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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 31 - Evidence - Meeting of June 18, 2015

OTTAWA, Thursday, June 18, 2015

The Standing Senate Committee on Agriculture and Forestry met this day at 8:30 a.m. to study international market access priorities for the Canadian agricultural and agri-food sector.

Senator Percy Mockler (Chair) in the chair.


The Chair: I welcome senators to this meeting of the Standing Senate Committee on Agriculture and Forestry. I'm Percy Mockler, senator from New Brunswick and chair of this committee.

I would like to start by asking all senators to introduce themselves.

Senator Beyak: Senator Lynn Beyak from Ontario. Welcome.

Senator Merchant: Pana Merchant, Saskatchewan.


Senator Tardif: Good morning, I am Senator Claudette Tardif from Alberta.

Senator Maltais: Good morning, I am Senator Ghislain Maltais from the Beauport region of Quebec.


Senator Oh: Good morning. Senator Oh, Ontario.


Senator Dagenais: Good morning, I am Senator Jean-Guy Dagenais, from the Montreal region of Quebec.


Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.

The Chair: Thank you.


Today, the committee is continuing its study on international market access priorities for the Canadian agricultural and agri-food sector.


Canada' agriculture and agri-food sector is an important participant the country's economy.


In 2013, the sector accounted for one in eight jobs in Canada — employing over 2.2 million people — and close to 6.7 per cent of Canada's gross domestic product.


Internationally, the Canadian agriculture and agri-food sector was responsible for 3.5 per cent of global exports of agri-food products in 2013. In 2013, Canada was the fifth largest exporter of agri-food products globally.

Canada is engaged in several free trade agreements. In 2006, 5 countries had free-trade agreements with Canada. Today, in 2015, there are 43 countries.


Today, honourable senators, we are hearing from Wendy Zatylny, President of the Association of Canadian Port Authorities, and Captain Yoss B. Leclerc, Vice-President and Chief of Marine Operations, Port Authority of Quebec, Association of Canadian Port Authorities.


From Canadian Pacific, we have Robert Taylor, Assistant Vice President, North American Advocacy.

To the witnesses, thank you for accepting our invitation to come and share with the Standing Senate Committee on Agriculture and Forestry your opinions, recommendations and views regarding going forward in the agricultural sector and making Canada the best country in the world to live in.

Following this presentation, the senators will be asking questions of you.

I am informed by the clerk that Ms. Zatylny will present first to be followed by Mr. Taylor. Ms. Zatylny, the floor is yours.

Wendy Zatylny, President, Association of Canadian Port Authorities: Good morning, Mr. Chair and honourable senators. Thank you for the opportunity to speak with you today. We know that you've had a long-ranging study and have looked at many aspects of Canada's agriculture and agri-food exports. Transportation is not necessarily directly related to the production of agricultural products, but it sure means that our products get out to intended markets, so we appreciate being able to speak to you today.

Today I will talk about the valuable role that ports play in facilitating the movement of Canada's world-class agriculture and agri-food products to every region of Canada and within every region of Canada. I will also talk about some of the challenges we face as global trade grows through the expanded trade agreements that the honourable chair has referred to and what kinds of strain this puts on our existing port facilities. Finally, I will highlight some of the solutions that we're proposing as we continue to work to improve our competitive position so that we can deliver on the promise and the opportunities being created in the marine shipping sector. But first, let me set some context.

With over 90 per cent of everything that we buy travelling by ship, maritime trade really does underpin the global economy. Canada's ports play a key role in transferring goods and commodities to and from vessels and landside carriers. In fact, Canada's port authorities handle over $400 billion worth of goods each year with their trading partners in more than 160 countries. This contributes to Canada's economic growth, creating 250,000 direct and indirect jobs that pay higher-than-average wages.

As you'll hear from me today, our role as a key driver of job creation and economic growth across Canada will only increase in the years ahead.

World sea-borne trade, including agricultural and agri-food exports, is expected to almost double from 10 billion tonnes in 2014 to between 19 and 24 billion tonnes by 2030, while global population is expected to increase by over 1 billion in that same period. The combination of growing trade and a rising global population go hand in hand and will force Canada's port authorities, including those who serve U.S. markets, to dramatically expand their cargo handling capabilities and infrastructure, and improve their operating efficiencies.

For example, Chinese and other Asian container ports are already handling, on average, an additional 14 million TEUs — 20-foot equivalent container units — each year. Based on current trade patterns, this generates a demand for an added 5 million TEU capacity per year in North American ports.

Canada's portion of this growing Asian trade points to a potential increase to about 11 million TEUs by 2030. The new trade agreements Canada has signed recently and is currently negotiating will add to the demands faced by Canada's port authorities.

The key question I wanted to bring before the committee is quite simple: How can we as a country fully leverage the benefits of growing trade, a rising global population and the corresponding increased demand on ports? From our perspective, the status quo is not an option.

Agricultural products, especially grain, represent a significant commodity flow through Canada's port authorities. In 2014, grain throughput amounted to 22 per cent of the total cargo handled by our major ports. This amounts to some 55 million metric tonnes.

On top of that, all ports reported a significant increase in grain throughput in 2014. Many of these grains, including barley, canola, grain pellets, wheat and oats, are exported all over the world from ports in every region of our country. For example, the western movement of grains involves rail carriage from prairie elevators to the ports of Prince Rupert and Port Metro Vancouver. There, the commodities are loaded on international bulkers for shipment overseas.

Looking toward the east, the Port of Thunder Bay ships grain to markets in Europe, Africa and the Middle East directly via ocean-going vessels or via the lakers that transship grain at deeper ports farther up the St. Lawrence River, including Trois-Rivières and Quebec City. The Port of Hamilton, meanwhile, has recalibrated its facilities to become an important agricultural intermodal hub, exporting grain grown by southern Ontario farmers to markets abroad and importing critical inputs such as fertilizer.

So all of Canada's grain-handling ports have seen significant growth in cargo over the past two years, with ports such as Thunder Bay showing the best results in 16 years.

This is both a blessing and a challenge for ports, because addressing the requirements of future growth means that ports need additional port lands, which is a huge challenge in urban areas; reserved transportation corridors for road and rail service; and, most importantly, additional port infrastructure, both in equipment and waterside berths.

In a joint study that ACPA did with Transport Canada a couple of years ago, we found a $5 billion funding gap in port infrastructure needed to serve our growing international and domestic trade. These infrastructure requirements include both the rehabilitation of existing assets and the development of new facilities. The breakdown is that about one third of the funding is required to rehabilitate exists assets and two thirds is for developmental projects to expand to meet additional demand.

Given the magnitude of port infrastructure investment requirements, it is obvious that no single player, such as a CPA, can bear this cost alone. There is therefore a need for innovative public-private partnerships to support sound port infrastructure and investments. Our ports are already engaging in these types of arrangements to address their infrastructure shortfalls, but much more needs to be done.

At the same time, efficiencies can be gained through improved information-sharing and data transparency regarding production of grain and other commodities, rail capacity and asset utilization, potential operational or weather delays, and other factors that affect the fluidity of the supply chain.

We believe that port authorities have a role to play as honest brokers among partners within the supply chain to collaborate toward smoothing out the speed bumps and managing demand surges within the supply chain. In support of this role, we've also recommended that departments such as Foreign Affairs, Trade and Development play a role in developing a consistent supply-chain strategy.

Lastly, a comprehensive review of the St. Lawrence Seaway is needed to identify solutions to challenges faced by the ports and shippers, including the cumulative impact of pilotage and lockage fees, as well as the desperate need for additional icebreaking capacity to help extend the shipping season.

To help address these challenges, ACPA recently finalized its submission to the CTA review panel based on a comprehensive survey of our CPAs. Our proposals will help position Canada as a world leader in transportation logistics and supply chain efficiency. Indeed, we believe our goal as a nation should be to propel Canada into the top 10 of the World Bank's index of logistically efficient countries. The time is now to pair Canada's 21st century trade agenda with 21st century transportation efficiency.

We have submitted a copy of our submission to your committee clerk, and we welcome any further discussion and questions you might have. Thank you for the opportunity to speak with you today, honourable senators.

The Chair: Thank you very much.

Now we have Mr. Taylor from Canadian Pacific.

Robert Taylor, Assistant Vice President, North American Advocacy, Canadian Pacific: Good morning, Mr. Chair and committee members. I appreciate the invitation to appear before you today to discuss the competitiveness of Canada's agricultural sector.

Canadian Pacific operates a 22,000-kilometre network throughout Canada and the United States. In 2014, we moved over 2.7 million carloads of traffic. Approximately two thirds of that traffic moves to or from a port or border gateway as part of Canada's global trade.

I am proud to say that Canada has the lowest rail rates in the world. On average, Canadian Pacific moves a tonne of grain for $38, which is quite remarkable. We move a tonne of grain from the interior of this large country to a port position for $38, on average.

Agricultural products are a major line of business for Canadian Pacific. In 2014, we moved 464,000 carloads of agricultural products.

If you turn your attention to chart 1, it shows that grain and oilseed farm incomes since 2000 in Canada have increased 152 per cent, or 8 per cent per annum. This growth has been because of higher commodity prices as well as increased export volumes, which Wendy alluded to. It's remarkable growth, 8 per cent per annum. We're doing okay.

Chart 2 shows Canada's production of grain. Overall production has been growing at about 2 per cent per year over the last 15 years. The long-term trend has been quite stable. Annual production, however, is highly variable, and that is a function of yield. If you look at the chart, the blue line is the yield.

The science has definitely improved, but the main driver of the output of the ag sector continues to be mother nature. Over the last 15 years we have witnessed year-to-year variability as much as 50 per cent. This is unique to grains and a challenge for a capital intensive, low-cost supply chain.

This leads me into a brief recap of the 2013-14 crop year, which we heard a lot about. That year's crop was 37 per cent above the 5-year average of 56 million tonnes and an all-time high. To put it in perspective, that increase significantly exceeded the volume of potash that Canada typically exports in a year. In 2013-14, CP moved 16 per cent more grain and grain products than the previous record. This crop year, 2014-15, we are also on a record pace. Currently, even though volumes of grain are still robust, we are trending to more normal volumes with the carry-out in 2015-16 coming into alignment with the five-year average.

Another important element of the grain supply chain is seasonality. Chart 3 outlines CP's grain and grain products movements over the last two crop years. It is important to note that every year, with the exception of 2013-14, there is excess supply chain capacity usually from May to September. There is a ramp-up and a peak each fall as the harvest comes in. In winter, capacity is reduced and shipments are lower. This is because the Port of Thunder Bay — a very important port — shuts down because the seaway shuts down. Winter can also impact the supply chain. In severe winters, all elements of the supply chain can be more challenging. There is generally a spring rebound when Thunder Bay comes back on line and by May/June, as noted in a normal year, demand drops, we store rail cars and there is excess capacity. This seasonal peaking is also a challenge for an intensive low-cost supply chain.

Going forward, how do we ensure that the competitiveness of the ag sector continues? One is more commercialization. The movement of export grain is under a maximum revenue entitlement regime, often referred to as the revenue cap. Exported grain is the only commodity in Canada where there is direct revenue regulation. This is a disincentive to capacity enhancing investment and complicates the implementation of commercial mechanisms, which can align supply chain capacity and the grain marketplace. This is especially important given annual variability and seasonal peaks. Commercialization drives innovation and provides for a more nimble marketplace.

We also need to think about the longer item. From a railway perspective, we have considerable runway to grow within our footprint with the right market conditions and regulatory environment. This year, for example, we will invest at CP alone about $1.5 billion in private sector capital — nearly 20 per cent of our revenue.

We are also pleased that our supply chain partners have expanded port terminal capacity and are considering additional port infrastructure. This is positive because our supply chain is competing with other highly innovative supply chains in the world, including the United States.

We also need to look at the covered hopper car fleet in Canada. We currently operate about 6,000 covered hoppers that are owned by the Government of Canada. These cars need to be replaced with new cars that are much more productive, but making that investment is a considerable challenge given the risk related to our regulatory regime.

Competitiveness can also be improved with operational innovation. Some progress has been made on loading vessels in inclement weather, but more can be done. Additional capacity can be brought online if rail cars are unloaded when available for unloading seven days a week and 24 hours per day. Currently, some terminals operate three shifts per day, five days a week, while others operate two shifts per day, seven days a week. We need the entire supply chain to work cooperatively to increase velocity in order to create additional available capacity. Instead of cars sitting waiting to be loaded or unloaded, these rail cars should be cycling back to prairie elevators and ports.

Thank you, and I look forward to your questions.


The Chair: The first question will come from Senator Maltais.

Senator Maltais: Welcome, everyone. I have two questions. The first is for Mr. Taylor. We know that the Port of Thunder Bay is closed during the winter, as the seaway is not open. If ports in eastern Quebec had the capacity to store the grain frozen in Thunder Bay, would you ship it? To my knowledge, CP has a railway system in Quebec.


Mr. Taylor: You refer to movements that we call winter rail movements. Generally, when Thunder Bay shuts down, grains are moved over the Great Lakes into Quebec for shipment, and those movements are very dependent upon the demand of our customers. Our customers determine where the grain moves. They decide the origin. They decide the destination.

There is variability in terms of what customers want to do, but in a typical year, once Thunder Bay shuts down, we do move grain by rail into ports on the East Coast that are open all year round.


Senator Maltais: My second question is for Mr. Leclerc.

The Port of Quebec is constantly evolving. We know that the Beauport 2020 project is about to be completed. The goal of the project, valued at $189.928 million, is to expand the port and ensure a larger intake capacity for goods.

Will that expansion be sufficient over the next 25 years? Will it enable you to take in more grain for storage? Will it also enable you to store more grain in Baie-Comeau and Port-Cartier? Everyone agrees with storing grain on the North Shore. Will this project lead to a positive long-term future for you? We know that the Port of Quebec is the second largest in terms of tonnage, at the mouth of the St. Lawrence, after the Port of Sept-Îles. The Port of Quebec is mostly known for grain. Will this fairly significant expansion help you meet the trade demand over the next 25 years?

Captain Yoss B. Leclerc, Vice-President and Chief of Marine Operations, Port Authority of Quebec, Association of Canadian Port Authorities: As you know, a maritime strategy for Quebec was announced a few months ago. To my knowledge, the entire maritime industry is happy about that long overdue strategy.

As Ms. Zatylny said — and I can confirm it, having spent a number of years at sea, travelling the world — ports are really among the most important junctions of the entire logistical chain. They are the interface between sea and land. Everything that happens in the logistical chain, either upstream or downstream, will depend on the effectiveness, security, safety and productivity the port authorities and the ports in general will be able to provide.

To come back to the Port of Quebec, as you know, it is one of the oldest ports in Canada, if not the oldest. It is over 400 years old and a reflection of the wonderful history of the St. Lawrence and its shipyards. We could spend hours talking about it. Today, port authorities, such as the Port Authority of Quebec, as Ms. Zatylny said, need space to grow. I went through that experience in Vancouver, as I spent eight years there. Land is very hard to come by. There is a lot of pressure on investors to transform old industrial land into residential land. Afterwards, there are some challenges in terms of social acceptability — and I could discuss that further if you like. The expansion project is not only vital for the Port of Quebec's future, but also for upgrading aging infrastructure.

Mario Girard, our President and Chief Executive Officer, announced it, actually. It will cost about $200 million just to upgrade our current infrastructure. So the project is vital for the future. Ms. Zatylny gave you some figures regarding future projects around the world. This expansion project will help us, but we must also be able to upgrade our infrastructure. All Canadian ports must turn to the future and prepare for the coming demand.

Senator Maltais: Could you pass on a message to your port authorities and ask them to please fill out the documents as quickly as possible and send them to the Treasury Board? The Government of Canada is contributing one third of that $189-million envelope, and we are still missing many documents. This little message is for Mr. Girard.

I am actually originally from the North Shore. As Mr. Taylor was saying, our storage capacity will become a matter of clientele. Quebec City, Baie-Comeau and Port-Cartier have huge storage capacity. Given the free trade agreement that will be implemented, we will definitely have grain to ship in the winter, as well. We know that, during the winter, the St. Lawrence is impassable upstream from Quebec City. However, there is no problem downstream from Quebec City.

Could clients like Bunge or Cargill consider storing more grain in Quebec City, Baie-Comeau or Port-Cartier, to meet a growing European demand?

Mr. Leclerc: When it comes to grain terminals on the St. Lawrence, at the Port of Quebec, we have Bunge. That is one of the largest terminals. Its storage capacity is about 300,000 tonnes. We have other warehouses at the Port of Bécancour and a bit further down the St. Lawrence.

About two years ago, the Canadian Grain Commission disappeared. It took some time to readjust the business and transportation model for grain movement. As Mr. Taylor was saying, today, the Canadian Grain Commission is no longer deciding where the grain will go. The discussion is between the supplier and the client. They are the ones who decide where the grain will be loaded, based on economic considerations, and in terms of productivity and efficiency.

As you say, the St. Lawrence has a lot of capacity to meet future demand.

Senator Maltais: Thank you and good luck with your expansion projects. Do not forget: figuratively speaking, I can see you from my kitchen window.


Senator Tardif: My first question will be to Mr. Taylor. In January, the AG Transport Coalition released a report saying that the railways have failed to supply more than 11,000 cars that were ordered in the first five months of the crop year, and that the demand for rail cars was exceeding the supply. We know that in 2014 the federal government took steps to mandate minimum wheat delivery for moving grain to protect Canadian farmers and its international reputation.

You explained that things are going better but that there are still challenges. Could you explain to us what those challenges are? If, as you have indicated in your graph, we will be seeing increases in grain yields, how do you plan to meet the growing transportation demands?

Mr. Taylor: Thank you for the question.

I can't speak to the AG Transport Coalition's data. Unfortunately, we have multiple data sources being produced, and we cannot reconcile the data from the associations that are part of the AG Transport Coalition with the real data, so I'll leave it at that.

Actually, 11,000 rail cars is a fairly small number when you look at the fact that we move half a million rail cars each year.

I will just bring your attention, senator, to chart 3. I don't want to spend a lot of time here today talking about 2013- 14, but I think it's important and it's still topical. If you go to chart 3, you'll see crop year 2013-14. You'll see that in August 2013, before people really saw this huge crop coming, there was very little demand in the supply chain. We didn't have grain to move. We had as many as 4,000 rail cars parked in August going into September, which is unfortunate.

Then, all of a sudden, because of exceptional weather, this huge crop materialized. We moved record amounts of grain in October and November into December. The red line is the five-year average. Our units moved were literally off the charts. This is real data and it shows that. We were below the five-year average in only seven weeks in 2013-14, and not much.

After the severe winter lifted — and it was a severe winter such that if you lived in Winnipeg, you probably had your water pipes frozen — we moved record amounts of grain. We didn't move the record amounts of grain because of the government order; we moved the record amounts of grain because in the free marketplace, we make money by moving grain. I want to put that into perspective. We have moved record amounts of grain.

If you look at the supply chain, we have a lot of runway at the railway in terms of moving grain. What we need to see is additional port and terminal capacity.

Vancouver is a very difficult place to operate. Vancouver is the number one outlet for Canadian grain, and we are pleased to be in discussions with some of our customers about additional capacity in Vancouver.

Senator Tardif: Thank you for that explanation.

Are you indicating, sir, that the data provided by the AG Transport Coalition is not real data?

Mr. Taylor: We can't reconcile the data.

Senator Tardif: They have indicated that though things are better this year, there are still real concerns. You were fined a $50,000 penalty last year, if I understand correctly. You indicated that you are transporting 12 per cent more grain this year compared to the same time period last year but that there are still not enough railway cars. Would you agree with that statement?

Mr. Taylor: No, I would not.

Senator Tardif: Do you have sufficient railway cars?

Mr. Taylor: Yes, absolutely. We are transitioning into a period, senator, where we will soon be parking rail cars. As I alluded to in my notes, and if you look at the data and the facts, from May until September every year — except for 2013-14 because of the exceptional crop, the one in 100-year crop that Canada produced — we park rail cars. It is counterintuitive to think that more rail cars will move more grain. It is a supply chain and it is a multicomponent supply chain. If you put more cars into that supply chain, you actually increase congestion. It is like adding more cars to the 401 at rush hour. Putting on more cars when the supply chain is congested is absolutely the wrong thing to do.

So I don't agree with that statement.

Senator Tardif: Are cars being diverted for transportation of petrol?

Mr. Taylor: It is a different car.

Senator Tardif: I would think so. I would agree.

Mr. Taylor: It is a tank car owned by an oil company. Grain moves in covered hoppers; bulk grains move in covered hoppers. There are some grain products that move in a tank car, but it is not a tank car that is used for moving crude, plus the crude moves in a totally different lane.

Crude is a small part of our business. Crude represents about 4 per cent of carloads for CP; grain represents about 20 per cent of carloads. So it is not a factor.

Senator Tardif: In your opinion, because you and CN represent 85 per cent of rail transport industry revenues in Canada — that was the data in 2011 — could this level of concentration in Canada's railway sector impact transportation costs for Canada's exporters?

Mr. Taylor: If you look at the data, Canada has the lowest rail rates in the world. We move a tonne of grain for 2,000 miles for $38. If I translate that into cents per tonne mile, we move a tonne of grain for between 3 and 4 cents a tonne mile. Imagine: You move a tonne of product a mile for a few cents. That is canola. That is worth $500 or $600 FOB Vancouver.

We move a tonne of grain 2,000 miles for $30 to $40, and our customers, who we value, move that tonne of grain 200 feet — they elevate it 100 feet and drop it 100 feet — for $30 or $40.

The rail supply chain in Canada is incredibly efficient. We are the envy of the world in terms of the efficiency to move these products.

If you look at it, it is just common sense. We are a small population, with huge distances, and we are the number two trading nation in the world. How do we do that? We have an incredibly efficient supply chain.

Yes, we are concentrated because we are like a natural monopoly. We are very capital intensive. We spend 20 per cent of our revenue in capital. To fragment it, having hundreds of railways moving these little trains will completely undercut that efficiency. And we are highly regulated. Customers have a multitude of options.

I think we have a good model in Canada. The only other supply chain from a rail perspective that we could maybe learn from is the U.S. If you look at the U.S. from a grain perspective, they are incredibly efficient as well. They have these high-throughput port terminals, which can handle unit trains that are not affected by inclement weather and operate 24/7.

I would submit to the committee respectfully to have a look at a terminal like Kalama, Washington. On a good day at Kalama, they unload three or four times as many rail cars as the largest terminal in Vancouver, Cascadia. I would have a look at that.

I will push back with passion, very respectfully, about the efficiency of our rail supply chain in Canada.


Senator Dagenais: I want to thank our guests for joining us. My question is for Mr. Taylor.

Mr. Taylor, you know that, in 2014, the federal government took steps to require railway companies to transport a certain minimum volume of grain. The government passed an order in council to protect Canadian farmers and maintain our global reputation as an exporter of grain. However, the government did not renew that requirement when the order in council expired, on March 28, 2015.

First, what impact did that requirement have on Canadian grain exports? Second, do you believe it could be necessary to renew the Order-in-Council?


Mr. Taylor: Thank you for your question. It would have been almost nonsensical to force, by law, CN and CP to move 500,000 tonnes of grain per week when the marketplace did not demand the moving of that grain.

When Bill C-30 was introduced, the initial weekly mandated minimum was 500,000 tonnes per week. That equates to about 5,500 unloads per week for CN and CP. That is the capacity of the supply chain currently.

If you look at all of the outlets in non-winter, it is lower in winter because you lose Thunder Bay. The government made a decision and it was the prerogative of the government; I cannot speak to that. I cannot speak to the reasons for them making that decision. I can speak, however, to the number that they came up with. I think there was reason behind that number, because if they came up with a number of 7,000 unloads, or 600,000 or 700,000 tonnes per week, the supply chain — not the railway — would be unable to move that much product. You can't just look at it from the railway's perspective. The grain originates in a truck; all of it originates in a truck. It is goes to an elevator. It is elevated, goes into a railcar and then it goes to a port. It's a multi-component supply chain.

I think where some reason prevailed is coming up with the right number. What the government did after the initial implementation is reduce that number, because this exceptional crop has essentially been moved. So to mandate by law the supply chain to move a certain amount of grain, when the marketplace is not demanding that grain to be moved, would be completely nonsensical. This is what the government recognized.

In my notes, if you look at chart 3, we just don't have the demand. In a normal year — and we have a more normal crop in 2014-15 — May to September there is excess capacity.

Part of what I would submit to the committee is that if we looked at more commercial mechanisms, you can lower that peak and increase the demand throughout the entire year. Commercial mechanisms, like car auctions and other things, can certainly do that.

I do not think there will be a requirement to have a mandated minimum going forward. We are moving record amounts of grain. We can move record amounts of grain.

The other thing that deserves some analysis and consideration is the impact of winter on the supply chain. In 2013- 14 we had an exceptionally severe winter. Our basic technology in the railway is steel on steel. We have steel wheels and steel rail. Rail contracts when it is very cold. When it is colder than minus 25, we slow down because we have rail breaks. The rail actually contracts. It is continuously welded rail. So if it is colder than minus 25, we slow down because we don't want to derail. Derailments are catastrophic events. We want to get to zero in terms of derailments, so we slow down. Velocity and cycles are a key component of our low-cost supply chain.

We can all appreciate that when you get out and it is minus 40, those are tough operating conditions. We are an outdoor sport, so winter will have an impact every year. It is driven by the severity of the winter. Luckily, this past winter was less severe.

I want to make sure that you understand that we do more work in the winter now than we did in the summer three or four years ago. Railways are growing and we are investing. It is not like we are standing still and not trying to innovate. We do more work now in February. We move more gross ton miles, GTMs, in February than we did in July a few years ago, but we are impacted by our basic technology when we have severe winter conditions in Canada.

The other challenge we have related to winter is that all of these railcars and locomotives are in North American service. The Canadian railways, CN and CP, cannot go ahead and change our technology to deal with the Canadian winter. We have to have BNSF, the largest railway in North America, which is based in Texas, change their technology, too. There are over 1 million railcars in service in North America. It is a complex question.


Senator Dagenais: You answered my question well. However, there is something I would like to confirm with Mr. Leclerc. I do not know whether this was before or after the order in council, but I remember some witnesses saying that, at the Port of Vancouver, where ships arrive — and you can confirm whether it is true or not — ships would sometimes wait empty for one, two or three days, as rail carriers were unable to bring in the grain. It must result in costs when ships arrive and remain empty for a day or two at the port waiting for the grain. Have you looked into the possibility of coordinating the two carriers? The issue with the Canadian winter has been explained to me, and we are stuck with it, unless the environmentalists decide that global warming might help the railways, but we are not there yet.

Have you seen ships sometimes docked at the port empty, waiting a day or two for grain, because there were no rail cars?

Mr. Leclerc: When we look a bit into the logistics of grain — and I will try to look down on this from 10,000 metres in the air — we see that the logistical chain is extremely complex. As Mr. Taylor was saying, there are so many people involved along the logistical chain that it is difficult to target a single individual — the entire logistical chain really has to be considered. Let me explain what I mean. First, the buyer of the product charters a ship — you charter a ship like you rent a car. Depending on the time of the year or the year itself, the freight costs can be extremely low and, often, the buyer provides a ship and sends it at not much cost. At times, the ships are used for storage, as it is cheap.

I would say that the "just-in-time'' approach underlies the whole process. For instance, a ship can be used as a storage area, and it is cheap. There is also the problem Mr. Taylor talked about earlier with regard to terminals. Some terminals operate 24 hours a day, 7 days a week, and others are open only 5 days a week. So, terminals must also be considered.

In the past, the Canadian Grain Commission took care of grain transportation logistics across Canada. I would say are a number of stakeholders, with the efficiencies and inefficiencies that brings with it.

In my experience, Canadian winters are certainly very harsh, and there are also technological limitations. I know that carriers, including CN and CP, have been working hard in the winter to plan for equipment moving on both sides of the Rockies, so as to meet the winter demand, in the case of a snow storm, for example.

So there is no doubt some improvements need to be made to the entire logistical chain. I know that a lot of work is currently being done on the West Coast and at other ports to establish cooperation among everyone involved.

As for the port authority — and I will bang my own drum a bit here — one of the issues we face is access to databases. We are talking about performance tools, PKI tools, but for us, the port authorities, having access to that information is very difficult. I was at the Port of Vancouver, where some extraordinary work has been done to make the entire logistical chain more visible. We are doing that here, at the Port of Quebec, at the Port of Montreal, at all the ports, using our own resources, both human and financial, to be able to make that logistical chain more visible and transparent. However, it is very difficult to obtain information for various reasons.


Senator Merchant: Mr. Taylor, I come from Saskatchewan, so I will continue along the same vein. I understand that you have many challenges.

I don't know if you answered the previous question regarding this extra demand that is bound to happen because of all the trade deals that we are signing and because, as Ms. Zatylny said, the population of the world is also increasing.

Will that mean that exporters and exporting companies will have to pay more — I don't know if you answered that question — to facilitate the movement of their products? You said that you are exporting things cheaply, but what do you envision? You will have to make some investments — and I will ask you later what that will be — to handle all of this.

Could you answer this question: Does that mean higher prices for the exporters or the exporting companies?

Mr. Taylor: That is a big question. Thank you for asking it. I won't give you too long an answer because I know your time is important.

We are investing more than ever. CP this year invested $1.5 billion of private-sector money, which is important.

I find Saskatchewan quite interesting because it is kind of a microcosm for Canada, a good case study. Saskatchewan has a very small population, and it is a trade-dependent and rail-dependent province. I have crunched the numbers: For every person in Saskatchewan, we move about 20 tonnes of product; so 20 tonnes of product in Saskatchewan per capita moves by rail. That same number in Ontario is two tonnes.

If you compare Ontario to Saskatchewan, Ontario would be very envious because Saskatchewan has had 4, 5 or 6 per cent GDP growth for the last five or six years, enabled by a very efficient supply chain.

So I find it interesting that we're put forward as being a problem when we have enabled very significant GDP growth in Saskatchewan. Without an efficient supply chain, without our great port partners and without CN and CP, I cannot see how Saskatchewan would be growing 5 or 6 per cent per year.

I also want to come back with the nature of our business. In rail we have few take-or-pay contracts. I come from the utility sector. Before you build anything in a utility, you sign take-or-pay contracts. So before you build a highly intensive capital — again, billions of dollars in a transmission line — you ensure you have customers, which will guarantee the usage of that line.

In very few cases do we have take-or-pay customers in rail. We take all the variability. This is where we are transitioning in the grain space to say, "Okay, grain customer, you come to us and say this is the amount of capacity you need — be it trains per day. If you guarantee to use that capacity, we will guarantee to supply that capacity.''

I don't think it makes commercial sense to expect the railway, overnight, without any kind of commercial backstop, to move 22 extra million tonnes of grain. That is what happened in the fall of 2013: All of a sudden, everyone wanted to move an extra 22 million tonnes of grain. Now, we are right back to a situation where if we ramped up to move that, we would have excess capacity.

In terms of rates, rail shouldn't be some different entity. If you want a premium service, you should pay for it. It is just basic common sense. If you want to pay $14 for an envelope, we will be like FedEx: We will have the guy sitting in his van around the corner. If people want a premium service, they should pay for it.

Going forward, though, we are growing GDP and GPD plus. Our rates have grown at inflation. I think that trend will continue — maybe at inflation and a little plus, if we need to grow and deploy more capacity.

This is a conversation we need to have in the grain space. We have the maximum revenue entitlement, which depresses rates. Grain rates are lower than all the rest of our rates. If we want a nimble grain marketplace, we should talk about more commercialization; we can deploy more capacity and then producers can take advantage of more market opportunities.

I will not go on because I could talk at length, and I know your time is valuable.

Senator Merchant: Maybe you have answered my second question, because you do give premium service where you can get higher rates. A few years ago it was common knowledge that many cars were being shipped empty from Vancouver straight down to where Walmart, for instance, could just say, "We need X number of cars'' — I'm not sure if it was CP or CN, but we have a duopoly. This country is a natural monopoly as far as shipping grain is concerned. But you were shipping empty cars to pick up orders from Walmart. They must have been paying a premium price; is that what you are saying?

Mr. Taylor: There is a lot of discussion concerning Canadian grain with regard to covered hopper cars. We don't send any of those to Walmart. Walmart is an intermodal customer. Their product moves in containers. Some grain moves in containers.

So I can't speak to that anecdote. To me, we are comparing apples and oranges.

Intermodal is a fully competitive business. If we are to have a fact-based discussion, we need to talk about different lines of business, because intermodal is incredibly competitive. Ports compete with ports. Vancouver is competing with LA Long Beach or Seattle. It all can go on a truck. It is a container. So there is no duopoly in intermodal, per se, because it is an extremely competitive business.

But I can't speak to that anecdote, sorry.

Senator Merchant: It may not have been for shipments of grain, though, just general shipments through the prairies. You were sending empty cars. Was that the case?

Mr. Taylor: No. This is where I struggle. We make money. Adam Smith's "the invisible hand'' is a wonderful thing. The politburo is not such a great thing. Ordering to move one commodity over something else, trying to plan this complicated logistic system, I don't think is good public policy.

We want to move traffic and we are moving traffic. We are moving more traffic than ever. We are investing more than ever. We just can't move an extra 22 million tonnes overnight. That is the bottom line here.

Senator Enverga: Thank you. We learned a lot from your presentation.

We heard about the federal government establishing a partnership with the ACPA, and they are going to put a Canadian trade commissioner in the Halifax office. The trade commissioner will provide services to Canadian exporters looking for international expansion, because we will have CETA, South Korea and a lot more trade coming in.

Can you tell me about this? Do you have the same facility or same services on the West Coast?

Ms. Zatylny: Thank you for that question. We are excited about this opportunity because it is brand new; it is a pilot project and it is extremely innovative. It has not been done before. We are designing it as we go along.

Essentially, it's to embed a trade commissioner within the national port system. They will be located at the Port of Halifax because that was just a priority location that the Department of Foreign Affairs and Trade had identified, but this trade commissioner is meant to serve the entire port system, from the East Coast to the West Coast and all the wet points in between.

The idea of the trade commissioner really is to work with the port authorities and with the businesses in their local communities to help them to facilitate and build their businesses. The reason for it was twofold. One was that we thought, if you look at the supply chain — and we've spoken a lot about supply chains this morning — we firmly believe that the efficiency of the Canadian supply chain is as much a "value-add'' to Canada's trade agenda abroad as are the products we sell. Customers from Europe or Asia who purchase Canadian products rely on our ability to get them there in a timely, efficient, and cost-effective manner as well. All of the elements in the supply chain, especially port authorities, have been working very hard to make that as efficient as possible and create that value-add. We want to be able to sell that element abroad, and to do that we needed to ensure that the trade commissioner service understood that as completely as possible.

The second element is that the port authorities themselves are morphing. Their role within their communities really is evolving. One normally thinks of ports as places where cargo is handled and transshipped, but port authorities have started to take on a larger role around logistics, efficiency and management, but also, frankly, around business development. They are working with their local customers, their terminal operators, to start expanding and accessing markets abroad.

A great example of that is the Port of Belledune in New Brunswick that had worked with a local manufacturer to develop a market for wood pellets in Northern Europe. Now, the port handles the ships, and the local manufacturer provides the wood pellets. They heat the homes in Northern Europe. We wanted to be able to capitalize on that, so being able to hook into the trade commissioner service and to have that trade commissioner also identify opportunities within Canadian businesses surrounding the ports and marine environment would be an extremely powerful value-add.

Senator Enverga: Do you have that same facility in the Port of Vancouver, let's say, or would you recommend that we have something like that in the West?

Ms. Zatylny: I'm hoping that we will be able to have a trade commissioner in the West and as well in Central Canada because a lot of shipping is done down into the States or up through the Great Lakes and the St. Lawrence Seaway. Again, this is a pilot project, so we wanted to start with one and design the job description and get everybody comfortable. Then, I'm hoping we can expand it.

Senator Enverga: To be specific, can you give me examples of how it will impact Canadian agriculture and the agricultural sector? Would you have something that will help them, and can you cite examples that maybe it will be good for the agriculture industry?

Ms. Zatylny: That's a little bit prospective, and we're all still trying to see what the full impacts of agreements such as CETA are going to be. We know that there will be positives, an increase in trade, but a lot of details still need to be sorted out.

Part of the value of a trade commissioner here is that they then hook into counterparts in other markets around the world. Once a trade commissioner has the knowledge of Canadian products, whether it's an agricultural commodity or agricultural inputs that are required, anything like that, they are able to work with their counterparts in other markets to set up the business connections that will create the sales contracts to move our products abroad. That's pretty well it. It's one person who then hooks into a global network that will help build our businesses.

Senator Enverga: Will there be an impact on the railway industry at all?

Mr. Taylor: We're very excited about continued growth in Canada's trade. We're a willing partner. I think we have a lot of opportunity to increase trade with the world. Like I said before, we're growing. We're growing GDP plus. We're investing. We have an incredibly efficient supply chain. We have great producers in the ag space. We have strong companies, and we're optimistic about the future. We obviously support anything we can do to promote that.

Senator Moore: Thank you, witnesses, for being here.

I'm from Halifax. I grew up just on the other side of the tracks, so I'm familiar with the noise but also the value of railways. I'm a fan. If you want a deep, open, year-round port, we've got one in Halifax and we're open for more business. A little plug.

I want to touch, Mr. Taylor, on the matter of Bill C-30. Was the required number of cars safe? Doesn't Transport Canada say that you can only have so many cars in a train attachment?

Mr. Taylor: We've continually increased our train size in North America through a lot of innovation. We use what we call distributed power. We now have multiple locomotives throughout a train. You have one in the front of the train, one in the middle of the train and sometimes one at the back of the train. They all communicate. This allows you to move longer trains.

We're also investing a lot of money in terms of siding length. In Canada, CN and CP are essentially single-track railways with sidings. We have some double track. If you look to the U.S., for example, there are places on the BN or the UP where they have quadruple track. When I refer to the fact that we have a lot of runway to grow, we have a lot of ability to deploy additional track capacity within our existing framework.

There is no regulatory limit on train size. There are physical issues with moving longer trains, and it's a real optimization in terms of your siding length. We're now extending all of our sidings to 10,000 feet. Those sidings before were like 7,000 feet. You have meets. We're also doing, with CN, what we call "co-pro,'' so we run on CN in one direction and CP in the other direction.

When I talk about Bill C-30 and the volume, I think that when the government initially implemented C-30 and came up with this 500,000 tonnes per week, that number aligned with the supply chain's capacity, which was very important. To move a certain amount of grain per week that was beyond the capacity of the supply chain, we would have failed every week. So they ordered us to move what was a reasonable amount, and CP did that almost every week. We did miss one week, and that was Labour Day, because the Port of Vancouver shut down for Labour Day. You can't unload a railcar when the port is shut down.

I hope that answers your question, senator.

Senator Moore: Looking at chart 3, were any of the peaks in demand attributable to farmers holding back their crop hoping for a better price?

Mr. Taylor: Absolutely. That's an excellent question. When you look at the demand to move grain, it surges and flows. It's very dependent on price.

For example, in the U.S. right now, we have very little demand, and there is a lot of grain in storage in the U.S. because the market is just not demanding service. If you look at August, September in 2013, the reason we didn't have a lot of demand was an expectation in the marketplace that prices may increase. Then when the huge crop came in — and there was not only a huge crop in Canada; there were huge crops elsewhere in the world — farmers said, "Oh my God. Prices are going to go down. I need to ship now.'' Then we had all of this demand. That's an excellent question.

Senator Moore: I have learned a lot here this morning. One thing I didn't know is that the Government of Canada owns 6,000 hopper cars. I don't know why that is. Maybe one of you could answer that. How does that work? Do the railways lease them from the government? Who maintains them?

Mr. Taylor: Do you remember the Crow rate?

Senator Moore: Vaguely.

Mr. Taylor: Way back, a long time now, there was a regulated rate which was incredibly low. It was less than a cent. I don't know the actual number off the top of my head. We weren't making any money whatsoever off moving grain. We could not invest to move grain, so what the Government of Canada did is they subsidized the movement of grain by buying hopper cars, and then we used those cars. Now those cars move under an operating agreement that we have with the Government of Canada, essentially.

Those cars are old. You can't load them to the newest standard, plus they are longer. A new car is a shorter car, so it's a much more productive car.

Senator Moore: That would work with the handling terminal at the other end.

Mr. Taylor: Exactly. There is limited space in Vancouver at terminals, for example, and there is limited space at customer sidings. Because it's a shorter car that can carry more and doesn't cube out — some grains cube out. They're not really dense. It's the physical size of the car. You can only put so much in. It's kind of like the difference between potato chips and iron ore.

With a smaller car, you can put more in a customer siding; you can have a more productive train; and you can also have a more productive on-load at limited space at a port terminal. So it's a much more productive car.

Senator Moore: You mentioned that the Port of Cascadia in Washington —

Mr. Taylor: Cascadia in Vancouver, the Viterra terminal.

Senator Moore: You mentioned the one in Washington.

Mr. Taylor: Kalama, Washington.

Senator Moore: You said it's three to four times more efficient. Why is that?

Mr. Taylor: On a daily basis, they can unload three or four times more railcars. They have a dual loop track.

Senator Moore: How do we get to compete with that in Canada?

Mr. Taylor: It's a dual loop track facility. They unload two unit trains with power attached in a 24-hour period. If you look at Vancouver, there is not space to have loop tracks. The most efficient rail terminals now have a loop track. You keep the locomotive attached.

At Cascadia in Vancouver, for example, they break the train apart and they have what they call "car pullers.'' They have a system on pulleys where they pull individual cars and unload two or three cars at a time.

It's a unit train continually unloading versus individual cars unloading, so it's a much more efficient way. We welcome that. There are some customers — and this is public knowledge. Bunge and G3, which bought the Wheat Board, are looking at a new grain terminal in Vancouver, which is great. It's in the Inner Harbour, though, which is not a great place to operate. We think the future for Vancouver grain would be a new terminal not in the Inner Harbour, somewhere like a Deltaport, where you have a greenfield site and you can put in the latest technology, dual loop track.

Some of the U.S. terminals have grooves which allow you to load ships in inclement weather. The complete loading process is actually under a roof because you need to be very careful in terms of moisture when loading bulk grain. It can't get wet.

Senator Moore: Will that 6,000-car fleet be maintained or is that being phased out?

Mr. Taylor: That's being phased out.

Senator Moore: The various railway companies are building their own and supplementing that need; is that what you see happening? You will need hopper cars, so where will they come from?

Mr. Taylor: We have a real challenge there right now because we have this maximum revenue entitlement, and we are concerned about these regulatory interventions. That 6,000 hopper cars is a billion-dollar investment. You expect, on the one hand, to invest $1 billion, when we have very little regulatory certainty about being able to pay for that 30- or 40-year asset.

Senator Beyak: Thank you for your presentations. The numbers and your knowledge are so impressive. I'm thrilled. As a committee, we're always encouraged to hear comprehensive, actual solutions and to see this kind of cooperation and shared vision. Thank you.

My question relates to your comments on foreign affairs, the need to grow and the local collaboration that will be needed. How do you see yourselves as the honest brokers with local port authorities?

I'm northwest of Thunder Bay. There is always the local town council, the provincial and federal governments, and it's often hard to get everyone growing in the same direction. Do you have a strategy for that?

Ms. Zatylny: I think that answer has many components. Certainly in terms of the relationships with their communities, each of the port authorities is deeply embedded in their communities, either physically or extremely committed to being a good corporate citizen and working within their communities.

Each of the port authorities in their own way, as appropriate to their size and to the nature of their communities, has extensive outreach programs. They work closely with their municipal councils and with their provincial representatives to ensure the port is growing to meet the needs of the community and the community understands the needs of the port.

Outside of Thunder Bay, a great example of that is Saint John, New Brunswick, where they had worked closely with the municipal council to make sure that both understood, and now the city and the port operate in a symbiotic relationship. Again, each of the port authorities has that kind of approach in dealing with and working with their communities.

At the same time, they invest heavily in the communities, whether through funding local programs that are important, such as breakfasts in the schools or being active in the communities, to environmental activities, to also ensuring that the port operations have a minimal impact on citizens around them — so noise and pollution reduction measures. They strive to be very good corporate citizens.

On a larger level, the notion of honest brokers also speaks to this evolving role of port authorities that I mentioned earlier, which is that port authorities themselves are starting to move out and also become business developers or partners in business and market development.

We have been talking a lot about supply chain efficiency. We're arguing for the port authorities to take on this role of bringing together all the stakeholders within the supply chain — rail, truck, suppliers, markets, terminal operators — to start having the exchange of data and the data transparency that Captain Leclerc mentioned. There is a need for exchanging data and building trusted relationships so that we can have the conversations to help identify problems in the supply chain and smooth them out, so that we can help make sure we're well positioned to manage surges in commodities, or that we're just moving product as efficiently as possible. There are numerous roles or facets to that honest broker concept.

Senator Beyak: Could you tell me the status of the St. Lawrence Seaway review that you're proposing? I think that's an excellent idea. I, too, am a fan of railroads and ports. My dad worked for Muirhead Steamship Lines and took us everywhere by train, because we didn't have a car. I'm interested in how that's going.

Ms. Zatylny: It's a recommendation, and it's one that we believe is strongly needed. Certainly the other stakeholders along the St. Lawrence Seaway echo that recommendation, whether it's the St. Lawrence Seaway Development Corporation, the management corporation or the Canadian Shipowners Association.

Tim Heney, the CEO of the Port of Thunder Bay, was reminding me of this the other day. The seaway was originally built to ship Canadian grain to eastern markets. It has done that job very well. Again, demand changes. Ships are getting bigger. We need to move product and we are facing harsher climates.

Numerous factors are having an impact on how effectively we can use the St. Lawrence Seaway, but the factors are interrelated and quite complex. We would like to see a comprehensive review to see how to extract maximum efficiencies. One area to look at, and we have been talking about managing commodity surges, is that there is excess capacity within the St. Lawrence Seaway to move product, to move grain.

This may be a slight nuancing, but when Mr. Taylor said the Port of Thunder Bay shuts down for the winter; actually it's the seaway that shuts down. The port would happily operate year-round, but they are physically restrained.

One way to address that is to increase the number of icebreakers available to us. There is a desperate need for icebreakers within the Great Lakes to keep the ports open. Being able to extend the shipping season by a couple of weeks on either side would make a big difference in being able to handle capacity surges and to ensure we're making full use of the seaway. We're hoping the review would be able to address some of those issues.

The Chair: Before we move to round two, I have a few questions. There is a subject we did not touch on and the committee would like to have your opinions.

The economy has to flow. We need to get a common denominator. We do agree that we must bring our products to destinations. There is a factor here, and it is short lines. Do you have any comments on short lines? What role do short lines play and how can we improve them in order to assist the main carriers?

Mr. Taylor: I do, and it's a good question. Short lines are very important. A good analogy would be that the branches of a tree are the short lines and the trunk of the tree is Class I. Short lines are very important.

Unlike the Class I, where we would submit that we will invest significant amounts of our money if we do not get encumbered by undue regulation — because we're still highly regulated — I think there is a role for government in funding short-line infrastructure. They compete directly with trucks and don't have the ability to fund infrastructure. The Government of Canada has recognized that. Additional work could be done with provinces, but from a public policy perspective a good case could be put together for public support for short lines.

The Chair: Ms. Zatylny, do you have any comments?

Ms. Zatylny: That's probably an area we don't touch on as much.

The Chair: We know the Association of Canadian Port Authorities has made an application to Infrastructure Canada for a comprehensive study of the state of marine infrastructure within Canada. What is the status of your application with Infrastructure Canada and which ports were singled out?

Ms. Zatylny: I confess I'm not aware of that.

We have completed a study with Transport Canada of the funding gap that was required to fund infrastructure within ports. That study was completed two or three years ago. It found that there is a $5.3 billion funding gap in terms of what ports require to fund rehabilitative needs, fix existing inherited infrastructure, as well as to fund developmental needs.

This study was dated before the CETA agreement was signed, so that $5.3 billion figure in fact is conceivably greater. We would like to repeat that study but have not been able to do so yet.

Mr. Taylor: One thing the committee may want to consider is the gateway model. The Asia-Pacific Gateway was an important policy, and having public funding go into some of the public interfaces between ports was a positive thing. The Asia-Pacific Gateway was a successful initiative of the government.

The Chair: Since you're touching on the gateway, Mr. Taylor, I will ask another question. You explained this dual loop process with the Port of Vancouver. Do you think other Canadian ports could have similar types of efficiencies to move larger volumes? If so, which ones would you recommend or have an opinion on?

Senator Moore: You can just say Halifax.

Mr. Taylor: Unfortunately, we don't go to Halifax.

There is a lot of growth in Vancouver. Thunder Bay remains to be an important gateway, but if you look at the nature of trade, there is a lot of growth in Vancouver. In the long term, I think there is definitely opportunity in Vancouver to move out of the Inner Harbour and build a very efficient outlet.

We do have loop tracks in some other facilities that we serve, but we need to look at the long term in terms of getting out of some of these congested urban areas.

Ms. Zatylny: To build on that, I think it's important to look at the 18 Canada port authorities as a national port system. It's a system that spans the country and serves both coasts and the interior of the continent. In terms of looking at efficiencies and where we can grow, each port authority has the opportunity to expand in ways that are most appropriate. We've been talking about the expansion in Vancouver, and we can't forget that Montreal is expanding and growing. There are new investments going in there, as there are in Quebec and Belledune and Halifax.

A lot of the answer to our commodity needs, our export needs, lies in looking at how to maximize the entire system across all 18 port authorities.


Mr. Leclerc: I just want to give you an idea of how much infrastructure alone costs. I have often been visited by people at the ports of Vancouver, Quebec and Montreal, and they do not really realize how much infrastructure costs. I just want to give you an idea, just so you know.

At ports, the docks have what we call defences, which are pieces of rubber between the ship and the dock. Each one of those, once in place, costs $150,000. A ship needs about a dozen of them. We have $1.5 billion in defences alone, and I am not talking about the edge of the dock itself. Each linear metre costs $100,000. For a 300-metre ship, if you do the math, the cost is in the tens of millions of dollars.

People often do not realize how much infrastructure costs and what the burden is for port authorities, which, as you know, have to generate their own revenues, which they reinvest every year.

The Chair: Could you send that information to the clerk? We would like to have that data, given what has been said this morning.

Senator Maltais: Ms. Zatylny, you are the President of the Association of Canadian Port Authorities, which I assume brings together most of the major ports in Canada?

Ms. Zatylny: Yes.

Senator Maltais: When it comes to grain exports, we have the farmer, we have CP and CN, which move the grain, and we have the ports, where the ships that leave with the grain dock.

There is an association for the ports. Is there an association for the grain buyers?

Ms. Zatylny: That is a good question. There are a number of associations that provide solid representation for producers, farmers and terminals. However, I have not yet come across a grain buyers association.

Senator Maltais: Do you think it would be important for such an association to exist?

Ms. Zatylny: What I think is important is the ability to have a good discussion among stakeholders and partners in the supply line. Regardless of whether it would be done individually or through an association, what is important is the dialogue, the sharing of information.

Senator Maltais: I am asking you the question because, although this aspect may seem insignificant, it is important.

We know that the Great Lakes are frozen during the winter. You are saying that a lot of icebreakers would be needed to keep the channel open in the winter. Would it be less expensive for grain buyers to invest in grain silos in Canada's eastern ports, which are open 12 months a year?

Ms. Zatylny: There are also ports in Eastern Canada that are open throughout the year.

Senator Maltais: That is what I am saying. I am talking about Eastern Canada.


Ms. Zatylny: It's smoothing out the bumps within the entire system, as long as we have maximum flexibility and opportunity to have grains shipped out of Thunder Bay, Quebec or wherever. We have to build a system that accommodates maximum flexibility to be able to handle all kinds of surges. In order to do that, we do have issues, such as ensuring the seaway can stay open as long as possible, but we need equivalencies throughout all the regions.


Senator Maltais: The quantity of grain is not likely to decrease. We have optimum seasons and open markets. Having grain storage in Thunder Bay for four months is not profitable for anyone. Bring the grain to the east, store it in Quebec City, Baie-Comeau, Port-Cartier, and your clients will be served 12 months a year, and in very large quantities. Those are deep-water ports. Captain Leclerc is very familiar with them. That way, your clients would have a supply 12 months a year.

The Chair: I understand that the last comment was not a question.

Senator Tardif: Ms. Zatylny, you made 14 recommendations in your excellent brief. Which of those recommendations do you think the federal government should focus on first?

Ms. Zatylny: All 14.

Senator Tardif: Which one?


Ms. Zatylny: We come back to a theme that Mr. Taylor raised, which is the notion of increased commercialization. The port authorities, since they were created in 1998, have this mandate to be commercially self-sustaining while still remaining strategic assets. In order to do that in an increasingly competitive world, we require help to be moved further along the spectrum toward greater commercialization. That includes issues we identified in our briefing regarding raising the limits available and allowing port authorities to seek additional sources for funding.

Currently, for infrastructure needs, they developed a patchwork quilt of funding sources and operate in a competitive capital market. So being able to provide them with those types of commercial flexibilities would probably be the most effective.

Mr. Leclerc: I want to add something about the ports in Canada. I have been involved quite a bit around the world. For example, the north coast off Morocco. I was there in the 1990s, and there were small ports and not much happening there.

The new government, with the son of the king, has put their whole focus on transportation. The first thing he did was the port — a full review. I was involved in it. There was a full review of all Moroccan ports. They are putting in over $1 billion to upgrade every port that they have. I was there three years ago, and today they are competing with Barcelona, Italy, Spain and France.

Mr. Taylor was talking about the gateway. They want to become the gateway of all of North Africa. They understand the importance of ports.

The Chair: Thank you very much to our witnesses for sharing your opinions.

Senators, before you leave, we have to address one item.


I would like to draw your attention to the trip to Edmonton the committee has planned and presented to Internal Economy.


This being the case, would you be open to withdraw the budget application that we adopted for this trip? If so, I propose that we adopt the following motion. I will advise the Standing Committee on Internal Economy, Budgets and Administration accordingly.

Is it agreed, honourable senators:

That, notwithstanding the approval of the committee on March 12, 2015 of a special study budget application in the amount of $80,936 for the fiscal year ending March 31, 2016, the committee withdraws this application.

It is a matter of administrative process. Do we have agreement?

Hon. Senators: Agreed.

The Chair: Thank you.

(The committee adjourned.)