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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 12 - Evidence - Morning Meeting of May 15, 2014


OTTAWA, Thursday, May 15, 2014

The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures, met this day at 8:03 a.m. to give consideration to the bill.

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: Witnesses, thank you for accepting our invitation to be here today and to share your opinions or comments. I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. My name is Percy Mockler, senator from New Brunswick and chair of the committee. I would like to ask each senator to introduce themselves, starting with the deputy chair.

Senator Mercer: I'm Senator Terry Mercer from Nova Scotia.

[Translation]

Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, New Brunswick, and a Habs fan.

[English]

Senator Tardif: Claudette Tardif from Alberta.

Senator Oh: Senator Oh, Ontario.

[Translation]

Senator Dagenais: Good morning. I am Jean-Guy Dagenais from Quebec, a Habs fan.

[English]

Senator Eaton: Nicky Eaton, Ontario. Go Habs go.

Senator Plett: Don Plett from Manitoba, and I'm the sponsor of the bill.

Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you, honourable senators.

Today we are continuing our study of Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures.

We have this morning, as our first panel, Mr. Robert Ballantyne, Professional Engineer, President, Freight Management Association of Canada. From the Canadian Trucking Alliance, we have with us Mr. Stephen Laskowski, Vice President, Economic Affairs, and Mr. Jonathan Blackham, Policy and Government Relations Assistant.

Thank you for accepting our invitation. I have been instructed by the clerk that the first presenter will be Mr. Ballantyne, to be followed by Mr. Laskowski. At this time, I will ask Mr. Ballantyne to give his presentation, and, after the presentations are made, senators will ask questions.

Robert H. Ballantyne, P. Eng., President, Freight Management Association of Canada: Thank you very much, Mr. Chair. Even though I was born and brought up in Toronto, I think I'm a Montreal Canadians fan today as well.

I appreciate the opportunity to speak on Bill C-30. Our association, the Freight Management Association of Canada, was originally the Canadian Industrial Transportation Association and has been representing the freight transportation concerns of Canadian industry to various levels of government and international agencies since 1916. Despite appearances, I was not at the first meeting.

I will only comment on the sections of Bill C-30 that would amend the Canada Transporation Act. In these brief comments, I will attempt to provide some context on how we arrived at this point and look at future needs.

During the run-up to Bill C-8, which was the last amendment to the Canada Transportation Act from a statutory review, there were widespread complaints about rail service from across the country. With the passage of Bill C-8 in June 2008, the government agreed to undertake an independent review of rail service. The rail service panel recognized the fundamental railway shipper problem and stated in its 2011 final report:

This railway market power results in an imbalance in the commercial relationships between railways and other stakeholders.

Canadian railway law has acknowledged for over a century that rail freight is not a normally functioning competitive market. The government's response to the service review was to introduce Bill C-52, the Fair Rail Freight Service Act, which became law in June 2013. Bill C-52 breaks new ground by providing all rail shippers with the right to a service level agreement through arbitration if one can't be directly negotiated with the rail carrier.

However, some of the most significant recommendations of the rail service review did not find their way into Bill C-52. The government declined to accept any of the six recommendations proposed by the Coalition of Rail Shippers — a coalition of 19 industry associations, which I chair — to strengthen Bill C-52. Consequently, there have been no shipper attempts to use the provisions of Bill C-52 to obtain a service level agreement.

Bill C-30 provides another opportunity to revisit the shortcomings of Bill C-52. Clause 5.1 of Bill C-30, which amendments subsection 116(4) of the Canada Transportation Act, addresses one of the short comings; namely, the need to compensate shippers for expenses incurred because a railway is in violation of its service obligations either under a service level agreement or a confidence contract. The definition of ''expenses'' in the agency regulations will be an issue in determining how effective this provision will be.

Clause 7 of Bill C-30 provides authority for the agency to extend interswitching limits ''for the regions or goods that it specifies.'' This amendment to the interswitching regulations will allow the agency to give effect to the government's policy announcement to extend a maximum interswitching limit on the Prairie provinces from 30 to 160 kilometres for all shippers, not just grain shippers. The interswitching regulations have been used for the shippers over many decades and are a surrogate for real competition.

The other significant provision of Bill C-30 that is relevant to all shippers is clause 8, which authorizes ''The agency to make regulations specifying what constitutes operational terms . . . .'' to be included in a service level agreement. While it is unclear how the agency and the government will use this provision, it could be a vehicle for achieving some of the shipper amendments rejected by the government during the Bill C-52 debates.

The current backlog of grain is an unusual situation and government did feel compelled to intervene. However, there is concern within the shipper community that singling out one industry group in such a manner could cause service problems for other shippers.

Our association includes among its member both grain companies and shippers from many other industries. We have informed our membership that targets set in Bill C-30 originated with CN and CP, and we have to start with the premise that the railways would have only offered another targets if they felt they could maintain the level of service for other shippers.

Anecdotal evidence to date is unclear as to what has been the effect on other industries. Interventions such as those in Bill C-30 need to be applied carefully and only under the most extraordinary circumstances.

Two basic issues that the forthcoming statutory review of the act should address are: one, the need to provide appropriate rail capacity for the needs of Canadian industry over the coming decades; and, two, the need to improve the relationship and trust between the railways and significantly large segments of their customer base.

That ends my remarks, and I would be pleased to answer any questions members might have.

The Chair: Thank you.

Mr. Laskowski, please make your presentation.

Stephen Laskowski, Vice President, Economic Affairs, Canadian Trucking Alliance: Thank you for having us here today. We have members involved in the grain hauling industry — I have members who haul all aspects of the economy. I will explain a little bit of the background of what CTA is in a kind of Background 101— a 60,000-foot version — of rail and truck shipments, why product moves by rail and why it moves by truck. Then I'll get into the specifics of the grain-hauling industry, this past boon crop, how the trucking industry reacted and how it sees things going forward.

The Canadian Trucking Alliance is an association and a lobby group of the seven provincial trucking associations from across Canada. Our board consists of members of the for-hire trucking industry throughout Canada, but its policy is driven through local provincial mandates. So although we are a national organization, we take great pride in the fact that all our policy is from the grassroots and provincial level. In a case like this, for example, we worked with our Western colleagues to come up with the information we will provide you here today.

In total, we represent about 4,500 member trucking companies, both big and small. The vast majority of the trucking companies that belong to the Canadian Trucking Alliance would have less than 20 trucks. We also represent the trucking industry, and like every industry that is going through amalgamation, we have some trucking companies that have 5,000 to 7,000 trucks. It's a balancing act when bringing forward policy. It's one vote, one company, so it's no different than Parliament: The big guys have a vote, but the little guys have the same amount of votes, so it is a balancing act as we move forward.

With regard to the grain movements, CTA has reached out to our membership and gotten a sense of what happened over this boon crop, as Bob has mentioned; how they saw it happen; and how they see things going forward.

Before I get into that, we need to understand what the trucking industry does for the manufacturing community and the farming community, and what rail does for those communities. Trucking and rail are both transportation modes, and we do compete. If you had to draw a line, there is an overlap, but it's not as big an overlap as you may think. It's getting bigger and bigger as the railways are increasing on-time performance, but there is still a large market that is specific to the trucking industry and a large market that's specific to the railway industry.

If I had to generalize grain, that is a rail market, for the most part; it's a railway sector. Our members service the grain industry, but from a 60,000-foot view looking at what the grain market is from a transportation standpoint, it's a rail-dominated sector. That is most likely for the foreseeable future.

Why is that? Trucking is paid probably more for on-time performance. If it's a higher-value product and more time sensitive, it's going to move by truck. If it's less value and moving longer distance, it's going to move by rail. It's sort of a generalization because the market is evolving, but if I had to generalize it, that's how I would do it. That gives you a sense of why the grain market is the way it is.

In terms of the current situation regarding grain routes with trucking routes — where trucking takes place in the grain market — it's no different than what happened in the 1940s during World War II. There was a big labour strike in the rail industry. What happened? Trucking emerged. There was no rail strike in this case with the grain industry, but when the railway industry started rationalizing lines in Western Canada and certain spur lines shut down, the product still had to get to market from those spur lines. That's where trucking comes in. The average length of haul for a grain shipment in trucking is about 212 kilometres. That's a real short haul in trucking.

In terms of what's happening today, as our members look forward, they see a normalized market with regard to grain shipments. It's business as usual for them. Other than perhaps what's going to happen this summer, the folks figure they'll be a little bit busier this summer still taking care of the backlog. Historically, during the summer months in terms of the trucking industry moving grain, the trucks wouldn't be moving as much. This year, they expect the trucks to move to take care of the backlog; however, once we get into a fall harvest, unless there is another massive bumper crop — because that's what drove this — they expect it will be business as usual.

The question we asked is ''Are there more entrants in the market?'' It is like any other business in that if there is more product, more money on the table. Did we see more people in the trucking industry get into this market and serve the grain market? The answer was ''no.'' The reason was twofold. First, it's expensive. To run a tractor-trailer combination that would serve the grain industry, it's anywhere between $225,000 and $250,000 per unit. That's a lot of money. It's one thing to have a one-off bumper crop, but if you could say it will be like that for 10 years, then somebody might jump into the market. But you're going to be more cautious when that kind of capital is required to get into it.

The other aspect for us is that, like other sectors you read about — and no doubt you senators have discussed this — the issue here is driver shortage. We have a significant labour shortage in the trucking industry. We have the largest percentage of employees nearing retirement than any other sector in Canada. That's another challenge in that even if there were an opportunity to bring in more trucks because of a bigger market opportunity, obviously you need human capital, and not just any human capital: You need professionally trained drivers. They share the road with the public and they're handling big pieces of equipment. They're not an easy thing to replace. So that is another one of the challenges we have.

From a go-forward position with regard to the grain industry, we see stabilization from a transportation perspective. We see this traditionally and holistically as a railway market and we're here to serve our customers in our specific spur lanes.

Thank you very much for your time, senators.

The Chair: Senators, we will try to stick to the time frame we have. To do that we will need senators to stay on question, and also to help the chair permit all senators to ask their questions because almost all senators have asked to have at least one question.

Senator Mercer: Gentlemen, thank you for being here.

Mr. Laskowski, I'm surprised you didn't zero in on a problem that I've been told exists by a number of farmers I've spoken to in Western Canada. The reason that trucks aren't part of the solution here is that it's difficult to have a return trip if you're hauling grain south to the U.S. Truckers aren't interested in hauling grain to the U.S. and turning around and coming back empty. Is this one of the issues?

Mr. Laskowski: That's natural. Grain trucks move by B-trains, and there is a specifically designed B-train for grain. There are two types of trucks; I'm sure you've all seen them. A normal truck would go north-south in a flatbed or a dry van trailer, just a square box. You can put any commodity in there, so you can be much more flexible to your point.

To your point, yes, if you can get the grain down to the south that's great, but then you have to convince your customer because it's going to be difficult as it's such a specialized piece of equipment. What are you going to put in it? Most likely the chances are it's going to be very difficult. Now you have to convince your customer. The customer wants to pay to move from point A to point B. The customer is not interested in helping you go back from B to A, so that is an issue.

Again, that's a very structural component of it. That's why I say, in generalizations, this is a railway versus trucking market, and that is why it is. Specialized pieces of equipment are difficult to fill when you move outside the commodity.

Senator Mercer: Mr. Ballantyne, I appreciate your presentation and I recall the coalition amendments proposed to Bill C-52. I was disappointed then and am disappointed now that they haven't seized the opportunity when making amendments so that they could include some of the commitments that have been long overdue.

You say interventions such as Bill C-30 need to be applied very carefully and only under the most extraordinary circumstances. Are these extraordinary circumstances?

Mr. Ballantyne: Senator, I think they are. As has been mentioned about this grain shipment, and repeating what everyone else has said, this was a record grain crop. It was a very difficult winter. We did see the end of the Wheat Board in terms of the way grain has been marketed. With so much grain and the value of that grain on world markets being left on the farms, it was an extraordinary situation in this particular case.

It really is something to be very careful about. Railway is a network kind of business. The railways do have a problem of attempting to provide the right amount of equipment at the right place at the right time, and crews to handle it not only for grain but for all shipments. The issues that Steve raised, in terms of the return of the equipment with trucks, are true of rail as well. Transportation always is a more complex business than it looks like on the surface. When you see a train going by, it's pretty obvious what's going on; it's going from A to B. But having the right amount of equipment at the right place, at the right time, with the right number of crew and getting the empties back, and all the rest of it, is very complex.

Senator Mercer: What happens though, Mr. Ballantyne, if this is not a one-off? I'm hoping that this crop is now the new baseline from which we can grow and get even more grain. The object of the game is to expand and create more jobs and have farmers doing better. What happens in the future? If my wish were to come true that this is the baseline and will move forward, how will we respond? Will we have to do this extraordinary effort every year?

Mr. Ballantyne: We would hope not. As has always happened in the past, if this does become the new norm — and I think everybody would agree that they hope it does — the whole transportation network would evolve and grow to handle it.

In my remarks I talked about the upcoming statutory review of the Canada Transportation Act, and one of the issues that the government needs to consider is the whole issue of rail capacity for the country. In terms of track capacity per se, while the railways have extended sidings and put in double track and done other relatively minor capacity projects over time, we've almost been living on over 100 years of capacity that could handle the traffic with those caveats.

We may be getting to the point now with low-cost issues — like mid-train power, running longer trains and higher axle loadings that will allow for more commodities to be handled in each railway car — where we may be coming to the limits of that. It's going to be something that will need to be considered by the government, railways and by industry, in general in terms of the whole Canadian economy, as to the ability of the railways to handle the traffic that will be offered in the future.

Senator Plett: Thank you, gentlemen, for being here. I will also start with Mr. Laskowski.

This is really a fairly basic question. I grew up in a farming area in southern Manitoba. Farms are getting bigger, larger; they're amalgamating. Would you agree that most of the grain hauled by trucks would be hauled from a farm to an elevator as opposed to any rails, and in many cases the farmers would have their own trucks hauling it?

Mr. Laskowski: Yes, that's what I meant by a spur line. It's replacing that.

The one thing I left out in my opening comments is that we did see a growing trend out West. Some in the farming sector were buying the $235,000 piece of equipment, training someone and having their own truck and trailer to bring those goods to those short hauls, yes.

Senator Plett: Of course for someone who owns and seeds 5,000, 6,000 or 7,000 acres and has half a million dollar combine and all the other things that go with it, it's a significant investment to buy a truck and a B-train. But nevertheless, it's not an unaffordable thing for many farms. So if they have bumper crops and trucking companies can't keep up, a farmer may just decide to buy another truck because he will need it next year as well.

Mr. Laskowski: Absolutely. It's a viable option. The trucking industry only has one concern when that happens, and it's not the competition. It's that those who get into buying big pieces of equipment and B-trains then need to have the responsibility to learn how to operate it properly on public roads.

Senator Plett: Absolutely.

Mr. Laskowski: That's the extent of our issue.

Senator Plett: I fully support that.

Mr. Ballantyne, following up on what Senator Mercer already asked, you indicated that the government needs to be very careful when they get involved with one industry. Here we are getting involved mostly with rail, not other industries, and we don't want too much government intervention and involvement. I certainly support that, and I believe our government does. As has been said, we hope this will be the new norm as far as the crops are concerned, but we certainly hope it won't be the new norm insofar as the winters are concerned. We hope maybe this will be a once-in-a-hundred-years winter and we won't have another one like it for that long.

Clearly the guidelines have been put forward based on what we had last winter. If we have the bumper crops but we don't have the same type of winter, it shouldn't be as onerous for the railways to keep up, given the way the proposed legislation is worded.

Mr. Ballantyne: That's true. With the experience that everybody in the grain supply chain had this past winter and with what we have been going through now that the government is trying to address it, everybody will learn from it. Even if the next crop is as big and if there's growth in other industries where the products are normally handled by rail, the railways will start to adjust to be able to handle it better. I would expect to see a better performance this coming winter. Unless we get a worse winter than we had this past winter, I would expect to see some progress.

One interesting thing about Bill C-30 is that it self-destructs on August 1, 2016. Presumably, the assumption of the legislators with that provision is that they expect normal arrangements to continue after that time. Bill C-30 is a temporary measure. It was cautious and reasonable to have it extend over three years. I would expect to see everybody in the grain supply chain start to respond to what we hope is the new normal.

Senator Plett: You would also agree that when an entire industry gets hurt, such as was happening here and not a one-off with a few farmers being hurt but the entire farming industry in Canada, Canada's reputation overseas was being hurt because we weren't able to get the grain exported. There are times when government intervention certainly is necessary.

Mr. Ballantyne: Yes, I think so. The government always does have an oversight role in managing the economy. Government intervention in various ways, shapes and forms is not unusual. We have not seen that as much in transportation, but with the problems in the automobile manufacturing industry in recent years, the government felt it necessary to intervene there as well. Obviously, there is a role for the government going forward.

Senator Tardif: Mr. Ballantyne, you indicated in your presentation that there's concern within the shipping community that singling out one industry group in such a manner could cause service problems to other shippers. What type of problems would those be?

Mr. Ballantyne: In order to meet the commitment, the order-in-council and Bill C-30 require that the railways — CN and CP — each have to deliver 5,500 cars per week of grain. That means if the railways don't meet that requirement, they're subject to fairly considerable fines. They have a serious incentive to meet that commitment.

Like any industry, they have limits on their resources. If that demand can't be accommodated with the demand from a lot of other industries in terms of the number of locomotives and train crews available, because they have had to focus so much of their resources on grain, then in theory it could cause some problems for other shippers. There may not be enough locomotives, for example. I wouldn't see freight cars being too much of a problem because the cars used for grain are specialized. They're covered hoppers specific to the grain industry. That's only a potential problem.

What the government asks the railways to do in the order-in-council and Bill C-30 is what the railways said they could do. I said to our other non-grain member companies that we have to go on the assumption that the railways would have offered that only if they felt they could accommodate their other customers as well.

To date, the information I have, which is anecdotal, is not clear as to what's happening. Some of our member companies have said, no, they haven't seen any change in the service; while others have said, yes, they think they may be suffering a little bit. At this stage, it is a little early. It is not clear.

Senator Tardif: What are those other industries that indicate they may be suffering?

Mr. Ballantyne: They could be mining or forest products — those kinds of industries primarily. Like the truckers, the railways handle a lot of high-value goods in containers going very long distances, for example from the Port of Vancouver to Toronto and Chicago. It is not likely that those commodities would be affected by this issue.

Senator Eaton: Mr. Ballantyne, my first question will lead to something you talked about in your presentation. Will this bill force the railways to better their game and ramp up their infrastructure if this is going to be the new normal? The minister made it clear that it will be with the world demand for our food.

Mr. Ballantyne: I think it will. Like any business, if the railways see a growing demand — and of course it has got to make commercial sense to them — they will invest both for track and freight cars to meet what they perceive the demand to be. For them to know what the demand will be is a fairly subtle thing. They have to get forecasts from various industries to see what will happen.

Senator Eaton: I'm thinking of potash and oil — it just goes on and on.

Mr. Ballantyne: Yes. They play such a significant role in the kind of economy we have in Canada, which is largely based on relatively low-value, high-volume natural resource commodities. That can be impacted by the world price for the commodity. The question is whether the producers can pay what the railways feel they need to ask in order to cover their costs, investment and so on.

The simple answer to your question is that it will help because the railways will respond to growing demand.

Senator Eaton: This gets me to something you said in your presentation about the future. Two basic issues that the forthcoming statutory review should address are: first, the need to provide appropriate rail capacity for the needs of Canadian industry; and, second, the need to improve the relationship and trust between the railways and significantly large segments of their customer base.

Mr. Ballantyne: I'm sorry, your question on that?

Senator Eaton: You answered it when you said it will force them to.

This is perhaps a negative question: Do you think the railways up to now have been improving their industry the way they should have over the last 20 years, or because prices are depressed and there's not that much demand, they just let themselves go a bit?

Mr. Ballantyne: No. I think they have generally invested. I don't have the numbers at hand, but my recollection is that CN and CP are probably both investing over $1 billion a year in capital year in and year out. Some of that is for replacement of track and that sort of thing, and some of it is to purchase new freight cars to meet different demands and new locomotives. They have introduced a lot of new technology of various kinds to improve their capacity.

By and large they have. There is some criticism. The investment community that looks at rail stocks usually looks at something called operating ratio. So there is pressure on the railways to reduce their operating ratio, and this is coming from the investor community.

One can argue sometimes that they may go a little skinny on some things that they should probably do a little better at, but by and large they have done fairly well in terms of investment.

Senator Robichaud: Mr. Ballantyne, you talk about the compensation, not formula — whatever is in the bill there — and you said it depends on the definition of ''expenses'' that is going to be taken into account. Would you elaborate on that, please?

Mr. Ballantyne: Sure. In the way railways have always been able to operate, under the Canada Transportation Act, railways have the right to issue tariffs. The way the Canada Transportation Act words it is something along the lines of once the railway issues a tariff, that is the legal price for the service.

It is one thing to say that's the freight rate to move stuff from A to B, but then they can also issue tariffs for other things like demurrage, which is essentially rental on freight cars that are taking too long to load, fuel surcharges and various other things like that.

Even the shipper community doesn't particularly object to that, but when the railways don't meet their obligations, going back to demurrage when the shipper keeps a freight car too long to load, the shipper is in effect in violation of their obligations. Therefore, the railway gets a penalty from the shipper for that.

There's no reverse provision in the law. If a shipper hires a crew of people to come and load cars and the railway doesn't load the cars or doesn't deliver the cars when they said they would, then the shipper has the cost of these people that they have brought in, and there's no claim that the shipper has against the railway for compensation for that kind of situation.

It looks now like this new clause 5 of Bill C-30 is going to possibly open that up. It is not clear whether the term ''expenses,'' as in Bill C-30, is just for those sorts of immediate out-of-pocket costs that the shipper had, or it will actually allow for damages which may mean, for example, lost revenue that the shipper may have.

It will be interesting to see how — I think the way it is worded is that the Canadian Transportation Agency will define ''expenses'' in that context in the regulations that are set up to administer that new provision that will allow the agency to say to the railways, ''You have caused a problem; you will have to pay the shippers something.'' It is a case of saying, ''How broad will that definition be?''

Senator Robichaud: Everybody will have to stand by the definition they come up with.

Mr. Ballantyne: Yes.

Senator Robichaud: There's no appeal mechanism.

Mr. Ballantyne: I think that's right. You would have to look at the general regulatory provisions governing the agency, but my recollection is there probably would be no appeal in a case like that. Once the agency makes the decision, that's it.

It might not be a bad idea to ask that question to the agency. I don't have that information handy.

Senator Robichaud: Mr. Laskowski, when the railroads transport grain, there's a limit as to what they can charge to transport the grain. In the trucking industry, how does that work?

Mr. Laskowski: It is market driven. It is a negotiation. It is a published rate, and then the discussions begin. One would expect that when the demand is high and the supply is lower, the rates will go up and vice versa. The trucking industry is deregulated and its prices are deregulated.

Senator Robichaud: How does that compare with the railways in the cost of transporting grain?

Mr. Laskowski: It is a shorter haul. I wouldn't know what a farmer would pay to the railway industry for a long-haul shipment. Other than the fact it is transportation from a smaller point, it is a very different type of service, so the market is priced accordingly.

For example, on a truck haul, what was happening during the bumper crop over the winter and through the fall, there were extraordinary movements, for example, from the West to Thunder Bay that would traditionally move by rail. By its nature, because it is a smaller shipment, on a price per unit, it is going to be more expensive to move by truck.

Senator Robichaud: There was not a lot but some movement in that corridor.

Mr. Laskowski: Correct.

Going back to my original opening comments, we don't expect those types of movements to occur unless this bumper crop is a new reality. As other senators have mentioned, that opens up a new reality, including for the railways, the trucking industry and the farmers, of how transportation systems evolve. That's no different than, quite frankly, any other sector. It evolves, it changes, and people step up and step in.

Senator Robichaud: For the transportation industry, rail or trucking, to adjust, how many years would it take to establish a trend? Because we say CN should have more crews and all of that, they just can't do that because of this year, can they?

Mr. Laskowski: Absolutely not. From a business perspective, it would be — I don't know of a bank that would give you a business model that would allow you to step into a market and say, ''I need to buy 10 units at $225,000, $2.25 million.'' They will say, ''To move what, sir?''

As Bob mentioned, in terms of track rationalization and growth, it's no different than trucking. The trucking industry would rely on long-range forecasts. Is this bumper crop a bumper crop, or is this the new norm? If it's the new norm, business opportunities will present themselves both on the rail side and on the trucking side.

[Translation]

Senator Dagenais: Mr. Ballantyne, do you think we should make service level agreements between railways and grain shippers mandatory?

[English]

Mr. Ballantyne: I don't think we should necessarily make them mandatory. I do think a shipper in any industry, including grain, should have the right to a service level agreement. Bill C-52, which is now in the Canada Transportation Act, does allow all shippers to have the right to an SLA.

The way Bill C-52 was structured, ideally it would be negotiated between the railway and the shipper. In the event that the two parties can't come to a negotiated service level agreement, the shipper does have the right to go to the agency to have one obtained by arbitration.

All shippers should have the right. As I say, I don't think it should necessarily be mandatory, but it should certainly be the right of all shippers to have that, and hopefully between Bill C-52 and Bill C-30, we will see shippers go after service level agreements.

Senator Mercer: I was going to ask this question, but it is apropos to what Senator Dagenais asked. How many people have taken advantage of the SLAs, the service level agreements, since Bill C-52 came into effect? Are you aware of what we have been told is a heavy financial cost to get these agreements in place? Are you aware — because you represent such a large number of people — if this is actually working, even though it looks good on paper?

Mr. Ballantyne: As far as I know, nobody has yet taken the opportunity to try to get a service level agreement by arbitration. Yes, the consensus seems to be that the way Bill C-52 was set up, it will be quite expensive to get it. The way Bill C-52 is structured, there are a number of legal hurdles that a shipper will have to jump over in order to get it, and the opportunity for the railways to use the legal system to make it difficult to come to an agreement is such that it would cause most shippers to spend a lot of money.

One of the things we did in our association earlier this year is we ran briefing sessions for the shipper community, one in Regina and one in Toronto, in order to try to give shippers as much information as we could as to how they could go about using it. We also had speakers. One was from the Canadian Transportation Agency; the other was a transportation lawyer who specializes in this area.

We are running a third such session in Montreal later this month. As far as I know, nobody has taken advantage of it yet.

[Translation]

Senator Dagenais: My second question is for Mr. Laskowski.

Some stakeholders in the grain industry claim that Bill C-30 is a good bill; others say that it should go even further. However, some long-term solutions are being proposed.

Are there other long-term solutions that you would like to suggest to improve the bill?

[English]

Mr. Laskowski: I can only speak to that from a trucking perspective. I mean, this bill is part of a much bigger picture in terms of how grain is moved, how it is sold to market, and the evolutionary process of that market.

For the trucking sector, as a part of that supply chain, but not typically the biggest part of that supply chain, we are standing back, looking to see exactly how this is all going to work out. I keep coming back to the investment required to get into this market and to be a participant. How far this bill goes in terms of protection of market rights and access to transportation for grain farmers will determine the reaction of our industry.

Quite frankly, picture yourself as a business person in the trucking industry. Even if there were bumper crops going forward, are you prepared to make an investment if there are more interventions with regard to requirements that determine the shape of the market in the future? So although CTA doesn't have a comment on the bill of how far it should or shouldn't go per se, it does have an impact on our industry in terms of how it will react to its evolution in the grain transportation business going forward.

[Translation]

Senator Maltais: Welcome, gentlemen. Thank you for being here.

I will turn to you, Mr. Laskowski, because you represent an industry that is unique. You have laid everything out for us and explained the problems facing you.

I would like to draw a parallel, because you haul grain by trucks, particularly in the West. Of course, we have the same problem in Eastern Canada, but not with grain. You know, paper mills receive wood chips, but sawmills are not always available. Truckers drive special trailers that cannot be used to bring back stock, and that is somewhat similar to the problem that you have in the West. Clearly, a truck that does not haul anything still uses gas, and the driver needs to eat and sleep. Those costs are unavoidable.

Would there be a possibility to partner with other companies with the help of dispatchers? We know those trailers are special and they cannot carry everything under the sun. But the trailers are attached to tractors, so they can be interchanged.

Could there be a way to reach an agreement with dispatchers in order to reduce the magnitude of the problem? The situation will probably not be perfect, but if goods were hauled in one out of two trips, the plight of truck drivers would be improved a great deal.

[English]

Mr. Laskowski: Thank you, senator, for the question.

With regard to Eastern Canada and the issue of access to trucks, costs and all the rest of it, it is a bit of a different situation in particular if we're talking about paper mill product. That is more of an issue, quite frankly, sir, of supply and demand.

If the paper mills wanted better access to trucking services, and there are a number of excellent fleets who service the paper mills with the specialized equipment, and have less of an issue with regard to the grain issue that we talked about, the B-trains, north-south on return delivery, that, from a logistical standpoint, is far less of a challenge.

The challenge in eastern Canada, and it is not necessarily exclusively the paper mills' issue, is that manufacturing in the East has had tremendous challenges over the last four years. What those challenges have produced not only to their customers, but also to our industry and the customers, comes down to payment for services. When those payment-for-service issues are addressed in terms of making the trucking industry a little bit more whole, those logistic issues will be dealt with, meaning if the demand for paper gets higher, they get higher rates. Then they will be able to share that with the trucking companies and have better access to transportation services north, south, east and west. That's more of a supply chain issue.

[Translation]

Senator Maltais: The other important point has to do with the next generation of truck drivers. We know the population is aging. You are not the only ones faced with this problem, and it is a serious problem.

Do you have agreements with training centres to ensure that you will have new drivers in a timely manner? We know that the industry will not stop just because drivers are retiring.

[English]

Mr. Laskowski: Absolutely. We're working with the Government of Canada to develop newer training standards to raise the profession.

Quite frankly, the problem in our industry is that truck driving isn't deemed a profession, so currently we're working with the federal government and the provincial associations with their provincial governments to raise the bar with regard to training standards for trucking. We believe that if you raise the training standards and raise the level of professionalism through its entry level system, that will attract more drivers and give us a good quality of driver and make it a sector that young people or transitional workers want to come to. So absolutely, yes.

[Translation]

Senator Maltais: The prospect of free trade and the agreements signed with some Asian countries will certainly increase the volume of grain production. Do you have a solution for the future to solve those problems? The question is also for Mr. Ballantyne. Are you a better forecaster than CN and CP?

[English]

Mr. Ballantyne: Yes. The shippers and the railways always talk about forecasting. There seems to have been some breakdown in communication, I guess, in terms of the grain forecast for the current crop year, last year. It may be that nobody was particularly at fault there. It was just that the crop turned out to be bigger than anticipated and that may not have been known until the end of the crop year and, therefore, maybe too late for people to move very quickly to put the resources in place to handle it.

It is something that does go on all the time. There are certainly discussions between the shippers and the railways in terms of what their forecasts are because the railways need to have that in order to be able to respond, as do the truckers.

The Chair: To conclude, Senator Oh.

Senator Oh: Thank you, gentlemen.

We understand that Bill C-30 is a very important piece of legislation and needs to get through as soon as possible. This will not only protect our grain market share in the world, but also all of the buyers need us to deliver the goods on time, which is critical. We are competing in the grain market with countries like Australia and the U.S. Canada needs a reputation for delivering the goods on time. This not only helps farmers with their cash flow, but also Canada's reputation is at stake. Can you comment on that? We need to have this problem solved because if you have a bumper harvest and can't deliver, you're hurting everybody.

Mr. Ballantyne: It's certainly important for the Canadian economy and all of the companies that export, whether it's grain or forest products or whatever, that the supply chain really works well because if it doesn't, then our overseas customers lose confidence in our ability to be a reliable source of supply. I think your point is very well taken. The whole Canadian economy does require that all of the players in the supply chain work well together and in as best harmony as they possibly can.

I think the government's initiatives with the corridor and initiatives like the Pacific Gateway where it tried to bring federal, provincial and private sector people and carriers together has been a good model for ensuring that the supply chain works well.

The Chair: Mr. Ballantyne, thank you very much.

Witnesses, again, thank you for accepting our invitation and sharing with us your comments, your vision and your recommendations.

Senators, our second panel will be by video conference. For the purposes of clarity, as you look at the screen, on your right is Mr. Andrew Mayer, Vice President, Commercial and Regulatory Affairs, Prince Rupert Port Authority, from Prince Rupert. To your left on the screen is Mr. Tim Heney, Chief Executive Officer, Thunder Bay Port Authority, from Antwerp, Belgium.

To the witnesses, thank you very much for accepting our invitation to be part of the study on the proposed fair rail for grain farmers act, Bill C-30.

I will ask that we start in alphabetical order with the presentation of Mr. Heney, to be followed by Mr. Mayer.

Tim Heney, Chief Executive Officer, Thunder Bay Port Authority: Thank you, Mr. Chair, and on behalf of the Thunder Bay Port Authority, I would like to thank you for the opportunity to appear before you today.

Thunder Bay is the Western Canadian entry point to the St. Lawrence Seaway system. Ninety five per cent of the cargo handled at the port originates in Western Canada, over 70 per cent of which is Western Canadian grain.

Thunder Bay currently ranks ninth largest of the 19 Canadian port authorities, shipping an average of 7.5 million metric tonnes annually. It is the second-largest Canadian port on the Great Lakes. We have the largest export port on the seaway system, with over 85 per cent of our shipments transiting the entire system to markets in Europe, North Africa and Latin America. The port also serves domestic markets in Eastern Canada and the U.S. around the Great Lakes. The St. Lawrence Seaway is the world's largest inland waterway and was built to provide direct access to European markets for Western Canadian grain.

Currently, over $2 billion is being invested in the system, including $1 billion in new vessels following the removal of the 25 per cent import duty on foreign-built ships. The use of ocean vessels at the port increased last season and continues to increase this season, and the time has come for a regulatory review of costs imposed on these vessels, including tolls, pilotage, marine services and icebreaking fees. These costs have grown to over $135,000 per voyage for an ocean vessel travelling to Thunder Bay and are eroding the competitiveness of the seaway at a time when grain shipments through Churchill are being subsidized.

Thunder Bay has eight operating grain elevators, with a combined storage capacity of 1.2 million metric tonnes, the largest in Canada. The port has the fastest ship turnaround time of any Canadian port, and the railcar cycle time has improved 36 per cent over the last 10 years. Richardson International, Patera, Cargill, Canada Malting Company, the Canadian Wheat Board, Western Grain & Processing Division, and Mobil Grain operate the grain facilities in Thunder Bay. In January this year, the Wheat Board purchased facilities in Thunder Bay and Trois-Rivières, a major vote of confidence in the seaway export corridor. This year, following a delayed opening with the most severe ice conditions in memory, the port is now operating at capacity, with projected grain shipments in the month of May of 1.2 million metric tonnes.

I would welcome any questions.

The Chair: Thank you.

We will ask Mr. Mayer to make his presentation, and then we will go to questions.

Andrew Mayer, Vice President, Commercial and Regulatory Affairs, Prince Rupert Port Authority: Thank you, Mr. Chair and committee, for allowing me to present on behalf of the Prince Rupert Port Authority.

Prince Rupert Port Authority is one of Canada's 18 port authorities. We administer federal Crown lands and the Prince Rupert Harbour pursuant to the Canada Marine Act. The Port of Prince Rupert is the second-largest port on the West Coast, after Vancouver, and is one of the largest ports in Canada, handling approximately 30 million metric tonnes in 2013.

I would just like to pause and say that the overwhelming majority of cargo that moves to and from the Port of Prince Rupert arrives at our port by rail, so efficient rail service is critical to this gateway, which is a Western Canadian gateway for a variety of products. It is our expectation that with rapidly increasing volumes of Asia-Pacific trade, the demand for rail capacity to handle a variety of products, including containerized cargoes and other resource products exported from Canada, will grow.

By way of example, Prince Rupert handles a variety of rail-delivered export products and import products through our gateway. Coal, which is a significant export — the second-largest export for the Province of British Columbia and an important export for the Province of Alberta — is a principal bulk cargo export handled by rail, as is grain, an important cargo for the Port of Prince Rupert as well, containerized intermodal cargo, wood pellets, which are a biofuel product, et cetera.

We also have a number of projects that are currently either completing environmental assessment or awaiting final investment decision. Not including LNG products, rail-related projects are valued at over $2.5 million in capital costs. Many of those projects will be serviced by rail.

There are some concerns we have in Prince Rupert with respect to the implications of the bill on supply chain efficiency for all commodity types, not just grain.

One issue I would like to raise is the issue of interswitching. Canadian ports compete heavily with U.S. ports. In particular on the West Coast of Canada, Canadian ports compete heavily with ports in Seattle; Tacoma; Portland, Oregon; and, in some cases, other smaller ports.

We're concerned that the extended interswitching rights may have the unintended effect of drawing cargo that would otherwise be exported through Canadians ports after being delivered by Canadian rail carriers to U.S. ports south of the border. That's something we trust the committee will hopefully take into consideration when determining whether the interswitching extension is appropriate in this case.

Second, our concern is that mandatory arbitration may have a chilling effect on what would otherwise have been generally good commercial discussions between shippers and rail carriers. We support the concept of encouraging railways and those who rely on rail service, including grain producers and exporters, to enter into level of service agreements and to ensure that those agreements are enforced and are enforceable. We have had some success ourselves in that respect, entering into level of service agreements, and we think those level-of-service agreements have had a positive effect on gateway efficiency.

The last issue we are concerned about is the proposal with respect to the imposition of minimum annual grain movements in a particular year. Under the proposed bill, it's our understanding that the Canadian Transportation Agency is required to consult with railways and the owners and operators of grain-handling undertakings. There is no corresponding requirement that the CTA consult with other users. Those other users would include other commodity shippers, terminal operators who rely upon efficient rail service, marine carriers who rely on efficient rail service, and port authorities who are responsible for ensuring that Canada's trade gateways operate efficiently. I would say that each of those additional stakeholders will be dramatically affected if there is an overall reduction in rail system efficiency.

The concern is that without adequate consultation by the CTA with those other stakeholders, an unfair preference will be provided to one commodity sector at the expense of other equally and, in some cases in terms of volume, more significant commodity sectors.

Those are my comments, Mr. Chair.

The Chair: Thank you, Mr. Mayer. Now we will commence our questions.

Senator Mercer: Gentlemen, I would like to thank both of you for making yourselves available to this committee.

Prior to my questions to them, I would like to put on the record how disappointed I am that the Port of Vancouver did not accept our invitation to appear. We have heard from witness after witness that part of the problem getting the grain moving is the backup at the Port of Vancouver. I think it is a travesty for the Vancouver Port Authority to not accept our invitation. I think it needs to be noted on the record that they have turned down our invitation while the good people in Churchill — at least those representing the railway up there — Thunder Bay and Prince Rupert took the time to meet with the committee via teleconference. So thank you again, gentlemen.

Mr. Heney, you said the Churchill subsidies are hurting the Port of Thunder Bay. How has that manifested itself? How have you noticed this problem?

Mr. Heney: You have to be clear that the size of Churchill is very small; however, last year it shipped over 500,000 tonnes, which is a fairly high number for them. Yet the markets are the same as served through Thunder Bay, so we are subsidizing one corridor over another, which seems rather strange when the seaway is subject to the maximum of user fees and user pay type of legislation. There seems to be a lack of fairness.

Senator Mercer: Mr. Mayer, Mr. Heney talked about Thunder Bay having the fastest turnaround time. I'm curious; we heard from witnesses over the last few days about turnaround time both in Vancouver and Prince Rupert and the fact that there are a number of vessels waiting for grain. Of course, if a ship is standing still, it's not making money and the product isn't moving. What is the situation currently in Prince Rupert?

Mr. Mayer: Senator Mercer, that is a very good question. As a result of the traffic congestion, both on the grain export side and also on the coal export side, we had a higher than usual number of vessels at anchor for extended periods of time at the Port of Prince Rupert. The reasons principally related to weather delays during the winter months, earlier in the year, and that created problems along the CN network in particular. It's our understanding that they had the longest extended periods of temperatures below minus 30 degrees Celsius, which made it impossible in some cases for them to use their railcars because hydraulic braking mechanisms didn't work. There was definitely an issue with respect to vessels being delayed and the gateway export being similarly reduced in capacity during that time.

I would say, though, in terms of railcar turnaround that the terminal operators in the Port of Prince Rupert and I would say through Vancouver as well are efficient terminals. The grain terminal in Prince Rupert, operated by Prince Rupert Grain, is a very efficient terminal, and once they had the cars, they were able to turn them around very expeditiously.

Senator Mercer: You also talked about interswitching and the problems that you have with it, forcing some of our shippers to go through American ports. Let's say we could all get our wish and the interswitching stopped at the border, stayed north of the border. Would the Ports of Vancouver and Prince Rupert — and I know you can't speak for the Port of Vancouver, which is why they should be here — be able to handle that extra volume?

Mr. Mayer: Senator Mercer, the issue and concern is that the interswitching extension or the kilometre extension for interswitching rights could result in U.S. carriers essentially being able to poach what would otherwise be cargo carried on the Canadian rail network west to Canadian ports or east to the Ports of Thunder Bay, Churchill and Montreal. That is a concern.

The additional concern is that there is no corresponding right on the part of Canadian rail carriers to pick up U.S. cargoes [technical difficulty with video conference]. I mention this because we are competing very heavily with many U.S. ports. There are steps being taken, for example in the [technical difficulty with video conference] on Canadian cargo routed through U.S. ports. We are concerned about that.

With respect to the ability to handle volumes, if all cargo stayed north of the border we'd consider that there is additional capacity for grain, additional capacity for coal and additional capacity for other commodity types, both in Vancouver and in Prince Rupert.

Senator Plett: Thank you, gentlemen.

Mr. Heney, I would like to further touch on your comments about the Port of Churchill. I'm from Manitoba, and when we sometimes subsidize certain players we are doing that not just to help one or two individuals, but rather to help a huge sector of a province, as we're doing here. The Port of Churchill was quite a big player in carrying wheat during the days of the single-desk marketing. Of course the government chose rightfully to go to dual marketing and that, in the short term, needed to be addressed in the Port of Churchill. There are many First Nations people there who depend on the Port of Churchill for their livelihood.

Would you feel the same way if an industry was not necessarily shut down but if something like this happened in and around Thunder Bay? Would you have the same feelings about somebody not being helped for a few years to make sure they could get back on track?

Mr. Heney: Thank you for the question, senator. I'm a life-long resident of Thunder Bay and I've seen much industrial decline over my career, coming from the forest products industry originally. I've worked at the port in the grain industry for the last 23 years, and we compete heavily with the U.S. ports. They are also subsidized and we successfully compete with them on many footings for project cargo. I'm used to competing. We have never seen any type of subsidy to save the forest products industry, so I can't really look from that perspective; I just look at it as a competitor. It seems I'm competing with my own government in some ways. We have some fairly excessive fees on the seaway, some of which haven't been reviewed in many years.

Churchill, because of its very short season and size of the shipments there, is largely irrelevant to the future of Thunder Bay. I like to draw attention to other corridors, the seaway corridor. A review of regulations on that corridor would be in order as well. We are not asking for a subsidy, just a review of regulations.

Senator Plett: Fair enough. If they are largely irrelevant, I don't think we should concern ourselves too much if they get a leg up and a hand up. But nevertheless, Mr. Mayer, you correctly state that this bill specifically states that shippers and rail companies must be consulted. However, the bill also gives the authority for the government to consult all players, including ports. Both Minister Ritz and Minister Raitt have said that all players will be consulted. Were you aware of that, or would you like to comment on that?

Mr. Mayer: Thank you for your comments. If the act, in its final form, does include a requirement that those key stakeholders also be consulted, certainly I would withdraw our concerns. My reading of the act suggested to me — and I apologize if I misunderstood — that there was a mandatory requirement to consult with the rail carriers and grain handlers and operators, and it was an optional requirement, a permissive ability to consult with others. That was the concern. Of course, when that is the case there is the risk that those groups, other than grain producers and grain handlers, may not be consulted. And therefore their voices may not be heard before a decision is made that may affect that gateway efficiency in general.

Senator Plett: I would like both of you to give a brief comment on the normal amount of ships that would be in your port at one time waiting to be loaded, as compared to what it was this winter because of the problems we had. I certainly wish that we had, as Senator Mercer said, the Port of Vancouver here as well to give us that, because they are large players. You are both significant players as well. What would the normal be for your ships in port as compared to what it was this year?

Mr. Heney: Our ship turnaround time is about two days on average. There was a surge this spring, and to be clear we're not open in the winter months. Following a delayed opening this year, we're seeing two to three ships at anchor waiting for grain, which is a manageable number. We can load six ships at one time in Thunder Bay.

Senator Plett: That's what it is now or is that the norm?

Mr. Heney: That's what it is now, which is high for us. Normally, we wouldn't see any ships at anchor. They come right to the dock and go out again. Given the number of ocean ships that have been queued up due to the late opening, that's a pretty low number, I would think.

Mr. Mayer: Senator, thank you very much. As I mentioned during my earlier submissions, we had extended vessel turnaround times — vessels waiting at anchor for cargo. In particular, we had extended vessel turnaround times for both the grain carriers and [technical difficulty with video conference]. I would say that our normal turnaround time for vessels, when vessels come into anchor, is approximately between one and three days depending on the time of year and the commodity type. After the difficult winter we had this year, in some cases vessels were at anchor for 7 to 10 days or potentially even longer. Again, I want to emphasize that those delays were not only experienced by vessels here to load grain but also by vessels here to load coal.

Senator Tardif: You mentioned this before but I want to go over it. In your opinion, how will the volume requirement that has been imposed by this bill on the two major railways affect the transport of other products moving on the same track through the same logistical system?

Mr. Heney: In Thunder Bay's situation, for other commodities there's quite an excess capacity in the port. We never moved anywhere near our capacity, which is about 3,700 cars a week for grain. Our number got up to not even 2,000 following the opening. It would not impact right now at all the coal or potash that goes through the port. There's a lot of capacity to move both commodities.

Senator Tardif: And in Prince Rupert?

Mr. Mayer: I would just like to mention that Prince Rupert is in a period of dramatic growth in terms of our cargo exports and imports through the gateway. We also have had some additional projects for which we expect to make final investment decisions imminently that will further increase in rail traffic to and from the Port of Prince Rupert, in particular, a new potash terminal development exporting potash from Saskatchewan and Manitoba. The environmental assessment has been completed. The point is that we see our current traffic volumes growing and rail traffic volumes therefore increasing as a result of requirements to export those commodities.

We are concerned about making it a requirement for the railways to allocate a certain number of resources on a mandatory basis to the grain sector because to do so, especially given that there will be penalties if they fail to do so and other potential sanctions, may result in capacity being taken away from other sectors that also rely on that transport.

By way of comparison, and we don't think that any particular commodity type should be preferred, the volume of coal moving through the Port of Prince Rupert right now versus grain is approximately 2.5 to 1 in terms of annual tonnage; 13 million tonnes of coal in [technical difficulty with video conference].

Senator Tardif: I'm sorry; I did not hear that. You seem to be fading in and out.

Mr. Mayer: I'm sorry, senator. I will try again. The grain volumes are forecasted to be approximately 6 million [technical difficulty with video conference], a little less than half our coal volumes. The concern is that if CN were our only carrier into Prince Rupert, and we're a single track, not a dual track, and were required to commit available resources in rail cars and locomotives exclusively to grain at certain times of the year or in greater percentages, it would affect, in our view, the shipment of other commodities as well as containerized cargo because of the reduction in locomotive capacity to the Port of Prince Rupert.

Senator Tardif: I'm going to restate that just to make sure that I have heard correctly. You indicated that you have half the grain exports in comparison to coal exports; is that correct?

Mr. Mayer: That's correct, senator.

Senator Tardif: You ship more coal. What is the situation for potash?

Mr. Mayer: For potash, the terminal has completed its market assessment, but the terminal has not been completed. We expect it to be started imminently. The potash terminal will be designed to be a 13.5 million to 20 million tonne per annum facility. It will be approximately twice the size of our grain terminal in Prince Rupert.

Senator Tardif: Thank you for clarifying your concerns.

Do you have other tracks that service Prince Rupert besides CN?

Mr. Mayer: No. CN is the only rail service provider into Prince Rupert [technical difficulty with video conference].

Senator Tardif: If those cars are taken exclusively for grain shipment, you are concerned you may be short of cars for the shipment of other products; is that correct?

Mr. Mayer: That's correct, senator.

Senator Tardif: Are they the same type of cars? I understand that the same cars wouldn't necessarily be used.

Mr. Mayer: You are right, senator. More appropriately, we should refer to the locomotives or the power used to pull the grain cars. Coal carriers are a different type of car, obviously. They're open top as opposed to the grain carriers. As well, containers are carried on chassis.

Senator Tardif: Do you have the staff and the capacity to handle this extra volume, whether grain or new export products that you are building terminals for?

Mr. Mayer: I will break it down, senator, if you don't mind.

We think that the rail capacity on the Prince Rupert corridor in terms of ability to handle trains pulling cars leaves a lot of room for additional movement, between 30 per cent and 40 per cent capacity at this time. That said, there are not an unlimited number grain cars, coal cars or cars available to carry containers and also locomotives.

In that sense, as volumes increase, there will be a requirement for rail carriers and CN [technical difficulty with video conference] the shippers [technical difficulty with video conference] cars to handle their products.

Within the Port of Prince Rupert, we are planning for growth. Our organization has tripled in size in the last five years. Our terminals are also in a period of expansion, which we see as a great benefit to the communities in the region.

Senator Tardif: Congratulations on your success.

[Translation]

Senator Dagenais: My thanks to the two witnesses. We are talking about the need to speed up the movement of goods in order to foster trade. The Minister of Agriculture actually said that a ship remained empty at berth in the port of Vancouver for a number of days. Mr. Mayer also said that it is important to think about the costs of icebreakers that have to open the St. Lawrence River seaway, which means that a lot of costs come with the shipment of goods. How will the bill support your port activities?

[English]

Mr. Heney: Yes, senator, our port, of course, relies heavily on rail, as do all ports shipping bulk commodities. Ours is devoted to grain almost exclusively, other than coal and potash, which are much smaller in volume than grain. So the effective movement of grain by rail is extremely important to us, and the extent to which the bill facilitates that and focuses on that will be of benefit to our program in Thunder Bay.

We have seen situations in other commodities like forest products, for instance, where mills currently today are taking shutdowns because they do not have access to rail cars. So I'm not sure this situation is hampering or hindering that, but that is a critical thing to our community as well.

Mr. Mayer: Thank you, senator, for your question. I think that, certainly, railways can be encouraged to improve efficiency in their systems, can be encouraged to make investments in equipment to increase their capacity and can be encouraged to make investments in their rail systems by creating sidings and other infrastructure to improve efficiencies in the system.

I think the bill in some respects would certainly create an inducement to rail carriers to do so, and in that sense we take it as a positive. We certainly support an efficient movement of grain to all Canadian ports. It is very important for all Canadians. It is important for us in Prince Rupert.

The concern, though, is that there may be an unintended preference [technical difficulty with video conference].

Senator Robichaud: Mr. Mayer mentioned that he was concerned about interswitching. What about Thunder Bay? Is there any concern there?

Mr. Heney: In Thunder Bay, we're basically into the first full year past the removal of the Wheat Board monopoly. So the majority of the shipments through Thunder Bay are Canadian wheat for export. We watch very closely what happens after the Wheat Board. One of our main competitors would be the Mississippi corridor for Canadian grain exports. We would not like to see anything that encouraged that route or gave it incentive, as was discussed earlier, to poach Canadian grain and take it through that corridor. We feel that it should be kept north of the border and using the seaway system, which has the ultimate capacity to do that. There are issues of competitiveness with the seaway as well.

Senator Eaton: Thank you both. This is very interesting.

I'm sorry, Mr. Mayer; we have such difficulty hearing you because you go in and out.

Mr. Heney, I would like to start with you. You are talking about regulations and the costs of the St. Lawrence Seaway placing Thunder Bay at a disadvantage to other ports. Is it only the federal government that you have to deal with in changing the regulations, or is it Ontario and Quebec?

Mr. Heney: Regulations are generally federal. So when we saw the change to the 25 per cent import duty for building Canadian ships offshore, that immediately spurred a $1 billion investment in the Canadian lake fleet. So these regulations can have dramatic impacts on the use of the seaway. The pilotage to get an ocean ship to Thunder Bay is $60,000. You have to have a pilot come all the way from Montreal across the Great Lakes, 2,300 miles inland to Thunder Bay. That's an unheard of situation anywhere in the world.

Pilotage on the open lakes, on the main Great Lakes in Canada, is not really required, and it is something that is making us non-competitive. We need to review these. These regulations took place before the days of GPS and modern navigation techniques and, to us, are just punitive to our competitiveness.

I think a review of these types of regulations, with a view to modernizing them, would certainly help the seaway to move a lot more grain and be more competitive. We do compete with American routes.

Senator Eaton: Have you lobbied the Minister of Transport about those regulations?

Mr. Heney: We have. We bring it up at every opportunity. They're a very strong lobby group supporting the pilotage and those types of groups. It is not an easy thing to change, but it is something that should be studied carefully with a view to modernizing those regulations.

Senator Eaton: I would like a comment from both of you on this. Bill C-30 seems to be pushing the railways to be less monopolistic with the new switching program and pushing them to build greater infrastructure, whether it is improving the track, building more cars, efficiencies, more engines. We had one witness yesterday who told us they had enough cars. What they were short of was engineers or personnel, crews and engines. How do you both feel about that?

Mr. Heney: There are two railways in Canada. Canadian Pacific has been recently undergoing major restructuring, which has reduced staffing and locomotive power dramatically. I'm sure that is a part of the cause of the situation we are in. The business of rationing power to higher paying commodities is something that is always going to be detrimental to grain shipping.

What we have seen in Thunder Bay is that once the order-in-council was placed, a large amount of grain was immediately moved to Thunder Bay, from short-haul places like Manitoba, to maximize deliveries. To us, that's in some ways a benefit because Thunder Bay has such a quick cycle time from the Prairies. Also, it impacted the fact that the railroads did not move much grain east of Thunder Bay over the winter. It actually left Thunder Bay in a better position in some ways.

The rationing of cars and locomotives is dangerous near a growth of commodities.

Mr. Mayer: First of all, we would support any efforts by the rail carriers to improve the levels of their fleet, the number of locomotives and their track. We think there has been significant progress in that respect on the Prince Rupert corridor, so we're supportive of CN continuing to do that.

With respect, though, to whether or not that was the cause of delays over the first part of 2014, senator, I would say that the delays in our view were not so much in terms of equipment capacity. They were principally weather-related and not labour-related either. So that was really an anomalous situation, in our view. That said, we certainly support encouraging the railways to continue to increase their efficiency.

Senator Eaton: As you both know, there's a sunset clause to this bill, so it will be very interesting to see what it has done at the end of two years

Mr. Heney, don't you have an advantage over Churchill as the track to Churchill is a difficult track, I understand? A lot of it goes over tundra, so the trains have to go very slowly. Don't you have a built-in advantage there?

Mr. Heney: Without dwelling on Churchill, we have many advantages, but they're not reflected in the freight bill at the end of the day. Thunder Bay has excellent service in rail by both railways, a very large grain handling capacity and a very efficient port, but not all of that is reflected in the cost of the shipment.

Senator Mercer: I have one question for each of our witnesses.

Mr. Heney, you claim to have the fastest turnaround time, and that's terrific. The ships leave the Port of Thunder Bay, head down the seaway and travel across numerous lakes in the seaway system. I put my other hat on as a member of the Transport Committee. I'm very much aware that the water level in the Great Lakes has dropped significantly over the last number of years to the extent that some ships have not been able to go through the process fully loaded. Has that affected grain shipments?

Mr. Heney: It did in 2007, senator. Last year, we saw the biggest rebound in lake levels in 60 years. After the winter we just had, we're going to see another rebound. We're actually, for the first time in many years, well over normal lake levels in Lake Superior. As we know, those lake levels travel downhill from Lake Superior, so you will see a correction of those lake levels. I can't predict how long that will last. Whether global warming or climate change has a long-term impact is up for debate, but I have seen rapid rebounds when others said that this was a permanent situation. Trust me, it is not. Lake levels in the Port of Thunder Bay have never been an issue, but along the seaway there are challenging areas. Those today are resolving themselves as part of a positive impact of the climate we have witnessed in the last winter.

Senator Mercer: The tough winter was good for something.

Mr. Mayer, I have to indulge my colleagues, but this is slightly off topic. You told us that you ship mainly coal, grain, containers and wood pellets. The other responsibility of this committee is forestry. We did a study on forestry and we know that there was a large stand of dead wood in British Columbia due to the pine beetle. Is that where the wood chips are coming from? Do you know?

Mr. Mayer: I know a little bit, so I will tell you what I do know.

Certainly, on the pellet side, wood pellets are a biofuel product manufactured from wood waste [technical difficulty with video conference]. It is now compressed and formed to a biofuel that is exported to Europe and Asia and considered to be a green fuel. So the wood pellet sector is a small sector that is growing, we think.

Another important aspect in terms of forestry exports and access to rail for forestry exports should be noted as well. Right now, the fastest growing export product through the Port of Prince Rupert is wood products. Those logs and finished lumber are loaded into containers and exported to Asian markets. So access for the forestry sector to an efficient rail network is very important to the Western Canadian economy, absolutely.

Senator Plett: Mr. Heney, you said that you are not open in wintertime. What is your storage capacity in Thunder Bay? Don't tell me in the amount of tonnes because I have a hard time figuring out how many boats that will load. How many ships would you be able to load in spring before you would need to get grain coming in?

Mr. Heney: The storage capacity, senator, is 1.2 million metric tonnes. I know that doesn't mean a lot. To use a round number, there are 10,000 metric tonnes in a unit train of grain. That would be 300 trains, somewhere in that range. To break that down by 25,000 tonnes, I would have to do the math. I can't do it in my head. I'm sorry.

It is 10,000 tonnes in a train, 1.2 million tonnes storage. When things opened up, we were loading six ships at a time, a unit train every hour, which is 10,000 tonnes an hour in the port, so huge capacity there. It is the biggest storage in North America, I believe. Here in Ghent, in Belgium, it is 1.1 million. They call that the biggest storage in Europe, so the storage capacity in Thunder Bay is world-class size.

The Chair: Thank you, honourable senators.

To the witnesses, thank you for sharing your thoughts, recommendations and opinions with us.

Honourable senators, we will resume at 2 p.m. today, same room.

(The committee adjourned.)