see, because I agree with Ruth that the map that was in the study done by the University of Alberta was not very clear as to exactly where this would go, and this has led to a little bit of confusion about how north it is. But if you look at, for example, the rail line that goes to Churchill, I checked CN's website. They have all of their weekly grain movements on their website. The most recent week that they are reporting, which is the week before last, there was not a single —
Senator Tannas: The port is closed.
Mr. Bourque: Right. That's where I was going. So there is no shipment on that rail line. Maybe it doesn't make sense to do that today, but I would urge the committee to look at how we can protect these vital corridors so that they can be reopened in the future because that is part of the solution of a northern corridor.
The same thing applies to short-line operations. Today, in our membership, we have a number of short-line operators that are threatened because the lack of traffic on their lines means that they don't have enough revenue to keep them going. If we lose that land, as we've seen in the past, there's a process for this. The land is given over, and, ultimately, it can be in the hands of developers. We find that all of a sudden that corridor is gone, and you're not going to get it back if people are using it for bikes and houses and other things.
There is a very important role in the first mile, last mile and in some of these more remote areas — and you can see them on the map — to make sure that we preserve those corridors. I think that that's a very worthwhile discussion that would take us a long way toward a future existing parallel corridor, if you will.
Senator Tannas: Just a quick question around the Port of Vancouver: In the big kahuna of an earthquake and tsunami and the port being taken out that we've all heard about, have you any indication from your clients as to what level of disaster recovery they have or an alternate plan and what it would do to capacity?
Mr. Bourque: That's a good question. These worst-case scenarios are something that I believe all companies have an obligation to look at and do look at. The wonderful thing about the rail network that we have here, as a continental network, is that it's highly resilient and very adaptable. There's no doubt that a large event like that, sort of a black swan event, would have impacts on operations, but we have a number of alternatives because we operate within a continental system that's incredibly flexible, with access to a number of ports.
I would say that from that standpoint we're in good shape, but the ports themselves, again, first mile, last mile, looking at it that way, I know the government has hired somebody — I believe it's Morgan Stanley — to look at the ports and the commercialization of ports. It's my view that this is an area that could benefit from more investment, more private sector management, and I think that, if we do those things, again, we'll build in more resilience to the system.
The Chair: Any other questions? Senator Smith and then Senator Patterson.
Senator Smith: Thank you very much for being here. You talked about short-haul strengths and weaknesses. You talked about the line up to Churchill as an example. I'm not sure. If you look at these two particular issues, and you had the power to make change or improvement, besides the first and last stops, what would you do? What would be your priority?
Mr. Bourque: Two things. The first thing would be to continue the work that was supposed to be done in helping short-line operators. Because remember, in the deregulation of the rail system, essentially what happened is that the government allowed CN and CP to abandon lines that were not profitable because they didn't have enough traffic. A lot of small to medium-sized entrepreneur-type folks took over these small to medium-sized operations — many of them are community owned — and the idea was that they would get some help from government so that we could keep those lines open for capacity reasons. If you look at today, one of the reasons I mentioned climate change is that railways are more efficient than trucks. We are much less emitting in terms of greenhouse gases and other emissions. We reduce congestion on roads. We are 100 per cent privately owned, so we pay for our own infrastructure. It creates an uneven playing field because small operators, short lines, are competing with trucks, which are subsidized by virtue of the fact that they travel on public roads.
Coming back to the original idea of deregulation, there was supposed to be more help for short-line railways. Under the Building Canada type of programs, railways have received 0.08 per cent of funding. We are eligible for that funding, but we don't get it because of the filter that is required where municipalities must promote a project. So if you're a municipality, you're going to promote the things that you need, such as water works and community centres and hockey arenas and other things that people vote you in for. The railways will never make the list. So this is something we're working on. We could use support for the understanding of the importance of short lines in terms of their first mile, last mile role and also their ability to add capacity to the system over time by virtue of the fact they have these corridors.
The second issue would be around railway-roadway crossings. Currently we hear a lot of about railway safety. People are concerned about railway safety. Currently 91 per cent of fatalities are at crossings or trespassing. Trespassing includes kids walking home late at night with their earbuds in their ears, walking on the tracks, ATVs, snowmobiles, you name it. Crossings are where people drive through. Transport Canada will tell you they've seen video of people driving around the barriers because someone is late for a soccer game or their ice cream is melting.
We have to look at those crossings and realize that our rail infrastructure now is like the highway. Not everyone gets to cross the highway or walk on it, and we need to protect these crossings in a better way.
The government has regulated crossings, and that's a burden on industry and cities to pay for enhanced crossings. Municipalities could use help with building bridges and consolidating so that we can close crossings. We look at it from a trade infrastructure standpoint, which is what the government did in the Vancouver gateway case. Look at a corridor, close some crossings and grade-separate many of them. Yes, this is an infrastructure spend, but it has tremendous benefits to the community, including better quality of life for residents, and to the railways and the economy for being able to move traffic. We should be focusing on helping short lines, protecting crossings, and putting more infrastructure dollars into crossings.
Senator Smith: Qualification for infrastructure money.
Mr. Bourque: We need a special program for short lines because we have seen historically that they do not benefit from competition with other projects. There is a program for grade crossing infrastructure. Minister Garneau has increased the funding to that program, and he also did a really good thing which we had been asking for for years. The regulation for grade crossings is federal, but each province mirrors that legislation. They actually outsource the inspections often to Transport Canada.
In the previous regime, provincially regulated short lines — which are short lines that only operate within a province — were not eligible for federal funding, yet it was federal rules they had to comply with. Minister Garneau fixed that. We appreciate that. He added more money to that envelope, but it needs substantially more funds. Now that $10.1 billion has been allocated to transportation infrastructure, this is something that would help every community. It's a coast-to-coast kind of thing. Municipalities are struggling with meeting the grade crossing regulations because of the costs those impose. In many cases, municipalities have grown, have a lot more traffic, and could use a bridge or a tunnel to be able to help their local economy and increase safety at those crossings.
Senator Smith: Indigenous populations are entrepreneurs. What type of interaction do you have with these people? Do we look at having a corridor running between that sixtieth or fiftieth parallel, the boreal forest, and look at where your short lines are running? What type of involvement does the railway association or railways in particular have with indigenous populations, entrepreneurs et cetera with regard to short-haul? It looks like that could be a potential opportunity.
Mr. Bourque: Thank you for that question. We have a great many entrepreneurs in the rail supply industry who are members in our association. We have a couple of railways owned by First Nations. There is the Tshiuetin railway in northern Quebec which moves both freight and passenger.
Senator Smith: Is that up to Schefferville?
Mr. Bourque: Yes, and there is also the Keewatin Railway Company in Manitoba. There is First Nations involvement in a rail line that our members are trying to get going on Vancouver Island from Victoria to Courtenay, and that is owned by First Nations. It would be a VIA service that would be operated by one of our short-line members, SRY. I ask this question often with our membership. There have been significant efforts to employ indigenous peoples. We've had some success with that. In the past, we had a conductor training program at the railway association. In the past we worked with government to train First Nations populations in conductor training.
Senator Smith: Do you have any numbers?
Mr. Bourque: I don't have overall numbers of what that population makes up in the industry, but I know there is an ongoing effort. I know that CN also had a student internship dedicated toward indigenous populations, so there is an effort. There is a natural synergy. We have operators and entrepreneurs on the supply side. Any ideas to increase it, we're always open to listening.
Senator Smith: If you look at the number of your members who are short-haul carriers, what is their financial position? What do they need to do to be able to compete, besides improving crossings and getting heavier steel rail?
Mr. Bourque: It really is the infrastructure piece that is missing. Class 1 railways typically invest about 20 per cent of their revenues back into their infrastructure, which is a significant amount of money. Many business people around the table know that 20 per cent is a heck of a lot. I don't think any other industry meets that.
For short lines, it's about 12 per cent, and so they're able to invest to stay safe and to keep running. This is where they really see that trucking has the advantage because they do not have to make those investments. They can invest with that extra money in other innovative services that short lines would have a hard time competing with. It comes down to the infrastructure and the regulatory framework, as I mentioned. We have had a lot of new safety regulation. We're not pushing back on that, but the government needs to recognize that it comes with a cost. The estimated cost to industry for the grade crossing regulations was somewhere between $500 million and $700 million. Much of that would be borne by short lines that are in the hinterlands. There would be various expenditures with a lot of sight lines that weren't up to code and so on.
Senator Smith: They get cut off from carrying the big carriers' freight, like CN and CP, because they don't qualify in meeting the regulations.
Mr. Bourque: That's what would happen if they can't afford to maintain their track to the standard of the regulation — they can't operate.
Senator Smith: What is their capacity utilization for the short-haul versus the major carriers? What is their capacity utilization, if that's a measurement?
Mr. Bourque: They don't measure it quite the same way in terms of an operating ratio, which is a good indicator of your productivity, but I know that Genessee & Wyoming, for example, which operates a number of short lines here, uses a different measure. By that measure, they are very competitive, and they're also very safe. So it's quite a different operation because often short lines will operate on a schedule. They don't have to operate 24 hours a day; they don't have a unionized work force. It's just a very different operating model, which allows them to be flexible.
Quite frankly, most of them make money from other services than just moving freight. For example, they are storing cars. There is a community-owned railway in Barrie that was in real dire straits, but, guess what, they made money last year because they're parking a lot of empty oil cars on their property. They've made money from that. Short lines are also doing a variety of industrial switching operations. A plant will outsource the switching on their property to short lines, so they'll make money there. They do construction and so on.
Senator Patterson: As a guest to the committee, I appreciate being able to ask a question about the railway to Churchill, which is pretty close to my region of Nunavut. I want to defer to Senator Day on Churchill because he lived there when it was a military base, and I think it was a rocket testing range at that time.
Senator Day: Black Brant Rockets were being tested there.
An Hon. Senator: Are you a rocket scientist?
Senator Day: Oh, yes, amongst other things.
Senator Patterson: Then it became a major grain port and now has even greater potential with the prospect of an ice-free Arctic, and it has been a major supply route for Nunavut, the central Kivalliq Region of Nunavut.
Just a little background here: Canada upgraded the Port of Churchill at great expense, then sold the rail and the port to a U.S. firm called OmniTRAX, which has now abandoned the port and the line, devastating the community of Churchill. There is some talk of new Aboriginal owners. One of the problems with that line is that it was aggravated by climate change as it goes through muskeg, so there is a limited weight and speed of the rail traffic. Sorry for all of that background, but I thought it might be helpful to the committee.
Is this one of the last-mile links that you're talking about that we need to pay attention to, that have been neglected? Is that an example?
Mr. Bourque: I don't think it's an example, necessarily, of a last mile. It's more an example of a northern corridor. Frankly, I'm happy that I wasn't the minister having to make a decision on this because I know that the company made representations over many years because they knew that they needed funding to keep that line going because there was not enough traffic. You might recall that there was a proposal, at one time, to move crude oil, and they saw that as an opportunity. There was not a lot of support for that. It's just a really tough situation when you're the minister and have to fight for a company that would need funding. Is there a business case? So the attitude typically, in our industry, is that we have a lot of leading men in the industry, but none of them are Kevin Costner. We don't think, "Build it and they will come.'' You build and invest where there is a business case. I want to be clear about the need for infrastructure funds for those first and last miles because these are instances where they are competing with trucking, and if you look at it just on that basis alone, the United States has had granting and other programs for their short lines because they deregulated, with the Staggers Rail Act, at about the same time that we deregulated here. The difference is that they put programs in to help those short lines build up their infrastructure. We haven't done that. So I don't think that one is an example of a first and last mile. I do think it's a good example of a future northern pathway that we don't want to foreclose on forever because, with climate change, with growing populations, with different patterns of trade, we may well find that we want to rebuild that at some point.
Senator Patterson: I was impressed that you're interfacing with Minister Garneau as you described. We're talking about infrastructure deficits. Now, there are billions of dollars in the new government — I call it a new government — the current government's infrastructure plan, double what the previous government had committed.
I understand that recently a $10 billion pool was carved out of Infrastructure Canada and that ministry and moved to Transport Canada for the purpose of trade and transportation corridors, projects of national significance, which is right in line with what this committee has studied.
I've heard that the first $400 million of this $10 billion fund may be rolled out in the forthcoming budget.
I'm just wondering if you're aware of this fund and whether you would see it as being a source of dealing with the very problems and challenges this committee is studying with national corridors.
Mr. Bourque: Yes, I'm aware of it. As a matter of fact, I just met this week with senior officials at Infrastructure Canada to talk about how we can try to be more successful in acquiring some of those funds for programs that would help our industry, again, in particular, around crossing infrastructure, which doesn't necessarily flow to railways but would flow primarily to municipalities, and also dedicated to short-line operators. I do think that, in the short to medium term, this is where we are going to see a lot of — At least there is a lot of potential to help to shore up some of the issues that we've seen in the overall supply chain these past few years and that we would see if we had all of the business segments on the positive side. You have to keep in mind that it's a supply chain; it's a system. With respect to grain movement, it is a system that requires everybody to work collaboratively together, and we heard about the switching problem at the port this morning. It's an example that it doesn't matter how many cars and our order fulfillment record, which, right now, is excellent. If you get it to the port and there is a problem there, you can't move the product. It is a team sport, and we need to collaborate and work together and put those investments into places that will help that.
Senator Day: I'm trying to summarize all of the discussion we've had, Mr. Bourque and Ms. Snowden, who was just here.
You want us to focus, quite rightly, I think, on the shorter term and the additions that we can make — double-tracking, skirting cities rather than going through them, et cetera — but we're also trying to think of the Kevin Costner situation of, "If you build it, they will come,'' and the changes, corn fields to baseball diamonds, the future a long way down the line. Maybe the best we can do is to see if we can get some cooperation between the federal government and provincial governments and to do the study that we're hoping to expand, that the University of Calgary people have done some work on, to build or define a corridor for transportation, communication, oil and gas. Not necessarily build for another 50 years but get the cooperation now so that the rights of way are established, and then, when there is something happening in a particular area in mid-Canada, it will be easier for industry, because industry needs this, to come in and participate in helping to build that transportation link.
The point that you made about losing rights-of-way when CN and CP divested of a lot of their shorter lines because they're big organizations and weren't able to make the lines profitable — for example, my province of New Brunswick has been able to do quite well, and then they picked up the Quebec-Maine Northern line. That was an old CP line, and the right-of-way was preserved. Other lines have not been preserved.
Instead of talking about building new port facilities in the East, up in Labrador, maybe we should be taking a look at the under-capacity in Halifax and the under-capacity in Saint John, because there is a huge under-capacity there. With the new trade agreement with Europe and the huge population in the United States, that's why the refinery in Saint John was prepared to double its capacity if they had supply. All I see now is railcar after railcar of oil going onto rail lines.
That's not a question. That's a comment that has flowed from a lot of what you have been talking about. There is a short term and a long term here. I welcome you to comment on that or just say thank you.
Mr. Bourque: Yes, well I do appreciate it. By the way, it's my theory that people tend to notice crude-oil cars when they're travelling and don't notice the other ones. They've become part of the landscape. If you see boxcars, you don't notice them. If you see crude-oil cars, you take notice.
A couple of years ago, Honda in Alliston, Ontario, announced that they were going to be building an SUV for the European market. The supply chain from Alliston requires that they're put onto CP and moved to the Port of Montreal and then shipped to Europe.
If that supply chain was not absolutely excellent, they would not have won the contract to build European vehicles in Canada. So there is the opportunity and the infrastructure, because there is capacity in that infrastructure. Really, there are some first mile, last mile issues. That's why we're more focused on those than on the longer term.
Over the longer term, what I think government can do, with the encouragement of this committee, is to look at instances like OmniTRAX or others where we have a right-of-way, and if there are short-term dollars that need to go to those communities or to an operator somewhere to prevent those lands from being developed and lost forever, then I would say that would be a good use of funds.
The alternate route, you're right, it probably will take a long time to at least map out a route and secure approval from various communities. I don't envy anybody taking on that task, but you have to start somewhere.
I wouldn't see that as a role of the private sector at this point. I would see that as a role of government, so that's why we tend to be more focused on the shorter to medium term.
Senator Day: And cooperation between the provinces and federal government, which is another complexity. Your example of Alliston, Ontario, to Montreal made me think of how government decisions can impact something that was otherwise working quite nicely.
Saint John, New Brunswick, used to have a lot of grain elevators, and CP Rail came down through, because Montreal was only when there wasn't freezing in the river. The federal government decided, in its wisdom, to break the ice to Montreal and Quebec City open year round. That resulted in CP saying that line to Saint John from Montreal is no longer viable, so they abandoned the line. The grain elevators are now gone, and the port is totally underutilized because of a decision by the government.
Those kinds of things we have to think about. The unintended consequences can be quite huge.
Mr. Bourque: Absolutely. It's worth looking at the Canada Transportation Act review. I think Mr. Emerson did an excellent job there.
The other point is that earlier Ruth mentioned inland terminals. There is an inland terminal in B.C. called Ashcroft. I would encourage you to speak to the people who have that terminal. They are looking at how to remove trucks from the road in B.C., which is a huge cause of frustration in terms of congestion and so on. They have modelled what can be done there to reduce truck traffic if we use an inland port idea.
There is a lot of growth potential for these inland ports and other areas to put in grain terminals, for example, because currently there is a lot of on-farm storage. If you're storing your grain in the middle of the country and then everybody wants to move it all at once because the price goes up, it is not ideal. We have to figure out ways to have that product either in Asia, where it can be held until the price is high, or at least closer to the port for the same reason.
Senator Day: Who takes the initiative with respect to these inland logistics terminals? Is that the private sector? It's obvious enough, and the benefits are good enough for the private sector, with a little help from the municipality and the province, because of the reduction of truck traffic in downtown Vancouver. Is that how that happens?
Mr. Bourque: As Senator Tkachuk mentioned, it's pretty much private sector people figuring out where there is a need and addressing it, but often there are some barriers, and as an entrepreneur, you're looking for help in one way, shape or form, even if it's just the policy framework that would enable that.
I would encourage you to speak to some of these folks, because it is a really good example. In the short to medium term, there are a lot of things we can do to de-bottleneck the system, including some of these proposals.
Senator Tannas: One quick question, just out of curiosity. We've heard and seen a lot and travelled on high-speed rail, particularly in Europe. Is there such a thing as high-speed freight rail? Is that being done anywhere in the world?
Mr. Bourque: That's a good question. Freight doesn't travel that fast, but we always talk about velocity being the most important thing. You will see that our velocity is up; 26 miles per hour doesn't sound like breakneck speed, but you have to consider that some of these trains now, the average is 100 cars, and there are many upwards of 135 cars. They are more than two miles long and have to move through a lot of communities and pass a lot of crossings. There are about 40,000 crossings in this country. So the ability to go 26 miles an hour is quite a feat.
It's always about trying to increase that velocity. That is your key indicator to your efficiency. If you can move it faster, you turn everything around quicker, the service to your customer is better, and you're better able to compete with a truck. It's a key thing.
I don't know of any country that has a more efficient rail system than North America. Obviously, freight is moved by rail everywhere in the world, but I don't think anyone moves it any better than we do here.
The Chair: Thank you very much, Mr. Bourque. It is very much appreciated.
Colleagues, we will suspend for just a couple of minutes, say goodbye to our guest and reconvene in camera in maybe five or six minutes.
(The committee continued in camera.)