Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 18 - Evidence, June 5, 2013


OTTAWA, Wednesday, June 5, 2013

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation, and arbitration), met this day at 6:45 p.m. to give consideration to the bill.

Senator Dennis Dawson (Chair) in the chair.

[English]

The Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on Transport and Communications. This evening we will begin our study of Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration).

[Translation]

This evening, we have the pleasure of welcoming the Honourable Denis Lebel, Minister of Transport, Infrastructure and Communities. He is accompanied by Ms. Annette Gibbons, Director General, Surface Transportation Policy, Surface Freight Policy; Ms. Carolyn Crook, Director, Rail Policy, Surface Freight Policy; and Mr. Alain Langlois, Senior Legal Counsel, Team Leader Modal Transportation Law, who is a regular at our committees.

Minister, I believe that you would like to make a presentation, which will be followed by questions. I must tell you that we really appreciate your being here. I can tell you that this cooperation is a result of, among other things, the fact that Senator Mercer, at the request of both the steering committee and myself, wanted to make his speech today, so that we could hear from you. This is a very welcoming committee for ministers of transport, contrary to the myth that may be spread by others. We are pleased to turn the floor over to you.

Hon. Denis Lebel, P.C., M.P., Minister of Transport, Infrastructure and Communities: Thank you very much, senator. I do not know where this myth comes from; but I am in fact pleased to be here today. As you mentioned, I am accompanied by Ms. Annette Gibbons, Ms. Carolyn Crook and Mr. Alain Langlois, who make a wonderful team working on this file.

[English]

I am proud to be here with you tonight. Thank you for having me here this evening to speak about Bill C-52, the Fair Rail Freight Service Bill. It is an important issue for us and for business across the country. Bill C-52 is a very important milestone for our rail industry.

[Translation]

Bill C-52 will enable us to amend the Canada Transportation Act to give shippers the right to enter into service agreements with rail companies and to provide a new process in order to establish a service agreement, when it is not possible to negotiate one commercially.

[English]

The bill fulfills a key commitment our government made in 2011 when we responded to the Rail Freight Service Review, which was an independent, comprehensive, two-year assessment of rail freight service in Canada, initiated by Minister Cannon in 2008. I am the fourth Minister of Transport since then.

Bill C-52 supports approved rail freight service by helping shippers to obtain service-level agreements that clearly establish the service they are entitled to receive from the railway.

[Translation]

The bill includes two main parts pertaining to rail freight service. It provides shippers with the right to enter into a service agreement. The bill requires railways to provide service agreements to requesting shippers within 30 days of the request. Once the railway has made an offer, the shipper and the railway will then have an opportunity to enter into a commercially negotiated agreement.

[English]

If the shipper and the railway cannot on their own reach an agreement that is the best outcome for everyone, Bill C- 52 gives shippers access to an interest-based arbitration process to establish the terms of service.

The arbitration will be conducted by the Canadian Transportation Agency, which is already responsible under the Canada Transportation Act for resolving other shipper-railway disputes. The agency is widely recognized as having the level of expertise in freight rail matters necessary to arbitrate these kinds of complex service-level agreements.

[Translation]

To begin the service arbitration process, the shipper must provide the railway company with 15 days' notice before submitting a request for arbitration to the Canadian Transportation Agency.

This 15-day period strengthens the commercial negotiations because it enables both parties to reach a compromise before the arbitration process gets under way.

[English]

The service arbitration process would be available to any shipper who demonstrates to the agency that an effort had been made to resolve the matter commercially.

[Translation]

This will be a quick process, occurring within 45 days, which can be extended by an additional 20 days if necessary. The arbitration decision will be deemed to be a confidential contract; it will be valid for one or more years if both parties are in agreement, and it will be binding and without appeal.

The arbitration process will clearly establish the service to be provided to the shipper but it will not set the rail transportation tariffs.

The provision will provide the arbitrator with broadened powers in order to impose certain aspects of the service.

[English]

There are operational terms that railway and shippers must follow for the movement of traffic. This will include communication protocols, such as internal escalation procedures as well as performance standards on metrics; operational plans to address potential service failures, including recovery plans, which could also address how to recover from a force majeure; and the provision of incidental services by the railway and whether the railway can charge for the operational terms and incidental services that the railway is required to provide.

[Translation]

To ensure that the binding service contracts are commercially fair and reasonable for both parties, as is required for most appeals, and that they reflect the features of each case, the new provision will provide some guidance to the arbitrator so that the following aspects are taken into account:  The freight transported by the shipper and the latter's transportation requirements; the general obligations of the railway company as the public carrier responsible for providing services to all users on the network; operational constraints for both parties; any other factor deemed appropriate by the arbitrator.

The provision also establishes a new enforcement mechanism, meaning that administrative monetary penalties may be imposed on the railway companies for failure to provide the service. The current section of the act which pertains to administrative monetary penalties will be amended to enable the imposition of a fine of up to $100,000 per offence on the railway company if the agency confirms that there was a failure to comply with the obligations of the imposed service contract.

Although the administrative monetary penalties will be paid to the Crown, given that this is an enforcement tool similar to other fines imposed by the government, this amendment will provide shippers with a mechanism for imposing financial penalties on those railway companies that fail to provide service.

[English]

Shippers will retain the right to ask the agency to enforce commercial service agreements or an imposed service contract through the existing level of service provision of the act. As well, shippers will continue to have the right to seek damages for service failures in the courts as these agreements and contracts are legally binding on both parties.

[Translation]

To conclude, Bill C-52 will give shippers an additional tool to use in their dealings with railway companies. It completes the current provisions applicable to shippers set out in the Canadian Transportation Act, but it does not replace them. Shippers will still be able to choose the provision or set of provisions enabling them to pursue their activities in the best way possible.

It is expected that the establishment of service terms and conditions, done commercially or through service arbitration, will make a positive contribution to the relations between shippers and railway companies by providing clarity and the necessary predictability for rail freight service. As a result, this bill will help strengthen Canada's economy.

[English]

From the beginning, my goal as Minister of Transport has been to table a bill addressing rail freight service that strikes the right balance to the entire Canadian economy. Bill C-52 delivers significantly for our shippers. It will give them the additional clarity, predictability and reliability that they need while ensuring the railways can manage an efficient and effective network that benefits everyone.

Thank you for your time in this evening. My team and I are ready to answer your questions.

The Chair: Thank you, minister.

Senator Mercer: Thank you, minister, for being here. We appreciate it. You are always cooperative when we have anything to do with the department, and we do appreciate that.

I have four quick questions. With respect to the arbitration process, it says that it could be up to 45 days, and that seems kind of a long period of time to me when we are in arbitration and there is a dispute, especially when we are talking about the movement of, say, agricultural products. Do you think this is too long? Was that part thought out specifically thinking about agricultural products?

Mr. Lebel: We considered that as a short time. Depending on the kind of situation across the country in other departments, we think that 40 days is a very short period, and the stakeholders we discussed this with were very happy with this 45 days.

Senator Mercer: Tell me about the cost related to arbitration. It could take a long time to get this done and have it resolved, and there are penalties involved if the railroad is found to have been wrong, not necessarily but there could be. Who will pay for this?

Mr. Lebel: I will ask Ms. Gibbons to give an explanation of the question of the arbitration.

Annette Gibbons, Director General, Surface Transportation Policy, Surface Freight Policy, Transport Canada: In the early years, the agency will be doing the arbitrations itself, have them done by agency members, and the agency has indicated it will not be charging in those instances. However, the agency expects to move to using external arbitrators and, in that scenario, the cost will be borne by the shipper and the railway equally.

In terms of what it costs to do, there is definitely cost in terms of the private arbitrator's time over those 45 days. There may also be costs if the shipper is engaging the support of advisers, legal counsel, for example, but that really is at the discretion of the shipper. At the end of the day, in a 45-day period, the use of the arbitrator is expected to be a relatively reasonable cost for the shipper to bear, and then they will be able to control the extent to which they want to use their own expertise to build their case going into the arbitration or whether they wish to engage the services of other experts as well.

Senator Mercer: The agreements will be confidential and cannot be appealed, and thus have the value of a contract. As I mentioned in the chamber today when I spoke, I do not think it would be too long before one person finds out what the other person's agreement is. I can see disputes arising not between a railroad and the supplier but with one supplier saying another got a better deal than he did and wanting the same deal. How do we solve those problems?

Alain Langlois, Senior Legal Counsel, Team Leader Modal Transportation Law, Legal Services, Transport Canada: There is a process currently in the legislation that has been there since 1987. It is final offer arbitration. The outcome of final offer arbitration is deemed under the legislation to be confidential. I have worked in the rail environment for the last 15 years, and I have been intimately aware of these arbitrations going on. I have never seen the outcome of an arbitration process between a shipper and a railway. I think the system as it works now guarantees it, or there is an experience in the system that the outcome of an arbitration process will remain confidential.

Senator Mercer: Let us hope it continues.

Finally, from the railroad's perspective, what happens when a supplier fails to abide by their end of the agreement? I gave the example today that a shipper promises to fill 20 cars to be shipped on a Tuesday, for example. What happens when they only have eight cars full on Monday night and the train that is going to roll by that is supposed to pick up the 20 cars does roll by but there are only eight cars as opposed to the 20 that were contracted for? What recourse does the railroad have to deal with these situations?

Mr. Langlois: From a railway perspective, it is business as usual for now, under the system that exists today. There are railway tariffs applicable to the conduct of shippers and what they have to do. If they fail to meet terms and conditions of tariff in using railway assets, there is an applicable charge on the railway tariff. To the extent that the railway wants to seek legal recourse in court, that is also available to the railway company.

Senator Mercer: The railroad has to go to court and spend their money, but the other way around with the agreements it seems it is weighted on the side of the supplier.

Mr. Langlois: If we look at the service agreement, as the minister mentioned in his remarks, the outcome of a service agreement is deemed to be a contract. If there is non-compliance with the contract, the shipper also has to go to court.

Senator Mercer: For railroads, there is a potential fine of $100,000.

Mr. Langlois: Correct.

Senator Mercer: There is no potential fine for suppliers who do not honour their side of the commitment.

Mr. Langlois: Correct.

Senator Mercer: I do not see that.

Mr. Lebel: They have that in their own contract.

Senator Mercer: Finally, minister, and I say this about almost all legislation, I would have hoped there would have been a mandatory review in here. I know there will be a review of the Transportation Act in 2015 but, when we are doing something new, it would be nice to be able to ask in three years or so if this worked and, if it did not work, how do we fix it. It seems to me it is only logical that when we embark on something new like this, we should be asking ourselves when we will check our work to see if we have helped any.

Mr. Lebel: We wanted one winner at the end of this process, the Canadian economy. That is what we tried to reach and I am pretty happy because all the stakeholders we met are proud of what we have done. They did not get 100 per cent of what they wanted at the beginning, but I am sure it will work and our goal is to continue to improve the Canadian economy. If that does not work, we will surely look at that.

The Chair: I can assure you we will hear about it because we have a few panels of witnesses that have already requested to be here on Tuesday and Wednesday, so we will have the occasion of talking to stakeholders.

[Translation]

Senator Boisvenu: Good evening, minister. I would also like to welcome the members of your team. I have two questions, including a comment, and you can tell me whether my comment is accurate or not. This bill is somewhat like what we experienced now nearly 20 years ago, when we enabled telecommunications companies to use Bell infrastructure, among other things. They were just about the only ones in the market at that time and we opened up the market to other companies, which had a significant economic impact. Can these two things be compared to each other or is my comparison a bit shaky?

Mr. Lebel: You always make pertinent comments, but the example is perhaps a little bit different.

Senator Boisvenu: I say this for the ordinary citizens listening to us this evening.

Mr. Lebel: Yes, I can see that. This is an activity sector where competition is in fact limited. There are two main railway companies in the country that we are all very familiar with: CN and Canadian Pacific. Shippers talked to us about an option that would enable them to enter into a commercial agreement with the railway companies, because they are often facing a monopoly and we had to find a way to enable them to enter into commercial agreements that would be good for everyone. That is why we introduced this bill which we have been working on since 2008. A panel of experts travelled across the country to hear from shippers and railway companies. We appointed a facilitator, Mr. Jim Dinning, whom I would like to thank for his wonderful work.

It is true that, with respect to Bell, we could not use the equipment very much at that time, but in the rail sector, there has always been somewhat of a monopoly of big corporations. Nevertheless, with this obligation to respond to a request from a shipper to enter into a service contract, these people will be able to obtain better service.

Senator Boisvenu: With this bill, you are insuring that there is an arbitrator to facilitate exchanges.

Mr. Lebel: First of all, through this process, we are obligating railway companies to respond to a shipper's request.

For instance, if you are a wheat producer and you want to enter to an agreement with a railway company, nothing compelled the rail company to establish an agreement with you; you were at the mercy of the company. As Senator Mercer stated, if you were promised 10 cars for Wednesday at 4 p.m., nothing guaranteed that this would be the case. Now there is an obligation, with this bill, that the railway company will enter into an agreement with you and then abide by the signed agreement. So if there is an agreement that there will be 10 cars on Wednesday afternoon and the rail company does not deliver them, you will have some recourse.

The arbitration principle ensures that if you are unable to negotiate commercially with a company, you can turn to an arbitrator who will then make a decision, without appeal, which will come into force at that time. Should the railway company not abide by the agreement with you, you will have recourse and receive compensation of up to $100,000 for a penalty, although you may not in fact receive this amount. Obviously, we do not want to encourage a wave of prosecution; we want the system to work.

Senator Boisvenu: I have a final question, MP Olivia Chow of the NDP tabled Bill C-441. After reading this bill, I wondered why it had been tabled. How did you react to this bill? Will it hurt Bill C-52 or make things more cumbersome?

Mr. Lebel: It will make things more cumbersome, and, as far as I am concerned, it is now obsolete. This is not the first time that I have seen this individual and the folks from the NDP table bills that, as far as I am concerned, do not hold water. As I said earlier, we wanted the Canadian economy to be the winner. The shippers feared that we would side completely with the rail companies and the rail companies said we were going to give everything to the shippers, but we did find a way to have a balanced approach which met the requirements of the two main partners; namely, the shippers and the railway companies. Had we sided too much with one side or the other, we would not have served the Canadian economy. This bill makes sense and it does not give too many gains to either side.

Senator Boisvenu: Thank you and congratulations.

[English]

Senator Merchant: Thank you, minister and witnesses. I only have one further question and that is on moving in the direction of the exemption of parliamentary oversight. We see this more and more. More of the powers are always concentrating in the hands of the minister. Now, in this instance I think there is an exemption regarding a foreign carrier being able to carry on here in Canada. What is the reason for the removal of the parliamentary oversight?

Mr. Langlois: There is a section in the legislation that the minister currently has the authority to sign bilateral agreements with foreign nations on air bilateral agreements. The amendment that was proposed was to avoid allowing the Canadian Transportation Agency that issues licences to these carriers and ensure they have insurance. The agency currently has a very broad power of exemption in terms of allowing the carriers to be exempted from most of the regulatory regime, if it is practical in the circumstance. This amendment proposes to provide that the agency will not be able to exempt a company from a requirement that is included in a bilateral agreement signed by the Government of Canada. It does not necessarily remove the parliamentary oversight; it simply ensures that bilateral agreements signed by the government will be complied with.

Senator Unger: Thank you, minister. I have a couple of questions. I think I know the answer, but the agency has broad powers and the question earlier was about the 45-day process and maybe that was too long. However, the agency has the power to render an immediate decision giving relief to a shipper, for example, ordering more cars if necessary. That is correct?

Mr. Lebel: That is correct. However, first, I have to say that we expect not to have to use this tool. We hope any agreements will be signed between the shippers and the railway. That is what we hope and for the rest, I will ask Ms. Gibbons to answer.

Ms. Gibbons: Currently, if a shipper complains under an existing provision under the act while the complaint is being investigated the agency does have power to impose immediate remedies if the situation calls for it. In this particular case, with the service agreement, the arbitration will take up to 45 days and there is not a similar provision. They would have to use the existing remedy under the act, not this one, to deal with an immediate situation. However, it is there for them and this remedy complements the one already in the act.

Senator Unger: Thank you. Last week we went to Eastern Canada on the Energy Committee. I learned there that my perception was that the railways owned all or most of the cars. However, one shipper was talking about how they lease cars because it was just too difficult, they did not have reliable predictable service. I have since heard other anecdotal comments about that.

Do you know what percentage of cars is owned by the railway versus shippers? They do not own them; they lease them. That brings another third party into this. Who ultimately takes responsibility? I am assuming if it is cars that the shipper leased, the shipper would.

I wonder if you would comment about that.

Mr. Lebel: I want to thank you for being the sponsor of the bill. This is a very important bill for the Canadian economy. We are proud of this. Thank you for being the sponsor of it.

Senator Unger: Thank you very much.

Ms. Gibbons: In various sectors, rail shippers do either own or lease the cars, so the railway simply provides the power to move those cars to their destination. That is just part of the business model that is used in certain industries. It would have an impact then on the rate that they would pay the railway for moving their traffic. It certainly is in the case of movement of crude by rail. The cars are owned or leased by the shippers themselves, and it is the case in other sectors as well. I understand in the potash sector the cars tend to be owned by the shipper.

It has evolved that way in different sectors and it is now the standard way of doing business.

Senator Unger: It is really not a normally operating commercial business agreement. It is very one-sided, but with many different players on the other side, which I found interesting.

Mr. Lebel: We have a balanced approach. It is different from one shipper to the other to try find the right balance. You are right; that is very different.

[Translation]

The Chair: I could certainly ask one of my colleagues to correct me on this quote about clear things being clearly expressed. You must have made a good statement at the beginning because we have no further questions.

[English]

It is not as clear as I thought.

Senator MacDonald: Mr. Minister, thank you for being here. Leading up to the tabling of Bill C-52, shippers indicated they wanted three fundamental elements in this bill: the right to a service agreement, processing of a service agreement if one cannot be negotiated commercially, and financial consequences on the railways for non-performance. Does Bill C-52 deliver on these?

Mr. Lebel: Absolutely. Both parties are proud, but shippers are proud of that.

Senator MacDonald: It may be a question for the railways. A number of people have said that the administrative monetary penalty, AMPs, of up to $100,000 for violations are not high in relation to the railway size and profitability. Do you believe that these fees will have an impact on railways?

Mr. Lebel: We think the bill will have an impact. Since the beginning of this process in 2008, the railway has already improved their service a lot. Shippers are saying to us that it is only the fact that we started this process that they can tell now that they have better service than they had. I am pretty sure the companies do not want to pay this $100,000. They want to give good service. Shippers and railways will have to work well together and to be more confident one with the other. We will follow that closely. We hope we will not use that. Railways are not happy to have more rules now, and a government like ours does not like to add rules, but we had to do that to ensure shippers had a tool to reach their goal.

Senator MacDonald: CN does a lot of shipping through the U.S. Do the Americans have similar type legislation?

Ms. Gibbons: There are similarities in terms of remedies for shippers to be able to get adequate service and to be able to complain if they do not find the service adequate. There are differences in the regimes. There is nothing like this provision in the U.S.

Senator MacDonald: I am not sure exactly what comes back through CN to Canada. I know a lot of petroleum goes down to the central and southern U.S. Do American shippers have any recourse to Canadian legislation when it comes to CN?

Ms. Gibbons: If you have traffic moving in Canada, then you would be able to access the legislation for the portion of the traffic in Canada.

Senator MacDonald: It would not have to be a company incorporated in Canada?

Ms. Gibbons: No.

[Translation]

Senator Boisvenu: Mr. Minister, you have a lot of ideas, and I am sure you are not going to stop there.

In 2011, the government committed to improving productivity along the entire rail freight supply chain. You committed to creating a round table and to creating parameters to monitor this improved competitiveness and productivity. Where are we now?

Ms. Gibbons: We are not far from it. It is coming soon. We developed ideas to establish the committee, members of the committee, and indeed, we are going to consult the minister. We are hoping to put the round table in place this fall.

Mr. Lebel: Many people were skeptical that we could create a balanced bill. People from the rail sector worked very hard. It started in 2008, and we had hired Mr. Dinning. It was very intensive until it was time to table this bill. I don't want to excuse anything. We are results-oriented people and we are there to deliver. We are going to deliver, but the rail sector team had to invest a great deal of effort into this bill recently, and we are looking forward to implementing it.

[English]

Senator Greene: I just have one quick question. On a shipment that crosses the border into the United States, where the service agreement would begin in Canada, would it extend all the way to the destination in the United States or would it stop at the Canadian border and some other agreement would take over?

Mr. Lebel: I will ask Ms. Gibbons to answer you, but we will amend the Canadian rules.

Ms. Gibbons: The legislation is intended to apply to the movement of the traffic in Canada and not beyond, simply because we do not have jurisdiction over what happens in the U.S.

Senator Greene: The Canadian shipper would have to develop some other service agreement in the U.S. Is that what I am hearing?

Ms. Gibbons: In the U.S. they could use the regulatory remedies that are available there, if those apply. The service agreement model that is in this bill does not exist in the U.S. in the sense of having the regulatory body impose an agreement like this, but there are other remedies that may be accessible.

[Translation]

The Chair: I found my quote, and since I looked it up:

If the thought is clear, the words for expressing it are easily found.

Senator Boisvenu: Nicolas Boileau.

The Chair: Thank you for sending it to me. Mr. Minister, Mr. Langlois, Ms. Gibbons and Ms. Crook, thank you very much.

[English]

We will have a meeting on Tuesday morning with two panels that will be appearing in front of the committee. We will have more panels on Wednesday night. We have asked for and received permission from both whips to have extended sittings on Wednesday night if needed so that we can cooperate with the Department of Transport. We will see by Wednesday where we are landed and we will deal with it from there.

(The committee adjourned.)