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.
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
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.
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.
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.
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.
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.
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.
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.
The service arbitration process would be available to any shipper who
demonstrates to the agency that an effort had been made to resolve the
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
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.
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.
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
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.
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
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.
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
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
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
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
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.
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
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.
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
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
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.
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
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
Ms. Gibbons: No.
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.
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.
The Chair: I found my quote, and since I looked it up:
If the thought is clear, the words for expressing it are easily
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.
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.)