Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 30 - Evidence - February 14, 2018
OTTAWA, Wednesday, February 14, 2018
The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m. to give consideration to the subject matter of Bill C-49, An Act to amend the Canada Transportation Act and other Acts respecting transportation and to make related and consequential amendments to other Acts.
Senator David Tkachuk (Chair) in the chair.
The Chair: Welcome to this meeting of the Standing Senate Committee on Transportation and Communications to order.
This evening, the committee is examining Bill C-49, the Transportation Modernization Act.
There will be two panels tonight. For the first panel, I would like to welcome Warren Sekulic, Director, Region 5, Alberta Wheat Commission; Todd Lewis, President, Agricultural Producers Association of Saskatchewan, representing the Canadian Federation of Agriculture; Cam Dahl, President, Cereals Canada; and Jeff Nielsen, President, Grain Growers of Canada.
Thank you for being here. I think Mr. Lewis is starting this off, followed by Mr. Sekulic, Mr. Dahl and Mr. Nielsen. Please go ahead.
Todd Lewis, President, Agricultural Producers Association of Saskatchewan, Canadian Federation of Agriculture: I am a grain and oilseed producer from Gray, Saskatchewan. I am pleased to present to the committee today on behalf of the Canadian Federation of Agriculture. In addition to serving on the CFA board, I am also President of the Agricultural Producers Association of Saskatchewan and operate a family-owned grain farm.
In addressing the committee today, I cannot overstate the importance of government legislation and policy in ensuring that Canada has a cost-effective and reliable grain transportation system.
Producers are heavily reliant upon Canada’s railway system. In my home province of Saskatchewan, grain travels up to 1,900 kilometres to port, so it’s a big part of what we have to do to get our product on the world market.
The rail freight system for grain does not operate as a competitive marketplace. Nearly all our local delivery points are serviced by a single rail carrier. Producers have few cost-effective alternatives to moving grain to port.
Bill C-49 was occasioned by a severe shipping crisis that began in Western Canada in the 2013-14 crop year. The crisis was system-wide. The failure in Canada’s grain transportation system caused significant harm to our international reputation and cost farmers billions of dollars in lost marketing opportunities for primary producers.
The problems that led to that shipping crisis are long standing, and they persist today. The situation is quite serious. In some regions of Western Canada, CN-serving corridors have only received 70 per cent of their car orders this season.
Canada’s transportation system for grain begins at the farm gate. It is agriculture producers that bear the cost of these service failures. Backups at local elevators mean that producers cannot haul their grain within contracted time frames. Grain prices fall in order to ration access to the system. It’s very difficult for us as producers to plan our business and cash-flow needs in the context of this uncertainty.
These problems are clearly not going away. Current estimates are that Canada is on track to have the second highest handling of grain and exportable oilseed stocks in this current crop year.
In Budget 2017, the federal government identified agriculture as a strategic sector of the economy, capable of significantly increasing its agricultural exports. There is an urgent need for government regulation and policy to ensure the transportation system and its commercial relations are positioned to help us meet this future growth potential.
We see Bill C-49 as a step in the right direction. The legislation contains a number of provisions aimed at addressing commercial imbalances in this system.
We are pleased to see reciprocal penalties in legislation and that the act clarifies service level obligations on the part of the railways. The additional reporting requirements are critical to enhance our ability to monitor the system performance and improve planning accountability across the system.
The new act also includes new provisions for long-haul interswitching. Shippers have been without access to extended interswitching since August of last year. We as producers are eager to see this competitive option used in our service and rate negotiations with the railroads.
There is an urgent need for the Senate to move quickly on this bill. There are current shipping challenges that need to be addressed. Producers, shippers and governments need the opportunity to properly assess the effectiveness of these provisions and the current operating environment. If this legislation fails to live up to its intent, the minister must intervene quickly.
We also see this legislation as a first step toward continuous improvement. Grain producers have their own unique needs in this system. We require a commitment on the part of government to work with us to address these needs in Bill C-49 for this government and future governments and in future legislation.
In closing, I wish to repeat the urgent need for the Senate to move quickly on this legislation. Bill C-49 provides a solid foundation for future reforms. I look forward to discussing these opportunities with the committee. Thank you.
Warren Sekulic, Director, Region 5, Alberta Wheat Commission: I am a director at the Alberta Wheat Commission and a fourth generation farmer in northern Alberta. I am here today to offer the strong support from our 14,000 farmer members for the timely passage of Bill C-49.
My farm is 70 kilometres north of Grand Prairie, Alberta, which is over 1,200 kilometres to the nearest port, and totally dependent on the only railway that serves this line of four inland terminals.
With limited access to processing facilities or any other alternative market, almost 100 per cent of the crops I grow are destined for the export market and dependent on a single railway.
My situation isn’t unique. When it comes to rail transportation in Canada, the agriculture sector has always operated in a monopolistic environment. Each year, our farmer members grow millions of tonnes of wheat, grain and oilseeds. We rely almost entirely on rail transportation to ship our products from the Prairies to port terminal facilities on the West Coast, to Thunder Bay and south into the U.S.
Costs associated with railway failures such as demurrage fees and lost sales are ultimately passed down and supply chained to me, the producer. As a price taker, I am dependent on the price the market dictates. I cannot adjust the price of my product, so ultimately these increased costs reduce my profitability.
As an example, on my farm in 2013-14, as sound farm management practices I had all of my forward contracts in place with local terminals. I had a prudent plan to deliver my grain in a timely manner so that I could pay my land rent and input costs. These are typically due in the fall. I had even allowed a buffer for rail delays, given they are common place.
When the rail failed to deliver in 2013, it put my farm business and my livelihood in jeopardy. I am contractually obligated to make my rent payments regardless of whether or not I deliver my grain. Like most young farmers, I am cash strapped. Because of long delays that year, I needed to secure a bridge line of financing to ensure that I could retain my land, pay my debts and see my operation succeed into the next year.
AWC appreciates the government’s commitment to legislation that will ensure a more responsive, competitive and accountable rail system in Canada. We believe that Bill C-49 is in fact an historic piece of legislation that paves the way for permanent long-term solutions for rail transportation challenges that Canadian farmers have faced for decades.
Passage of this bill is imperative, especially in light of the poor rail service that shippers have been experiencing in Western Canada this year. Rail service in my area started out good in August 2017, but by September, and worse in October, rail delays were causing backups in grain delivery. By the end of December I had around 1,000 tonnes of grain that was forward contracted, priced, bought into the system, but had not been moved. That’s about 30 per cent of my total grain production.
This year car order fulfillment by one of the major carriers, CN, has been as low as 50 per cent and on average just around 60 per cent. In any other business this lack of performance would be unacceptable, but in the grain sector these service levels are all too common.
With respect to the role that reciprocal penalties play in this legislation, railways have long had a variety of measures that govern shipper efficiencies including asset use tariffs. These tariffs are used to penalize shipper failures through monetary fines in order to gain shipper efficiencies.
For example, when a railway spots cars at my local elevator and the grain company fails to load them within 24 hours, the grain company faces automatic monetary penalties. On the other hand, if the railway shows up two weeks late, there are limited or no penalties. Therefore, railways are the only link in the grain logistics supply chain that are not held to account.
We were recently made aware that CN has included a form of reciprocal penalties in their service level agreements. On the surface, this seems like good news but these penalties are extremely one sided, for example, giving CN the ability to spot cars at any time in a period of more than a week while still requiring the grain companies to load the cars within 24 hours or face penalties. Bill C-49 provides the ability to establish service level agreements that have truly reciprocal penalties.
Under Bill C-30, which expired August 1, 2017, the interswitching provisions which allowed shippers to access any interchange within 160 kilometres proved to be a powerful competitive tool for grain companies.
The long-haul interswitching provisions outlined in Bill C-49 stipulate that shippers must use the interchange closest to them. Not only do these changes make interchanging more onerous and complicated, they can essentially render the provision useless in a variety of scenarios including if the interchange in question does not service the appropriate corridor and, in other words, moves the product in the wrong direction, if the nearest interchange cannot accommodate the size of the carload or if it’s serviced by a rail company that does not necessarily have lines running the full distance to the shipper’s final destination. This is particularly important to products moving to the U.S.
To address these challenges, the Alberta Wheat Commission previously asked the House of Commons Transport Committee, as well as government officials, to consider amendments which would allow the shipper to access the nearest interchange that can accommodate their requirements in respect of direction, size and preferred carrier.
We would like to see the deficiencies in long-haul interswitching addressed, but our first priority is to ensure quick passage of Bill C-49. We believe it will help correct the imbalance between the market power of the railways and shippers.
In addition, since the expiry of Bill C-30 on August 1, captive shippers have had no ability to seek out competitive options to the poor service levels by CN. Bill C-49 would enable us to test these new interswitching provisions.
With that, I would like to close and thank you for your time and consideration. I look forward to any questions you might have.
Cam Dahl, President, Cereals Canada: On behalf of Cereals Canada, I thank the committee for the invitation to appear.
I have distributed a brief to you. It gives slightly more detail than I will deliver verbally, but I am happy to take questions on either the written brief or the verbal report.
The Barton report singled out agriculture as a sector that can lead Canadian economic growth. The budget set a target for the sector of $75 billion in exports by 2025. This is a 50 per cent increase over the levels that we’re shipping today. Reform to grain transportation legislation is absolutely required if we are to accomplish these goals.
Cereals Canada meets regularly with customers around the world. Every market has questions about the ability of the Canadian transportation system to reliably deliver product. Questions about the transportation system continue because of the fiasco of 2013-14.
That year, Canada failed to deliver. We did not meet our shipping requirements in a timely fashion. Our brand and our reputation have suffered internationally and have not yet fully recovered.
The grain transportation provisions of Bill C-49 are designed to ensure that the problems of 2013-14 do not recur. Passing this legislation will reinforce the Canadian brand as a reliable and trusted supplier of safe food.
Our ability to meet the growth targets depend upon moving production to market in a timely fashion. Timely fashion must be defined by the international marketplace. We will not achieve our goals for agriculture growth if transportation providers limit our ability to satisfy demand.
Increased production is a trend. The crop of 2017 was one of the largest of record with unparallelled quality. Canadian exporters have the opportunity for strong sales and strong prices, but we are being held back by the railway performance of one railway in particular. For example, in the most recent data available from the Ag Transport Coalition, one railway was only supplying 57 per cent of demand.
The Chair: Which one?
Mr. Dahl: CN.
Mr. Sekulic has outlined the impact on his individual farm. I can assure you his comments are not unique. Cereals Canada has members in the B.C. Peace Region, for example, that are echoing precisely the same comments and indicating more than a month without a single rail car.
This legislation is required to give farmers and grain shippers competitive options. This brings me to the most important message on Bill C-49. Please pass this legislation. The bill will help introduce better commercial accountability into the grain transportation system. It will help improve grain movement planning. It will improve transparency and reporting. It should be law.
The grain sector has not received all that we needed or requested when this bill was being developed. I have included in the written brief a few potential technical amendments that would help improve this bill. These amendments should not delay the passage of the bill.
I want to close by raising the resources of the Canadian Transportation Agency. Bill C-49 will require more of the CTA, including investigations into systemic problems, determining long-haul interswitching orders, and arbitration of level of service agreements.
Cereals Canada asks the committee to emphasize the need for additional resources to the CTA in order to carry out these additional functions.
If I may, I would like to suggest that the standing committee set a date for a hearing for about six months following Royal Assent of Bill C-49, with the explicit aim of determining if the additional resources required have been made available to the agency.
With that as a summary of our brief and position, I would pause and be happy to take any of your questions.
Jeff Nielsen, President, Grain Growers of Canada: Thank you for this opportunity to speak to you this evening.
As President of Grain Growers of Canada, I represent roughly 50,000 grain farmers from the Atlantic Grains Council to the BC Grain Producers. We all agree that this bill is a critical piece of legislation that we need to have passed. We look forward to its speedy passage.
I farm near Olds, Alberta, north of Calgary. I grow wheat, malt barley and canola. Effectively, every tonne of grain I sell must travel by rail in some sort of fashion, whether it be through Canada, the U.S. or overseas. Unfortunately, without the provisions contained within Bill C-49, poor service by the railways is keeping my grain from getting where it needs to go, when it needs to go there, and in a timely fashion. While grain growers appreciate the work this committee is doing and the role you can play in making targeted amendments to the bill, that is why it is critical we get this done quickly.
I would like to start highlighting the problems that exist in how Bill C-49 helps address these chronic issues by putting negotiation power back into our hands. I will echo the comments of my friends at the table today. As Mr. Sekulic pointed out, we generally forward contract a certain percentage of our grain into months. I’ll pick February as an example, as I generally have some input bills or land payments or something due that month. I’ll forward contract canola for a February delivery.
Unfortunately, it has been quite regular in the last few years that I’ll get a call from the elevator and my manager will say, “The cars didn’t show up this week.”That puts off, as Mr. Sekulic mentioned, my being able to haul the grain, receive payment and meet my commitments. That could also mean, as Mr. Sekulic clearly pointed out, I may have to seek alternative funding to make those commitments. That could be at a higher interest rate. We have contractual obligations when it comes to our lines of credit, our mortgage payments and our landlords, as Mr. Sekulic has mentioned.
We may get put off until, say, I might get the call to deliver grain in May. I am out on the tractor seeding my crop right then. When I am using my trucks to haul seed or fertilizer, it’s a little hard to organize trucks that haul my grain off the farm just to meet commitments I should have had cleared up several months before. This also affects our grain companies. They also have to juggle their shipments and how they handle the grain.
We’ve seen numerous times that there are delays at the port. We’ll see extra ships sitting in the port. There are costs affected by this. Unfortunately, those costs are generally transferred back to me as a primary producer.
We mentioned the grain crisis of 2013-14. This did irreparable damage to Canada’s reputation, as Mr. Dahl mentioned.
Let me be clear. The problem is more chronic. Car orders going unfulfilled is not a rare occurrence. As recent figures from the Ag Transport Coalition pointed out, only 60 per cent to 65 per cent of car orders are being provided by CN. We’re seeing statistics showing that CP is starting to falter a bit now too.
This should in no way be considered acceptable. We hear reports every day that the situation, as I mentioned, continues to get worse.
Bill C-49 will help to give me a fighting chance by giving captive shippers the ability to hold the railroads to account through reciprocal penalties. New powers for the Canadian Transportation Agency will help to level the playing field.
The legislation, as it stands, is a great step forward; but the Senate needs to take this opportunity to make targeted amendments so that the bill can deliver the results that we need.
As a wheat, barley and canola farmer, I benefit from the Maximum Revenue Entitlement, which protects me from the railways gouging me with high price hikes. Unfortunately, if I were growing soybeans, I would be left exposed to the high cost railways want to impose. It makes no sense to me that every other commodity grown across Western Canada from canola to canary seed is covered by the MRE but soybeans are not. It is simply unfair that every other grower is protected but the soybean grower isn’t. Therefore, I request that the Senate must add soybeans to the MRE. It’s a growing crop in Western Canada. I may, in a few years time, be able to grow it myself.
The Bill C-49 long-haul interswitching provisions are going in the right direction, but the amendments to the LHI proposed by the Crop Logistics Working Group will help to ensure that grain farmers and shippers can take their business somewhere else when they get poor service from the rail carrier.
We need meaningful legislative provisions to create a competitive environment and protect shipper interests. This is why the agricultural value chain is united on the need to get this bill passed quickly.
The Chair: I like Mr. Dahl’s suggestion of a six-month meeting.
I ask you to make your questions crisp and your answers the same, and we’ll be able to roll through this and try to get home at a decent hour.
Senator Dawson: What a difference a day makes. Yesterday, we had a lawyer telling us that he had been consulted but not listened to. He was asking us not to necessarily block it at any price but was certainly not satisfied with the way it was built. I am not hearing exactly the same thing from you.
My colleague Senator Plett and my dear friend Senator Mercer talked about passing it in May and June and, in the case of Senator Mercer, probably not even passing it at all. I am on the record as being for the bill. It doesn’t mean I won’t agree with amendments. If amendments are brought in that help passage of the bill in sending it out of committee, I’ll support them.
I would like to ask: Do you feel you were well consulted? Can you tell us what the time-line would be for “fast passage” of the bill?
Mr. Lewis: Certainly we in Western Canada got together before Bill C-49 and we were consulted well. We did a good job as an industry in giving a common front. As Mr. Dahl said, we’re not entirely happy with what is in the bill, but the reality is that we have lost another shipping season.
In Saskatchewan, we have about half the crop to move this year. Over 60 per cent of the rationalized orders are in the province of Saskatchewan. There are areas in Saskatchewan that have had terrible service this year, absolutely terrible. Guys are sitting on half of their crop or better.
We have to get this legislation. Sure, it has some wrinkles and some warts to it, but overall we need to see this bill passed so that we can get on with negotiations and try to get a better system. Our members are saying, “Let’s get on with it so we can start negotiating with grain companies, see how these new measures are going to affect our service and hope it improves.”
Senator Dawson: Mr. Dahl on timing.
Mr. Dahl: I go back to our international customers. They’re watching. I get calls from Japan on this bill specifically. They know what is in it because it has an impact on Canada’s ability to deliver.
To echo Mr. Lewis’ comments about losing another shipping season, it has been four years since 2013-14. We do need this legislation passed. There are some small technical amendments that can help to improve it. I think it’s important to note for the first discussions on the bill we had 90 different questions that could have turned into amendments. The need to move forward has tempered those questions and those requests down to about three amendments. That, again to emphasize, should not in any way, shape or form delay the passage of the bill. We cannot afford to go into another crop season without renewed legislation.
Senator Dawson: I agree on the request for six months. If we want to make a proposal for it at the end of the meeting or at the end of the report, I would be glad to.
The Chair: How did Senator Mitchell get here? I had Senator Plett.
Senator Plett: On how he got there, I have no idea. Thank you very much, chair, for doing this in the proper order. I have two questions. One will be very short and to the point. The other one will have maybe a 30-second preamble, not a 30-minute one.
First of all, let me say I am truly saddened by the fact that we have a government and a couple of large railways that have brought us to a point where we are begging to have something passed before we lose another crop season. It is horrible to have to sit here and worry about our farmers across the country because the government has been negligent in bringing forward legislation.
Only two witnesses we have heard so far, and we’re not done, and only two organizations have been in my office that say this bill is perfect the way it is. Those are the two railways and the government, of course.
I have one very quick question for Mr. Nielsen in regard to soybeans. I am from Manitoba where there are lots of soybeans. Why are soybeans and soy products not on the schedule list of MRE, especially with so much soy production in Western Canada?
Mr. Nielsen: You raise a very good question, senator. I scratched my head on that too.
We can go back to 2002, the last time there was anything done on transportation. Back then soybeans, if any, weren’t grown in Western Canada. We’ve always had soybeans grown in Eastern Canada. Through better genetics, soybeans are a great alternative crop for us to use in the West. We’re seeing a rapid expansion of soybeans. They’re good for the soil by fixating nitrogen into the soil.
That’s why we scratch our heads and ask why, when we have everything from canary seed to canola under the MRE. Soybeans are growing very fast. There were over 2.5 million tonnes this past year. It’s a fast-growing crop.
Senator Plett: I would like a farmer to answer my second question, or all of you.
Last week we had CN in front of us. I questioned Ms. Drysdale and asked:
The interchange at Emerson is less than 30 kilometres away from the elevator, but is in the wrong direction and with the wrong rail line for these exports moves. In order to have effective access, this elevator also needs access to the CN-CP interchange in Winnipeg. These concerns have been raised with the government, with a possible proposed solution being to add the wording in the reasonable direction of the traffic and its destination to both of the sections that I quoted. This language already exists in the legislation in 136(1) for other purposes and could easily be applied here. Why not support something like this?
Ms. Drysdale said to me:
The 30-kilometre interswitching provides a competitive option to shippers in widely used, high-density corridors at long established interchange locations and at rates reflecting variable costs. So to suggest that moving in the wrong direction within a 30-kilometre zone is cost prohibitive is, respectfully, absurd.
Are you respectfully absurd by your requests?
Mr. Nielsen: I don’t think so.
Senator Plett: Neither do I. Please elaborate a bit.
Mr. Dahl: That goes to some of those technical amendments specifically to make the long haul interchange more effective. Yes, there are two key points. One is if an elevator is served by both railways, the current legislation would exclude them from use of these facilities.
What if that facility happened to be shipping canola meal into the U.S.? They would need access to a third railway. Why should they be prevented from having access to the third railway? You will hear from the oilseed processors shortly.
If an interswitch is 30 kilometres away but the railway is headed to Thunder Bay, are the alternative railways going to Thunder Bay when you want to go to Vancouver? Again, that isn’t meeting the shipper’s needs.
Yes, these are technical amendments. I stress the word “technical” because these are a substantive overhaul of the legislation that has been drafted. These technical amendments would improve the effectiveness of the long-haul interswitching provisions.
Senator Mitchell: Senator Plett was making a point that this has been delayed by government. I am not going to comment on that.
What I will say is that we received this on November 2. We’ve had it a long time. Certainly it needs to be reviewed adequately by the Senate, and we’ve had great witnesses, you among them. I just want you to know that if we put our mind to it, we could have this fully through committee and out of here by the middle of March. I am hearing your message clearly/ It has to be done.
I want to bring that message down to a personal, human impact: This how it affects your family’s life, Mr. Sekulic. You mentioned you have a thousand contracts or 30 per cent of your grain held hostage by the fact that the provisions in this bill aren’t in place to help you release that and get your money. Could you tell me how much money that involves and how critical it is to your next cycle of farming?
Mr. Sekulic: Roughly it’s in the vicinity of $300,000 for my family. It’s a significant amount of money for my operation. I am not all that big. A thousand tonnes isn’t that huge for a lot of farmers, but it’s a significant portion for me.
Senator Mitchell: You don’t take all of that $300,000 home. You’re not rich. It’s critical.
Mr. Sekulic: It’s critical. It goes to inputs and fertilizer. A lot goes rent. I don’t farm any of our family farm. My wife and I rent pretty much all our land. In order to operate into the next year, we need to pay our rent and pay our landlords to have that land to farm next year.
Senator Mitchell: What features of this bill would give you the leverage to break that logjam right now if they were in place?
Mr. Sekulic: The reciprocal penalties, to hold the railway to account for poor service. Like I said, I have my contracts forward contracted. The elevators buy to a certain level of service. We have a reasonable expectation that our grain will move within a leeway one way or the other within the month that we contract the grain for. If the service isn’t provided, right now there’s no way to go after the railways for lack of service. If there are good negotiated reciprocal penalties, fair ones, I think there is an incentive on the railway to live up to what their agreements are.
Senator Mitchell: For at least the last decade or even more, the railways could essentially fine farmers if their grain didn’t show up, like right now, at that train, but if the train didn’t show up for a week or two weeks, farmers in Western Canada, and probably elsewhere, had no recourse to penalize them in return. That will get fixed by this bill if we pass it.
Mr. Sekulic: Yes. It’s not directly to farmers. It’s not a direct bill to me, but it gets passed down through basis or other things.
Mr. Lewis: It’s the shippers who pay the basis. The basis is what the grain companies charge us. If there’s a boat sitting for extra time that can’t get out of Vancouver or Thunder Bay, but typically Vancouver, we’re paying the demurrage on that through our basis. That cost is directly out of our pockets. The farmers are the ones that pay for this, not the grain companies. It’s the farmers that ultimately pay all these bills. It comes down to the farm gate.
Mr. Nielsen: On a point of clarity, as Mr. Lewis mentioned, we don’t get fined personally but we will see it in the future, probably when we try to write new contracts with the grain companies.
Senator Mitchell: But you have no leverage back against them.
Mr. Nielsen: No. That’s where some of the clarity in this bill really helps.
Currently, at our local elevators, the train may show up on time. On a weekend they’ll bring staff in to work on a Sunday because they’re told the train will be there. They have 24 hours to load the 120-car or 130-car unit train, or else that spot will be imposed fines which in the future will come back to us as producers.
If they get the train loaded within 24 hours, it doesn’t mean CN or CP will come back the next day and pick it up. It could sit there for a week or 10 days too, which then affects the grain handler who is expecting to have that grain out on the West Coast, in Thunder Bay or in Prince Rupert at a certain time.
Senator Mitchell: We got the bill on November 2 and you’ve been suffering this imbalance in December, January, February, and who knows how much longer?
Senator Griffin: What I heard from all four of you is that while the bill is not perfect, you want it passed as fast as possible. Yes, everybody nodded, for the record. You’re willing to wait for other means to improve it in subsequent years.
I have a very specific question. I don’t know if you can answer it for me. What is the cost of actually shipping soybeans?
Mr. Dahl: It would not be different from the cost of shipping any other commodity. For clarification on your point, these very small technical amendments could be brought into the bill now. We don’t want to see it delayed. Yes, we do want to see it passed quickly, but it has taken us an awfully long time to get to this point in legislation. It’s going to take an awfully long time to get the next bill.
Senator Griffin: That’s right. That’s why I am asking.
Mr. Dahl: In my brief, just for fun, I go back in time and look at Arthur Kroeger and Justice Estey. These transportation issues have been with us for a long, long time. Yes, it is time to move forward and fix them as quickly as possible. We’re under no illusions that there will be another piece of legislation coming a year from now.
Senator Griffin: Yes. It would not be a year from now. That’s why I am asking. It’s a trade-off.
Senator Mitchell: We could do one in the Senate.
Senator Griffin: If the government doesn’t accept the Senate bill, it will go nowhere. I can propose bills until the cows come home. I can even paint the bills in the colour of Holstein cows and it still wouldn’t help.
The soybean industry, how large is it now? It’s my understanding that it’s considerably larger than it used to be. If you were to take the list of items that are covered by schedule 2, it would be about halfway on that list in terms of volume. Is that your understanding?
Mr. Dahl: I am going straight off the top of my head, so don’t quote me on this as they say on the record, but I think it’s about number eight now. There are a lot more commodities on that list. Manitoba, for example, is coming very close to Ontario production in soybean levels. Yes, the production levels are definitely expanding.
Mr. Lewis: Certainly in Saskatchewan the technology is improving every year. There are new varieties. Varieties that were grown four years ago aren’t grown anymore because there are better varieties all the time. Certainly on a lot of the lentil production everybody has heard about the Indian tariffs and so on. The lentil market is depressed. There will be people putting in soybeans this year for the first time just to supplant hectares of lentils. It’s emerging more and more. Going forward, it will be a bigger and bigger crop.
Mr. Nielsen: Just to follow up on that, if you think about the tonnage and the crates that Mr. Lewis and Mr. Dahl have mentioned, you’re looking at other crops under the MRE that are only 50,000 to 100,000 tonnes. They’re included in the MRE. We’re looking at a crop that’s sitting at 2.5 million tonnes and growing.
The Chair: For the record, the bill was brought in on November 2 for first reading and second reading of the bill was on November 9. Then there was a week off. For three weeks the bill was in committee. It just so happened that December 15 was when the government decided to adjourn and we didn’t get back until the last week in January.
I just wanted to make sure everybody understood the time-line exactly.
Senator Mitchell: I have a point of order.
The Chair: No point of order.
Senator Mitchell: I wanted to say it is the house and the Senate chamber that decides when we rise.
The Chair: I am just saying when it ended.
Senator Bovey: I am going to move on to grain cars. I heard the words urgent, timely, imperative, quick, very quickly, speedy, please pass this legislation and amendments should not delay the bill. The message is very strong. On the other side, I am hearing that the railways have only delivered 62 per cent of the grain cars and that shippers served by CN only had 54 per cent of their orders delivered.
We have heard from the railways that, yes, there’s a need for new grain cars with new technology. We gather they will be built in Ontario and all that is rolling, but we’re told that until the bill is passed they can’t order the cars. Yet you’re telling me that if the grain is not picked up, you’re having to get bridge financing in order to pay your rent.
I wonder if we can perhaps reflect a bit on the dichotomies of the fact that our farmers, in my estimation, are family businesses, unlike corporations. I wonder what that does by way of trying to expedite some of this. I am concerned about people having to go out to get bridge financing to be able to buy their seeds for next year. On the other hand, you’re doing that to book your elevator space ahead.
In your view, why don’t you think the railways could have ordered the cars ahead?
Mr. Lewis: I can speak to that. It’s not a rail car shortage. There’s actually a surplus of rail cars now in Western Canada. The new cars will be bigger and more efficient. You’ll be able to put more grain per tonne because they will hold more and they are lighter. That will take time.
Certainly they will allow the railroads to be credited for that. Under the MRE, the railroads will be able to replace the cars. At the end of the day, producers pay for it. There are no two ways around it. It doesn’t matter who owns the car, in our estimation.
The biggest shortage is locomotives and crews. To be blunt, CN laid off crew members and mothballed or sold locomotives. That’s the shortage. It’s not grain cars; it’s crews and locomotives. That’s what currently is short. There are rail cars sitting empty on short line railroads all over Saskatchewan, renting space from American companies. It’s not a car shortage.
Mr. Dahl: I would observe that it’s probably a choice made by the railways. There is a robust rental market in North America for rail cars. If they felt the business needed to go out to acquire more grain cars to move grain, there are plenty of opportunities for them to do so.
Senator Bovey: Can I flip this to the other side? Another comment you made was that our international customers are watching. One of you talked about brand and reputation failures. In another committee we’re trying to work very hard on international relations. I wonder if you could quantify the kinds of impacts you’re finding from your international buyers.
Mr. Dahl: I don’t know how you can quantify a brand loss. I just know that the impact has been significant. I do know our customers are watching, just like they watched when the former Bill C-30 was passed. When that bill was passed we could go back to our customers and say, “Look, the Government of Canada has passed legislation that will help alleviate these issues, and we can assure you that they’re not going to happen again.” They’re watching this legislation with similar interest.
It’s a highly competitive market. We’re competing, for example, with Ukraine and Russia. Ten years ago we were exporting about6 million tonnes. Last year they exported 45 million tonnes of wheat. It’s a highly competitive market. Our customers have choice. If we don’t deliver when we say we will deliver, they will buy from somebody else.
Mr. Nielsen: One of our members is the Prairie Oat Growers Association. In 2013-14, they saw significant losses in moving oats into the U.S. That’s their major destination for their oat market. That was actually replaced by Scandinavian oats. Oats had to come from Scandinavia, Denmark, Finland and Norway over here and replace Manitoba oats. They still haven’t recovered 100 per cent, and it is just one example.
Mr. Sekulic: Further to that, I guess, we have the Barton report. We’re negotiating free trade deals all over the place. We can’t deliver grain in a timely manner with what we’re producing now. We can grow the crop. We seem to be finding the markets but we have to deliver to the markets. This seems to be the choke point of the entire system right now.
Senator MacDonald: One thing I have come to realize going through this process is that maybe we should have the railways come in last as opposed to first or second in these discussions because the more I hear, the more I want to go back to the railways and speak to them.
We spoke last night with some of our witnesses about data handling. I was a little surprised at what we were told. In the U.S. they have access to detailed costing, data to calculate a carrier’s costs in transporting goods. It doesn’t exist in Canada. Both CN and CP are required to report detailed financial and statistical data in the U.S. That is not required here. The U.S. shippers can access the freight rate competitiveness of CN and CP in their American operations. It is not required here.
The Canadian Transportation Agency has a rail costing system that does the same thing as the U.S. system, but shippers are routinely denied access to this. I would like to know what your experience is. Are you denied access to this? Have you requested it? What is your assessment of the lack of data that is available to you? Do you really know what you’re paying for and how much of a premium you’re paying for when you’re shipping your goods?
Mr. Dahl: I have a couple of quick comments. The support for the Agriculture Transportation Coalition, which has been monitoring the level of service and the performance against actual orders out there, has been very helpful. You will hear some of those members in the next pane.
This bill moves significantly forward in improving the data reporting requirements. That is absolutely one of the benefits of the legislation, but you’re not wrong. Knowing and having good data are absolutely critical to a monitoring program. This bill does make it better. Am I going to pretend it’s perfect? No, but no legislation is perfect.
Senator MacDonald: If you were shipping a lot of grain, obviously the cost of shipping it and the premium you’re paying on the railroads will cut into your potential profit for the product you’re shipping to market.
Mr. Dahl: Absolutely. There is no question that one of the largest costs of getting grain to market is actually that rail portion of grain, which is why you’re seeing the entire industry here before you today. This is not a minor issue. This is absolutely a critical issue for every part of the value chain.
Mr. Lewis: Certainly the reason this has to be put forward as well is that the MRE needs a costing review. Those numbers are from 1990. What business can run on 1990 statistics? A lot of things that are included there no longer exist. Yet that is still within the MRE. That is part of getting this legislation put through so we can get on to an MRE cost review.
The Prime Minister put in his letter to Minister MacAulay that a review should be done. We still feel that it needs to be done because the numbers are old. The reporting is very important.
Senator Mercer: I am a little frustrated because we’re not getting to the point of actually amending or voting on this legislation.
However I want to make a point. Several of you talked about technical amendments. You think that technical amendments will not slow things down. Technical amendments go through the same process as big amendments. We amend the legislation. It means it has to go back to the House of Commons and they have to vote on it. They have to agree to it, or we go back and forth. Don’t think technical amendments are not time-eating amendments. They are.
The comments have been that we’re not going to do this legislation every year, or that this doesn’t happen that often. Let’s get it right this time. If that costs us some time, unfortunately that may be the price we have to pay to get it right.
I am curious, as a number of colleagues have already mentioned, about your suggestion that six months after Royal Assent we should sit down and have a look to see if this is working. I would hope that one of the things we would add to that would be an assessment of whether the railroads actually are telling the truth and that they have ordered rail cars being built in Hamilton, Ontario, putting Canadians to work building cars that will service the market in Western Canada. There is a fair amount of lack of trust of the commitment by the railroads. CP has said they would do this. As the old saying goes, “I’m from Missouri, show me.” Show me the money. Show me the rail car.
You also said that you can’t deliver the grain in a timely manner. This points to another huge problem that we have here. We can’t deliver the grain in time and we can’t deliver oil or gas in a timely manner to tidewater either because we don’t have the proper infrastructure in place. This is an underlying factor in a whole bunch of things.
I am not sure I have a question, but I feel better I got that off my chest.
The Chair: I am glad Senator Mercer feels better. Does anybody want to make a comment? You don’t have to make it as long as Senator Mercer’s, but please do.
Mr. Lewis: I’ll speak to the idea that there is a lot of traffic out there. In southern Saskatchewan we had a drought this year. Yet we still have the second highest handling on record with this year’s crop. What will happen when we have good conditions across the Prairies? We’re growing more grain on a consistent basis.
Potash prices are down. When the potash industry comes back, it will need rail. It definitely needs rail. The lumber industry and all these things in Western Canada are continuing to expand. That’s where we really need the railroads to step up and deliver that product.
Mr. Dahl: First off, oil actually makes up a really small proportion of the railways’ handle. It comes down to a matter of choice. These gentlemen’s grain is captive to railways. The railways know that if they don’t move it in December, they might get around to it in April or May. If all else fails, they will move it in July. Some of the other commodities are not like that. The other commodities are actually competitive and they will lose the traffic if they make that decision not to engage.
This bill helps level the playing field. It introduces competition and options for some of these captive points to perhaps move grain to another railway so that it will not be there in July, or to hold the railway financially accountable for not showing up in December when they said they would.
Grain is a little different from intermodal, rail or some of the other commodities the railways are moving. They are making that business choice because it is a business choice and it is a regulatory environment that they are in. We can’t expect them to change those choices unless we change that environment.
Mr. Nielsen: After the bill was announced by Minister Garneau, Minister MacAulay reinvigorated the Crop Logistics Working Group. We are all members of that as well as industry and governments. It’s a good sounding board. We’re working hard so that once the bill receives Royal Assent we actually see the provisions carried out within that. Then we will have a direct channel back to Minister MacAulay on that.
Mr. Sekulic: You mentioned the whole backlog of freight. Shouldn’t this be seen by freight hauling companies as an opportunity rather than a problem?
The Chair: One would think. Do you have a short, quick question, Senator Plett?
Senator Plett: You have mentioned a number of times here today that you met with Minister Garneau. We have talked about the interswitching that is clearly one of the issues here. I am sure you must have suggested to Minister Garneau that he change that part of the bill. I would like to know what Minister Garneau’s answer was and his explanation for not having it in the bill.
Did he give you any indication that this was a good idea? If not, what was his argument?
Mr. Dahl: I don’t really have an answer for you. It’s not that I am not willing to answer. I really don’t have an answer. I will refer to them, again, as technical amendments because they are not massive overhauls of the legislation.
Senator Plett: But you did ask him.
Mr. Dahl: That has been asked at least since the bill has been introduced.
Senator Plett: Did he tell you why he didn’t want it?
Mr. Dahl: I don’t have an answer for that.
The Chair: You can ask him when he comes.
Senator Plett: I would like to know what he told them.
Mr. Lewis: As Mr. Dahl said, it has been mentioned but we never had an answer that I am aware of anyway.
The Chair: Does anybody else want to comment?
Mr. Dahl: To be fair, it has been some time since I asked him that question.
Senator Mitchell: I am sure he will get asked that question when he comes. I have a technical question.
This bill will cover the recycling of boat containers. I am interested in knowing what portion of your grain is transported in containers versus railway cars or containers on railway cars versus railway cars. Is it immaterial? Is it important? What is the distinction?
Mr. Dahl: If you’re the one shipping that container, it’s not immaterial. No, it’s not immaterial and it’s not unimportant, but it’s a very small percentage. I don’t know what that percentage is but it’s a small percentage.
Mr. Lewis: In certain industries, certainly in the pulse industry, it’s a huge piece of it. The transloading at Vancouver is a very large piece of it. It’s increasing in volume as well. It’s a big part of our future, certainly.
Senator Dawson: Many years ago, Senator Tkachuk and I worked on the container issue. I know it’s not the size of the train, but we were told it was a fast-growing market. Is it still growing? It was pertinent when we made the report, but is it still pertinent today?
Mr. Lewis: Yes, it is. It’s very important and it is increasing. I have loaded containers of canary seed within the last two weeks.
Senator Tkachuk: With the increase in pulse crops, it has got to go. Thank you gentlemen very much.
I would now like to welcome Chris Vervaet, Executive Director, Canadian Oilseed Processors Association; Wade Sobkowich, Executive Director, Western Grain Elevator Association; and Steve Pratte, Policy Manager, Canadian Canola Growers Association. Thank you for coming to the meeting today.
I believe Mr. Vervaet is first at the plate, followed by Mr. Sobkowich and Mr. Pratte. Please proceed.
Chris Vervaet, Executive Director, Canadian Oilseed Processors Association: The Canadian Oilseed Processors Association, or COPA, works in partnership with the Canola Council of Canada to represent the interests of oilseed processors. We represent the companies that own and operate 14 value-added processing facilities spanning every province from Alberta through to Quebec. These facilities process canola and soybeans grown by Canadian farmers into value-added products for the food processing, vegetable oil, animal feed, protein meal and biofuels sectors. This not only creates incredible demand for oilseeds grown by Canadian grain farmers but also injects stable, high-paying jobs in rural areas where we operate.
Our industry’s success is predicated on the ability to trade into the global marketplace. Indeed, 80 per cent of our processed products are moved by rail to access continental and offshore markets. Efficient rail logistics are paramount to get our products to these markets in a reliable and timely fashion.
Bill C-49 is, on balance, a good bill. It contains several critical components that value-added oilseed processors feel will improve the commercial balance between shippers and railway, most notably the ability to arbitrate performance penalties and service level agreements, along with a dispute resolution mechanism to address disagreements in the application of a signed service level agreement.
The ability to hold railways accountable for poor performance is especially important considering the serious rail service disruptions currently facing the grain industry. It is in this context that we encourage the Senate to pass the bill as soon as possible. However, recognizing there are areas to improve the bill and respecting this committee’s commitment to due diligence, we would like to propose several minor amendments that we feel will strengthen the intent of the bill and improve competitive options for rail shippers.
Oilseed processors have concerns with the restrictive and complicated nature of the proposed long-haul interswitching provision. The extended interswitch under the former Bill C-30 was comparatively straightforward, putting nearly all interchanges into scope. It involved no application or bureaucratic red tape to access.
In an ideal world, we would have preferred to see the extended interswitch provision made permanent, but we are hopeful the long-haul interswitching can be a practical alternative if the following amendments are made.
First, we are asking that processors with existing access to an interchange within 30 kilometres should not be disqualified from using the long-haul interswitching provision. We are also requesting that facilities that are dual served similarly not be disqualified from the long-haul interswitching provision.
The reason for these asks is the same. If a facility is within 30 kilometres of an interchange or dual served but would only allow the shipper to ship product in the opposite direction of its intended destination, then the processor is essentially still captive for the traffic in question. We are asking to add one line to both these clauses: that the prohibition to apply for a long-haul interswitching order would only apply, provided the competing carrier could provide service in the reasonable direction of the traffic and its destination.
Finally, we wish to be on the record to emphasize the need for proper resources to be deployed to the Canadian Transportation Agency. Bill C-49 will require more involvement for the agency regarding investigations into systematic problems, determination of long-haul interswitching orders and arbitration on service level agreements, and is still expected to carry out its existing functions as well.
In our experience, the timelines associated with decisions by the agency are far too long. By the time a decision is rendered, the harm to the producer, shipper and customer and the damage to Canada’s reputation as a reliable supplier have been done. It is therefore critical that the agency be provided with the resources it needs to carry out its important function in an expeditious manner.
Thank you very much, and I look forward to hearing your questions.
Wade Sobkowich, Executive Director, Western Grain Elevator Association: The Western Grain Elevator Association represents Canada’s six major grain handling companies that handle more than 90 per cent of Canada’s bulk grain exports.
Bill C-49 contains important legislative reforms, chief among which is the ability to arbitrate performance penalties and dispute resolution into service level agreements. Accountability is foundational to a well-functioning commercial system and penalties for poor performance have been the missing element. This is the main reason the WGEA is asking members of the Senate to pass this bill as quickly as possible.
If amendments are being considered, the WGEA would like to offer two modest ones that keep within the spirit of the legislation. The grain sector is right now in the most critical phase of the year. We’re trying to move another very large crop, without protections such as extended interswitching that were lost when Bill C-30 expired in August.
Extended interswitching created much-needed competition in Canada’s rail system, and we’re looking for the new long-haul interswitching provisions to do the same. We are aware that CP and CN have warned against enacting long-haul interswitching, claiming it will hand Canadian rail business over to U.S. rail carriers and render Canadian railways unable to compete, but this is divorced from the reality of the North American rail logistics network.
With the package I distributed is a number of maps, one of which is labelled map A. As you can see, Canadian-based railways have extensive rail lines in the United States. There are over 17,000 kilometres, in fact. The same is not true for U.S. carriers in Canada. There is no legitimate threat of U.S. carriers coming north of the border and taking Canadian business. However, Canadian railways are already taking significant business away from U.S. carriers in the U.S. market. That’s what competition is about, and we fully support any provisions that would strengthen competitive behaviour among the railways.
While it’s true that Canadian rail lines criss-cross significant land mass throughout the U.S., they don’t reach every important market. If you turn to map B, you would see that CN and CP do not serve the U.S. southwest. Canadian canola meal headed to the California dairy feed market or malting barley destined for Colorado brewing must switch to a U.S. carrier, not because of any legislative mechanism but because it’s the only way to get there.
The LHI mechanism in Bill C-49 is intended for one purpose: to create competitive options for Canadian shippers on this side of the border. It’s our hope the new LHI mechanism, though more complicated, will be as effective as extended interswitching was.
To that end, we are suggesting an amendment which you will find in the package we distributed prior to the meeting. We are asking that elevators which have existing access to an interchange within 30 kilometres, or are dual served, not be automatically disqualified from using the LHI provision. If a facility is dual served or within 30 kilometres of any interchange, it’s completely excluded from long-haul interswitching, even if the competing carrier doesn’t take the traffic to its destination. We’re asking to add one line to both of these clauses with respect to 30 kilometres and dual service to clarify that there would only be a prohibition on the use of LHI if the competing carrier could provide the service in the reasonable direction of the traffic and its destination.
Soy and soy products continue to be excluded from the Maximum Revenue Entitlement. Since the MRE was established in 2000, soy has become a major crop on the Prairies and a commodity that holds significant potential for future growth. There is no reason to exclude soy while virtually every other commodity is on the list. We respectfully ask senators to add soy to schedule 2.
Finally, we wish to emphasize the need for proper resources to be deployed to the Canadian Transportation Agency. Bill C-49 will require more involvement from the agency regarding investigation into systemic problems, determination of long-haul interswitching orders and arbitration on service level agreements. These are all new things, and the agency needs resources to do that in addition to its current functions.
The time lines associated with decisions from the agency on its current functions are already too long. It’s critical that the agency be provided with the resources it needs and instructions from the government to carry out its important function in an expeditious manner. It should also consider exercising its ability to grant interim relief more regularly. Thank you.
Steve Pratte, Policy Manager, Canadian Canola Growers Association: The Canadian Canola Growers Association is a national association. We are governed by a board of farmer directors that represent the voice Canada’s 43,000 canola farmers from Ontario west to British Columbia.
In crop year 2017-18, Canadian farmers harvested an estimated 21.3 million tonnes of canola, an all-time record. Our farmers then sell their product in a competitive marketplace to the companies represented by the Western Grain Elevator Association and the Canadian Oilseed Processors Association that are on the panel with me tonight. Canada is the world’s largest exporter of this highly valued oilseed. Therefore, we grow a truly global crop.
In any begin year, over 90 per cent of Canadian canola in the form of raw seed or the processed products of canola oil and meal is ultimately destined for export markets in more than 50 countries. Canola farmers critically rely on rail to move our products to customers and keep the products price competitive within the global oilseed market. As you heard from the other panel of farmers, we have no alternative.
Last year, Canada’s railways transported over 43 million tonnes of western Canadian grains an average distance of 1,530 kilometres from the Prairies to tidewater. It’s a complex system but we need to make sure it works to the benefit of all parties and the broader national economy at whole.
Bill C-49 attempts to address several long-standing issues in the rail transportation marketplace. You have heard from grain sector representatives including grain shippers and farm groups regarding their perspectives on various commercial and legal aspects of the bill, including around reciprocal penalties, long-haul interswitching and others.
CCGA’s message to this committee is clear. We encourage the Senate to pass Bill C-49. Canada must address the fundamental problem of railway market power and the resulting lack of competitive forces in the bulk rail freight marketplace. In our view, government has a clear role to establish a regulatory structure that strikes a measured and appropriate balance and, to the greatest extent possible, creates the market-like forces that do not exist which, in theory, should create more market-responsive behaviours.
This is a reality and a long-standing fact that has led to over a century of government intervention to varying degrees in this sector. Bill C-49 is the current approach before us to bring more commercially oriented accountability and transparency into an historically imbalanced relationship. Bill C-49 appears to make progress in several areas toward this goal and reflects a consideration of what Canadian rail shippers and the grain industry have been telling successive governments for years about the core imbalanced relationship between shipper and railway. The true impact or success of this bill and the measure of its intended public policy outcomes will only become apparent and known once the shipping community attempts to access and use the remedies and processes the bill will initiate.
As Bill C-49 was designed to balance two competing interests, that of the shipper and that of the rail service provider, the true measure of success will likely take several years to fully gauge. Farmers occupy a unique position in the grain supply chain and this is what fundamentally differentiates this supply chain from other commodities.
As we’ve heard from the previous panel, farmers are not the legal shippers but do bear the cost of transport as it is reflected in the price they are offered for their products from the buyers of grains and oilseeds who indeed are the legal shippers. Simply put, farmers do not book the train or the boat, but they do pay for it. Transportation and logistics costs, whatever they may be, are passed back and paid for by the farmer. Transportation of grain is one of the several commercial elements that directly affect the price offered to farmers across Western Canada.
When issues arise in the supply chain, the price farmers receive for their grain can drop, even at times when commodity prices may be high in the global marketplace. This is a major reason why western Canadian farmers have such a vested interest in transportation. It directly affects personal farmer income and, beyond that, we critically rely on the service of Canada’s railways to move our grain to export positions.
The competitiveness and reliability of the canola industry, which currently contributes to over $26 billion annually to the Canadian economy, is highly dependent on this supply chain providing timely, efficient and reliable service. We need to remain future oriented when we consider public policy changes. The last several years of reasonably good overall total movement and relative fluidity of the supply chain should not lessen our focus on seeking to improve and do better as fundamental issues still exist beneath some of the short-term positive headlines of the past.
Furthermore, farmers will not be able to capitalize on the opportunities from Canada’s existing and future trade agreements without a reliable and efficient rail system that domestic grain shippers and our global customers have confidence in. That’s a key point. With such a strong reliance on exports, we really must improve our customer service and be able to deliver our products on time, every time. Canadian canola and other grains are well known for their quality characteristics and sustainable supply, which are market differentiators, but at the end of the day they remain fungible commodities and alternatives for global buyers often do exist. The reliability of our transportation system affects buyer confidence in the global Canadian brand. We know because, as Mr. Dahl mentioned, we do directly hear about it. Bill C-49 does move us in the right direction and we urge you to pass it in a relatively timely fashion.
We appreciate being here to speak with you tonight and look forward to the round of questions.
The Chair: I don’t know whether this question has been asked before, but Bill C-30 was extended last year. Could it have been extended another year while we were talking about this? That would have been helpful, I think.
Mr. Sobkowich: It’s a request we made. If I remember the sequence of events, we were expecting and were told the bill would be introduced earlier in 2017 and would become law around the time Bill C-30 would expire so that there would be some sort of continuity in the ability to access another railway. That didn’t happen, of course, so here we are in February 2018 and we have had quite a long gap. It was extended once and we think it could have been extended again. We had asked for it to be extended again.
The Chair: It seems I took Senator Plett’s question, but he always has lots of questions, so we’ll go to him.
Senator Plett: I thought you were going to say, “So let me ask one more.” Indeed it was, but I am going to build on that.
The media asked Minister Garneau about exactly that, and he said he had no regrets letting the provisions expire, adding, “I believe it was important for us to get on with Bill C-49.” I guess you will tell us a little more, but I guess you’re saying that this could have been done at the same time. I am wondering why it wasn’t. Like you say, it expired on July 31, 2017, was extended once and could have been extended again but Minister Garneau decided not to.
I want to ask a question of COPA on the long-haul interswitching, because that seems to be one of the biggest issues we’ve heard from producers for sure. In my office I put CN on notice that I wanted to know an answer to something. Then I asked them here the same question about how much this would cost CN if we would implement your amendment, Mr. Vervaet, in the reasonable direction. Basically I didn’t get an answer other than, respectfully, that it was absurd anybody thought this would cost anybody any money.
I would like to know from COPA what would the LHI mean to you for investments in value-added processing.
Mr. Vervaet: Certainly the potential is significant. We want to see some technical amendments to the long-haul interswitching, but if it is implemented in the way it is currently drafted, we are interested to see how it could work. One of the possibilities of what long-haul interswitching could provide, if it works anything like the extended interswitch did, is that it does open up markets.
Mr. Sobkowich alluded to canola meal going down to the southwestern United States. That’s a huge market for our canola meal. Under the extended interswitch, we were able to access that market in a very competitive way, where we actually saw a lot more canola meal from as far away as Manitoba moving into that market.
As a result you see the investments made in Manitoba, in particular. For example, a more than $250 million to $300 million upgrade to a facility just south of Winnipeg is able to access a critical market like California for canola meal. It certainly rewarded the investment they made. Certainly if there was some predictability for interswitching, and we’re hopeful that long-haul interswitching would do that, it certainly could incent further investments in places like southern Manitoba but across the Prairies.
Senator Plett: Mr. Pratte, in your closing comments I think you urged us to pass it in a timely fashion. We’re almost beyond that timely fashion because we didn’t get it in a very timely fashion. Senator Mitchell and I have differences of opinion, but the chair in the previous session pointed out some time-lines, and I know you were here.
We got the bill on November 2. Second reading was on November 9. We were lobbied by the minister shortly after that to pass it before Christmas with no amendments. In the meantime, he and the government went on a Christmas break and said we should all have this passed without amendments. We, of course, also thought we should have Christmas. We came back at the end of January, and two weeks later people are thinking we’re not doing things in a timely fashion.
Senator Mercer has said many times he hasn’t seen many bills with more potential amendments than this one. An omnibus bill covers so many different things.
Your desire to have the interswitching change will not delay this bill. There will be many amendments and yours will be, in my opinion, some of the most important ones. I am going to work hard at that.
My question again goes back to Bill C-30. We heard from the Grain Growers of Canada—
Senator Mitchell: Is this third reading?
Senator Plett: — that railways only delivered 62 per cent of grain cars ordered by grain companies. Shippers served by CN only had 54 per cent of those ordered delivered.
My good friends from CN are here. At least I don’t have my back turned to them; I can see them. Right after Bill C-30 was passed, when the previous government passed Bill C-30, CN was in my office saying, “We’re doing a tremendous job.” My argument to them was, “You kind of started doing a tremendous job under threat because the government said you have to start doing this.”
What were the percentage of grain car problems at that time? Were they 62 per cent and 54 per cent, or have they got worse since July 31, 2017?
Mr. Sobkowich: Perhaps I may answer that question.
Senator Plett: Please.
Mr. Sobkowich: Last year at this time when we had extended interswitching, and I am not necessarily saying it was 100 per cent as a result of extended interswitching, we had CN performing at about 90 per cent car order fulfillment. This year, in the last week, we have them performing at about 54 per cent car order fulfillment. Our demand hasn’t changed. Crop year to date we’ve asked for 120,000 cars this year. Crop year to date last year, at the beginning of February, 120,000 cars. Nothing has changed from a demand point of view. What has changed is the supply.
Senator Plett: Wonderful. I am sure it’s not 100 per cent. I would say maybe 95 per cent.
Senator Mitchell: Just to continue the fun about the delays, I would like to point out that on the House of Commons side the committee had four days in a row of special meetings in September to get this thing done. We could have done exactly the same thing, just so you know.
Senator Plett: They were trying to get the marijuana bill passed.
Senator Mitchell: That should be done quickly too.
The second thing is with respect to omnibus bill because that has come up. This bill in English is 38.5 pageslong. That’s about nine pages a month since we got it, if you wanted to read it and spread it out month by month. This is not an onerous bill. We could have done it quicker. I hope from now on we do it very, very quickly because we’ve had great testimony and people know the issues.
I want to confirm one thing. I was told earlier today that the level of unanimity of all the various features and elements of the grain farming industry in Western Canada coming here and supporting the bill is literally historic. It’s not that you don’t like each other but, generally speaking, you don’t get along with this kind of consensus and this kind of unanimity behind a bill of this sort.
Mr. Pratte: I have heard it discussed around here the successive waves of bills trying to address some of these core issues over the last X number of years: Bill C-52, Bill C-30, Bill C-30, the Bill C-30 extension, and now Bill C-49. Certainly it has given an opportunity for the grain industry in the sector, from farmers to exporters and everyone in between, to get together not only to discuss issues and elements of potential legislation when we have legislation put in front of us but to react to it and come to a consensus position. It has also served as a good vehicle for bringing disparate elements of the supply chain together to be able to refine our positions and find common ground on some of these core issues which have preceded the last decade.
Some of these issues were identified years ago. It’s just a way to coordinate our messages to government, even though we represent 18, 20 or 25 groups.
Senator Mitchell: I would like to congratulate you. Your presentations have been excellent in the way you have analyzed and clarified things. It has been really helpful for the process we go through.
From time to time throughout the debate and a bit in committee, maybe, there was suggestion that this bill, structured as it is, would particularly sustain or even enhance the overwhelming advantage that American trains have in Canada versus the lesser advantage that Canadian train companies have in the U.S.
I think you made the point, Mr. Sobkowich, or you alluded to the fact that there are 17,000-plus kilometres of Canadian-owned railway system in the States compared to less than a 1,000 kilometres of U.S.-owned railway systems, so this isn’t building the U.S. access to Canada particularly.
Mr. Sobkowich: No. We just wanted to make that point because we think that a number of members here might be under the impression that Bill C-49 will result in some unfair poaching of Canadian business by U.S. carriers without the reciprocal ability for Canadian carriers to do business in the U.S. The maps A and B that I provided were to show you how CN and CP both have extensive networks in the United States. They’re already in that marketplace.
The opposite isn’t true. U.S. carriers don’t have a presence in Canada. We think anything that creates competition among carriers is positive. We want this to operate like a normal functioning marketplace. If you had five packages that you needed to have delivered to Edmonton, let’s say by Tuesday, and the courier company came back to you and said, “Well, we could deliver two of them, but one will go to Edmonton, one will go to Toronto and the rest of them, we’re not sure when we’ll be able to take them,” you would exercise your right to go to a competitor. That’s the scenario we’re in. We don’t have that ability.
We’re looking for long-haul interswitching to be improved upon with the technical amendments that we offered so that we have at least one competitor that can take the product to the same place we need it to go. Really, we’re after is a commercial-like system in a monopolistic environment.
Senator Mitchell: The point made earlier today, and it has been made frequently, was that if the government could have extended Bill C-30 to 160 everything would be fine. It’s used in part to argue that really the delay in the Senate could have been mitigated by that. In fact, you made the point that one of the single most important features of this bill is the reciprocal penalization.
I would like you to confirm that Bill C-30 didn’t have reciprocal penalties, Bill C-30 didn’t have adequate and suitable definitions under contract for service levels, and Bill C-30 didn’t have the strengthened ability of CTA to resolve disputes that might well be in your favour more than they are now.
Mr. Sobkowich: That’s precisely correct. Extended interswitching was one tool that created competitive options under specific conditions. It worked in those situations but it wasn’t the panacea, either. We need broad ability to have service contracts with railways with true reciprocal penalties so we can hold them to account like they already hold us to account. That wasn’t in Bill C-30, and we’re happy it’s in Bill C-49.
Senator Mitchell: While the LHI provisions of this bill aren’t an absolute overlay of the 160, they certainly measure up to some extent to that provision. However, this bill comes with all these other important provisions which we don’t get until we get this bill. Wouldn’t it be nice to get this bill tomorrow?
Mr. Sobkowich: It would be nice to get it quickly, for sure.
Senator Bovey: Mr. Chair, if you stole Senator Plett’s question, I have to say Senator Mitchell took mine.
I just want a clarification. First, I thank you for map A and map B. Being a visual person, I think this very clearly states where the railways are and what belongs to whom.
Senator Plett: We all know where Emerson is.
Senator Bovey: I know that anyway. I knew that all the way along. You’re not a Manitoban without that. I have found the maps very interesting and very useful.
We talk about interswitching and 160, 30 or whatever. We’ve heard arguments on the bill for change. We have arguments from you and from others to reinstate as it was. I just want clarification. When I put these maps together with the long-haul interswitching, yes, it will benefit grain growers but it will also benefit other users of the rail lines.
I like the phrase “technical amendments.” This would be one that would affect all shippers?
Mr. Sobkowich: Yes.
Senator Manning: I have been listening to my colleagues talk about the past, and I am a little concerned about the future and the timing of this.
Looking at the great possibility that we are to have amendments from the ongoing conversations here, I guess Senator Mercer touched on it earlier with an earlier panel. Right now, between now and the middle of April, we have about three sitting weeks. We’re coming back after Easter break. We’re looking at eight to nine sitting weeks. If we accept amendments and we pass the legislation in the Senate with amendments, it goes back to the House of Commons. There’s a possibility it could come back to the Senate again.
I heard from you and earlier witnesses of the urgent need to get this done. I am wondering about the consequences of the timing. Is April the time you need to have this? Is it May? Is it June? Where are we with regard to timing, to give us some idea of the urgency of it? We’ve heard that from all of you, but I am wondering when the cut-off time is that will affect this year’s shipment, this year’s product and this year’s activity.
Mr. Vervaet: I don’t think I can put an exact time on it, except to say as soon as possible. All the presenters today alluded to the serious service disruptions we’re facing right now.
We run our operations as oilseed processors 24-7. We don’t stop. Our product needs to keep moving out the door. What my members have reported back to me over the last several weeks is that they have to stop production because the power to pull the cars isn’t arriving.
We basically need some level of accountability. Whether it’s reciprocal penalties or whether it’s the ability to seek a competing carrier through long-haul interswitching, we need those types of mechanisms now.
Mr. Sobkowich: If I may add, last week Prince Rupert Grain ordered and was promised 1,500 cars to unload that week. They got 750 cars. That means they’re cancelling and fobbing contracts. There are eight vessels waiting off the coast of Prince Rupert for grain to arrive. We needed this yesterday.
Once long-haul interswitching is put in place, we will be trying it out. We will be trying to divert traffic to the carrier that is providing the service. We’ve been slowly, or maybe not so slowly, deteriorating in terms of car order fulfillment. For example, we’re about 14,000 cars behind right now on CN. Those are orders that we need to make up at some point. The longer it goes on, the higher that number will grow and the more it increases our inability to make good on those contracts and on those sales. Like Mr. Vervaet said, it’s hard to put a time-line to it but I think we’re already in it.
Mr. Pratte: We have the immediate commercial aspects of this as far as getting the regulatory or statutory framework in place so the legal shippers can start using it. A secondary or tertiary aspect would be, as talked about earlier, something like the change to the MRE to incent hopper car investment by the railways. Once it becomes law, they can start getting on that. Grain and winter contingency reporting would be nice to have in place so the railways can produce the first one by the start of the crop year on August 1. Another would be data and regulatory packaging the department is to embark on with stakeholders post Royal Assent.
Those are secondary or tertiary issues, but it would be good if we could get them wrapped up by the end of the calendar year, instead of still working on that into the summer of next year. They are not the immediate concerns, but those are additional considerations as well.
Senator Manning: One of you mentioned earlier that the product is sent out of Canada to perhaps 50 different countries in the world. I am wondering how much of that goes to the United States. What percentage of product?
Mr. Vervaet: For our products, the vegetable oil and protein meal, about 70 per cent of our business is going to the United States. As time passes and as we continue to make investments in Canada to increase capacity, we find hat the Asian markets are where the future is. We’re seeing the movement of vegetable oil and protein meal to the West Coast increase, especially in recent years.
Mr. Sobkowich: I want to add a bit to that. The U.S. is one of our largest customers. I don’t have numbers, but we can definitely follow up and get numbers to you on how many tonnes go to the U.S. versus markets off the West Coast or through Thunder Bay.
The point is that when we sell grain the first question we ask isn’t how much we can sell, how much we can handle, or what we can buy it at. It is: “Can we get the rail cars?” The railways don’t like moving grain into the United States because it has a greater turnaround time on their cars, and they’re all about asset utilization. If they deliver to the West Coast and back, it goes there and back in 16 or 17 days. If it goes down to the U.S., it has to go to another carrier and maybe they don’t get it back for 30 days. They don’t like offering rail cars to the U.S. We know that, so we don’t sell as much to the U.S. and it becomes a self-fulfilling prophecy.
Senator Manning: Someone mentioned earlier that Canadian railways were moving into the United States but that United States railways were not moving north. Our emphasis is going that way. President Trump must not be aware of that yet.
Senator MacDonald: The more we deal with this subject, it seems that the judicious thing would have been to extend Bill C-30 to let us get on with this for a few months because there is so much detail here.
Mr. Sobkowich, I have a question for you. It’s a geographical question from my own backyard. We have already heard a lot of the stuff about interswitching and some of the amendments you’re proposing. I noticed in a lot of the presentations we always talk about the movement of grain between B.C. and Quebec or Alberta and Quebec. There’s a large grain elevator on the East Coast of Canada in Halifax.
This is a follow-up question to what the senator said here in regard to where the product goes. How much is exported through the East Coast of Canada, through Halifax? You must be shipping to Europe. You must be shipping to Africa. You must be shipping to other areas. How do you ship there?
Mr. Sobkowich: The vast majority of grain in Canada is grown across the Prairies, right?
Senator MacDonald: Yes.
Mr. Sobkowich: The major markets are west. It’s the Pacific Rim. That’s why Vancouver and Prince Rupert are in high demand for throughput of grains. When we go east, we ship it to Thunder Bay, the Lakehead. It gets loaded onto a lake vessel there. Then it goes to the St. Lawrence Seaway and out that way. It’s more efficient and less costly to go through Thunder Bay than it is to rail it out to Halifax.
Senator MacDonald: Is the lack of a rail competitor east of Quebec City a factor as well?
Mr. Sobkowich: It could be. Anytime you introduce another competitor and it has the effect of providing better service or better rates, it causes businesses to take a look at how they’re doing things and look for better ways of doing them. I can’t rule it out as a possibility, if that is the effect a third or another rail provider had in Eastern Canada. All I can say is that right now it’s not like that. We go through Thunder Bay. We get it on salt water and we get it out to our customers over the Atlantic.
Senator MacDonald: But your main source of export is through the Lakehead.
Mr. Sobkowich: Yes.
Senator Plett: Since Senator Mitchell testified for a little while, I want to testify as well for just a little bit. He talked about four days in the House of Commons. Here we are sitting here, doing sober second thought and doing things strategically and carefully. Of course, there’s a massive majority over there so they can ram things through and here Senator Mitchell only has a three-member government. That’s probably why things get done a little more deliberately and a little more cautiously over here.
Of course, no one suggested that we should have kept Bill C-30 and scrapped Bill C-49. The suggestion was a stop-gap measure, and then maybe put Bill C-30 and Bill C-49 together and we would have an almost perfect bill. That’s what you have been advocating and what many of us would suggest, and not to say let’s keep Bill C-30 and not have Bill C-49.
Would you agree with that?
Mr. Sobkowich: I would agree with that. We’ve been asking for the extended interswitching provisions from BillC-30 to be introduced into this new bill, which became Bill C-49.
Senator Plett: Exactly. You talked about cars not arriving. I think the numbers you used were 1,500 cars that they wanted at the port and they got 750. Those were the numbers.
We heard from the first set of witnesses tonight that there are a lot of cars sitting in the sidings in Saskatchewan, so it’s not a shortage of cars that was the problem
Are CN and CP not allowed to deliver grain to the ports because Bill C-49 isn’t a law? Or, could they still deliver grain even before Bill C-49 is law?
Mr. Sobkowich: Essentially, yes, they can choose to do it. I know that it does take time to bring locomotives and crews back on, and CN has said they are doing that. It takes a very long time to do it, evidently, because we haven’t seen the benefit of that yet.
The problem is more fundamental than that. The problem is that the railways strive for 100 per cent asset utilization. When the economy is in a decline and there is less demand for shipping from every sector, potentially, except for the grain sector. We grow the same amount of grain and we have the same amount of land, so that doesn’t really change. They will mothball and divest themselves of locomotives and they will let go crews, in the name of trying to keep 100 per cent asset utilization. When the economy starts improving, and if they haven’t been able to properly predict the growth in demand in other sectors, that’s when it takes them time to bring locomotives and crews back on.
We feel any business in a competitive environment needs to carry some surge capacity, and they don’t want to carry surge capacity.
Senator Plett: Thank you for that. I want to take us back a few years. I was the sponsor in the Senate of Bill C-30. Of course, we had witnesses from the rail lines at that point. They told us that they never thought we would have a cold winter because in the Prairies winters would always be warm. Now all of a sudden there was a cold winter and they couldn’t deliver because of that, which is why Bill C-30 was adopted.
My question is for all three of you. Have we had crop failures since 2013-14 that they had to mothball anything? Why, all of a sudden, would they have thought maybe in 2017 or 2018 they wouldn’t need these rail cars?
Mr. Vervaet: To build on what Mr. Sobkowich said, a lot of it is not predicting the demand across some of the other sectors and spinning their assets as hard as they can and not anticipating that, for example, intermodal or other traffic would pick up. As a result, they find themselves a bit flat-footed and not able to provide the necessary service for our sector which had been very predictable.
Again, for oilseed processing, in particular, we run 24-7, 350 days a year. Our production this crop year is no different at all from the previous crop year, yet we see service completely falling down.
Senator Plett: Maybe we need to assure them that we expect next year’s crop to be equally good and that they have rail cars on hand for us.
Mr. Vervaet: I think that’s fair. When you look at what some of the other panellists have mentioned, this is the new norm. We are seeing big crops. We’re seeing more investments out west and really across the country in value-added processing in agri-food. The railways need to be prepared to handle that demand.
Senator Plett: The government, of course, also needs to know that there is something west of Thunder Bay.
Senator Mitchell: This has been really interesting and fun. It is not just that the railroads have to be told to get those cars there next year or be prepared. What you need is the kind of powers that you get in this bill that should be passed very quickly to rebalance the imbalance that right now is more in favour of the railroads than it is of the farmers and to give you some power. You don’t have to ask. You don’t have to grovel. You just say, “We’re going to penalize you if you don’t deliver.”
Mr. Sobkowich: We understand in a year like this where there is an increase in demand in other sectors. Mostly we understand it to be intermodal and frac sand out of Wisconsin. Those represent a threat of loss of business.
They may have properly predicted demand in grain, but if they didn’t properly predict demand in other sectors that represent a competitive environment, then they will take some of the capacity that was there for grain and move it into this because they know grain will always be there.
We need the provisions from Bill C-49 with the improvements we have talked about to have the tools we need to hold the railways to account so, hopefully, they will keep on enough capacity for everybody.
Senator Mitchell: That’s a great note to finish on.
The Chair: Thank you very much. As you can see, we are trying to move this process right along. We have a full agenda. We have lots of witnesses, but we are being as expeditious as possible.
(The committee adjourned.)